NCLT Allows Amalgamation of a Limited Liability Partnership with a Private Limited Company

The Chennai Bench of the National Company Law Tribunal (‘NCLT’) has approved the merger of a limited liability partnership (‘LLP’) with a private limited company holding that the legislative intent behind enacting both the Limited Liability Partnership Act, 2008 (‘LLP Act’) and Companies Act, 2013 (‘New Companies Act’) is to facilitate ease of doing business and create a desirable business atmosphere for both LLPs and companies.

Key Highlights

Facts

1.     Real Image LLP (‘Transferor LLP’) and Qube Cinema Technologies Private Limited (‘Transferee Company’) filed a merger petition with the NCLT involving merger of the Transferor LLP with the Transferee Company.

2.     The question of law considered by the NCLT was whether the New Companies Act permits an LLP to merge with a private limited company under a scheme of amalgamation filed before the NCLT. Primary arguments advanced to the NCLT for approving the merger scheme were:

(a)   The erstwhile Section 394(4)(b) of the Companies Act, 1956 (‘Old Companies Act’), defined the ‘transferor company’ to include a body corporate including an LLP. The rationale for this was to ensure that while the resultant entity is a company, no such restriction is imposed on the transferor entity.

(b)   The New Companies Act permits a ‘foreign company’ to merge into an Indian company, where foreign company means a body corporate outside India including a foreign LLP. Thus, it is an anomaly to permit a foreign LLP to merge into an Indian company while restricting an Indian LLP from merging into an Indian company.

NCLT Ruling

3.     The NCLT held that the legislative intent behind enacting both the LLP Act and the New Companies Act is to facilitate ease of doing business and create a desirable business atmosphere for LLPs and companies and for this purpose, both the enactments have provided for merger or amalgamation of two or more LLPs and companies.

4.     The NCLT held that the absence of a provision in the New Companies Act corresponding to Section 394(4)(b) of the Old Companies Act is a case of casus omissus i.e. a miss in the legislation.

5.     The NCLT agreed that if the intention of the parliament is to permit a foreign LLP to merge with an Indian company, then it would be wrong to presume that the New Companies Act prohibits a merger of an Indian LLP with an Indian company.

6.     Thus, the NCLT held that there appears to be no express legal bar to allow/ sanction merger of an Indian LLP with an Indian company, and accordingly approved the scheme in this case.

Tax

7.     Section 47 of the Income-tax Act, 1961 (‘IT Act’) read with Section 2(1B) of the IT Act does not specifically exempt an amalgamation of an Indian LLP with a company. Thus, while the above NCLT ruling permits merger of an Indian LLP into an Indian company, the same is not expressly exempt under the provisions of the IT Act.