India: Merger Of Company And LLP: Path Breaking Ruling

Last Updated: 22 August 2018
Article by Gagan Kumar, Disha Kapoor and Runjita Das

The National Company Law Tribunal Chennai Bench ("NCLT") through its recent landmark decision in M/s Real Image LLP with M/s Qube Cinema Technologies Private Limited has paved the way for amalgamation of a Limited Liability Partnership ("LLP") into a Private Limited Company, an issue which has not been expressly dealt with under the Companies Act, 2013 ("Act 2013"). 

Brief Facts

The brief facts of the case are that a joint company petition was made under the Section 230-232 of the Act 2013 read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.  The petition sought the approval of the proposed amalgamation between a LLP and a Private Limited Company as a going concern. Both the entities involved in the present case dealt in audio and video laboratories. Both the entities complied with the requisite procedures of obtaining consent of the members and creditors and the statutory requirements of both the entities were in compliance, as was confirmed by the reports of the Regional Director and Official Liquidator. The proposed amalgamation aimed towards consolidating business operations and providing efficient management system. 

Issue At Hand

The quintessential issue which arose in the present petition was whether a LLP could be allowed to amalgamate with a Company incorporated in India under a scheme of amalgamation filed before the NCLT? While determining the same, NCLT scrutinized various provisions of the relevant laws.

Relevant Laws

The provisions pertaining to Compromises, Arrangements and Amalgamation are dealt with by the Act 2013 under Chapter XV, Section 230-240. The said provisions are dealt with by the LLP Act under Chapter XII, Section 60-62. It is important to note that the aforesaid provisions of both the Acts are worded similarly.

NCLT Ruling

Considering the submissions of the counsel and the relevant provisions, the NCLT viewed that the legislative intent behind the Act 2013 and LLP Act is to facilitate ease of doing business and create a desirable business atmosphere for companies and LLPs. While on a reading of Section 394 (4) (b) of the Companies Act, 1956 ("Act 1956") which is as follows:

"(b) "transferee-company" does not include any company other than a company within the meaning of this Act; but "transferor-company" includes any body corporate, whether a company within the meaning of this Act or not."

It appears that the issue involved in the present petition has been categorically dealt with by the Act 1956 but there is no similar provision under the Act 2013. However, NCLT observed that there is no bar in merging an Indian company with a foreign LLP. Therefore, NCLT observed it as a clear case of casus omissus. The view taken was that while legislature has expressly permitted a foreign LLP to merge with an Indian Company, then it would be wrong to presume that the Act prohibits merger of an Indian LLP with an Indian Company. It was further observed that in the absence of any express legal bar to sanction amalgamation of an Indian LLP with an Indian Company, there is no reason to deny the approval.

The NCLT also viewed that the present scheme of amalgamation is not in violation of any provision of relevant law(s) or public policy. With the above reasoning the NCLT allowed the scheme of amalgamation from LLP to a Private Limited Company.

Our Observation

As observed by the NCLT, we share the view that although there is no clear provision facilitating merger/amalgamation of a LLP into a company yet at the same time, there is no explicit bar or prohibition on the same.

It is also observed that under the erstwhile Act 1956, there was almost no restriction on the classification of the transferor and it included within its ambit, any body corporate whether the same is incorporated in India or not. However, it was prescribed that the transferee-company must be a Company incorporated in India. Therefore, it can be safely inferred that amalgamation of a Foreign Company into an Indian Company was contemplated under the Act 1956. 

It is noted that the Act 2013 vide Section 234 specifically provided for merger or amalgamation of an Indian Company into a Foreign Company. 

The term "Foreign Company", as explained in the aforesaid section, includes a company as well as body corporate which are incorporated outside India. The term body corporate includes LLP as well. Considering such an argument, merger of an Indian Company with Foreign LLP and vice versa is not precluded under the Act 2013. 

Therefore, from one perspective it appears that the NCLT, through its ruling has filled the vaccum inadvertently created under the Act 2013 regarding the cross entity amalgamation. 

However, from the wording of the ruling it is not clear that whether following aspects were considered: 

  • Did NCLT consider the relevant provisions of the LLP Act while effectively dissolving it?
  • Whether the provisions for dissolution of a LLP which mandates a specific procedure stands overridden by the Act 2013 through this decision?

The NCLT in this case has based its finding on the maxim casus omissus. It appears that NCLT has invoked its inherent power while sanctioning the merger or amalgamation of an LLP into a company, it may be debatable if the NCLT could have extended its jurisdiction to casus omissus under inherent power vested in it vide Rule 11 of the National Company Law Tribunal Rules, 2016. It may not be out of place to mention that the Hon'ble Supreme Court of India has cautioned time and again on exercising of inherent powers of the courts/tribunal which is to be invoked only to meet the ends of justice. 

Though even under the erstwhile Company Law Board regime, such powers have been invoked. Case in point is Shaw Wallace and Co. Ltd. v. Union of India, where the following view was taken on the nature of inherent power of Company Law Board:

"... Even if, having regard to reg. 44 of the Company Law Board Regulations, 1991, the Company Law Board is vested with inherent powers to make such orders as may be required for the ends of justice or to prevent abuse of the process of the Board, such power cannot be exercised in excess of the powers flowing from the statute itself. Such power has to be exercised by the Board in aid of and not de hors the provisions of the Statute and, in any event, such exercise of power conferred by reg. 44 cannot override the provisions of the Statute." 

Therefore, the issue that while sanctioning the present scheme NCLT stretched itself beyond the interpretation of the relevant provisions to more than what has been expressed or unambiguously indicated by the Act 2013 remains an open question. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
SKP Business Consulting LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
SKP Business Consulting LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions