Private companies incorporated under the Companies Act 1956 or Companies Act 2013 ("Act") and limited liability partnerships (LLPs) formed under the Limited Liability Partnership Act 2008 ("LLP Act") are two forms of corporate business vehicles for undertaking business in India.
There are some inherent differences in the manner in which these two corporate forms are to be set up and operated. One of the issues concerning private companies and LLPs which has recently been considered by the Chennai Bench of the National Company Law Tribunal ("NCLT") is the merger of LLPs with private companies. More details in this regard are set out below:
Facts:
M/s Real Image LLP and M/s Qube Cinema had filed a joint petition under §230 to §232 of the Act read with the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 before the Chennai Bench of the NCLT for sanctioning a scheme of amalgamation wherein M/s Real Image LLP is proposed to be amalgamated and vested with M/s Qube Cinema Technologies Private Limited as a going concern.
Issues:
The primary issue that arose was whether an Indian limited liability partnership can amalgamate with an Indian private limited company? Further, if such an amalgamation is possible, then whether the petition seeking approval of the scheme can be filed before NCLT?
Submissions for the Petitioner:
Language of both §60 to §62 of the LLP Act and §230 to §234 of the Act dealing with amalgamations are identical which empowers only the NCLT to sanction the scheme proposed by the LLP or company.
Prior to the Act coming into force, §394(4)(b) of the Companies Act 1956 allowed the transferor in a scheme of amalgamation to be a body corporate, including a LLP, so long as the resultant company which emerges from the proposed scheme is a company as defined under the Companies Act 1956. This clause is however missing in §232 of the Act.
However, it is interesting to note that under §234 of the Act, a foreign company, the definition of which includes an LLP, is allowed to merge into a company registered under the Act. Therefore, it would be odd to suggest that while the legislature was on board with a foreign LLP merging with an Indian private limited company, it intentionally wanted to put an embargo on an Indian LLP doing the same.
Decision of the NCLT:
Allowing the scheme of amalgamation of the Petitioner companies under §232 of the Act, the Tribunal held that the legislative intent behind enacting both the LLP Act and the Act is to facilitate the ease of doing business and create a desirable business atmosphere for companies and LLPs. For this purpose, both the Act and the LLP Act have provided a procedure for merger or amalgamation of two or more LLPs or companies.
The Tribunal further held that the issue in this petition was dealt with by §394 of Companies Act 1956 but the same has not been stipulated in the Act, which is a clear case of casus omissus.
The Tribunal also accepted the Petitioners' argument that if the legislature has permitted a merger of a foreign LLP with an Indian company under §234 of the Act, then it would be incorrect to assume that the same Act prohibits a merger of an Indian LLP with an Indian private limited company, especially in the circumstances where there are no provisions expressly barring such an amalgamation.
Conclusion:
The decision of the Chennai Bench of the NCLT is welcome as it paves the way for the merger of LLPs with private companies and facilitates the ease of doing business in India. It also provides entrepreneurs with flexibility in make business decisions and, to some extent, reduces the procedural road blocks.
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