26 July 2018
Can a LLP Merge with a Company?
Limited Liability Partnership (LLP) as an entity came into being by the Limited Liability Partnership Act, 2008 (LLP Act). Under the provisions of the LLP Act, LLP is regarded as a body corporate. LLP Act also provides for the amalgamation of the LLPs. The Companies Act, 2013 deals with the business restructuring of the companies. Both the laws are silent on whether a LLP can merge into a Company and vice versa. The issue arises as under the LLP Act, a LLP is regarded as a body corporate and wherever the LLP provisions are silent, a LLP would be governed by the provisions of the Companies Act. Thus, effectively LLP was de facto regarded as a company.
This interesting question came before the National Company Law Tribunal (Tribunal or NCLT), Chennai Bench[1]. The NCLT answers this question in affirmative taking into consideration the purposive interpretation of the Companies Act, 2013.
This order could potentially pave the way for new avenues of restructuring involving LLP and a company. This article analyzes the said order and also comments on the high-level advantages of restructuring involving a LLP and a company if this order becomes a precedent. 
A petition was filed before the NCLT proposing merger of a LLP, being transferor, with a company, being transferee, pursuant to provisions of Sections 230-232 of the Companies Act, 2013. In accordance with the process of law, the statutory authorities (viz. the Registrar, Regional Director and Official Liquidator) filed their report with the NCLT signifying their no objection to the proposed merger. Thereafter, when the petition came up for final hearing, the question arose for consideration of the Tribunal whether a Limited Liability Partnership can be allowed to amalgamate with a Private Limited Company under a Scheme of Amalgamation?
Analysis of the Tribunal’s order
During the course of the hearing, inter alia, the following submissions were made before the Tribunal:
  • The Companies Act, 2013 and the LLP Act, contain the provisions dealing with merger and amalgamation.
  • The wordings of relevant provisions under above statutes used are almost similar and empowers NCLT as the competent authority to sanction the scheme proposed by a LLP or a Company.
  • It was submitted that under Section 394(4)(b) of the erstwhile Companies Act, 1956, there was no bar for a transferor in a Scheme of Amalgamation to be a body corporate (including a LLP).
  • The rationale for such provision under the erstwhile law was that the resultant company out of amalgamation is a company defined under the Companies Act, and there was no such stipulation imposed on the transferor.
  • Whereas a similar clause is absent in Section 232 of the Companies Act, 2013, as had been stipulated under Section 394(4)(b) of the erstwhile company law.
  • However, Section 234 of the Companies Act, 2013, allows foreign company (defined as body corporate which would include a LLP) to merge into an Indian Company.
After carefully considering the arguments submitted before it, the Tribunal, inter alia, concluded that:
  • The intent of the Companies Act, 2013, and LLP Act is to facilitate the ease of doing business and create a desirable business atmosphere for companies and LLPs, thus, both the Acts provided for provisions relating to merger and amalgamations.
  • Whilst the erstwhile provisions of the Companies Act, 1956, categorically provided for merger of LLP with a company, the provisions of the Companies Act, 2013, are silent on this aspect, thereby, interpreted this as case of ‘casus omissus’ i.e. a situation omitted from or not provided for by statute through inadvertence.
  • It also held 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 Act prohibits merger of an Indian LLP with an Indian company.
  • The Tribunal thus held that there does not appear any express legal bar to allow/sanction merger of an Indian LLP with an Indian company. Accordingly, the petition for the merger of LLP with the company was allowed.
[1] Re: M/s. Real Image LLP with M/s. Qube Cinema Technologies Private Limited in CP/123/CAA/2018 NCLT, Chennai, 11.06.2018.
SKP’s Comments
The NCLT has answered the question before it in affirmative with the aid of interpretation rules and allowed the petition for the merger of a LLP with a Company. This order assumes great significance as the relevant provisions of the Companies Act, 2013, are silent in this regard as compared to corresponding express provisions under the erstwhile law.
The order is also important from a perspective that since now a LLP could possibly be amalgamated with a company this will be available as a new avenue for restructuring. However, from a tax perspective, presently there are no express provisions exempting amalgamation of a LLP into a Company. Considering the overall spirit behind enacting LLP Act to facilitate ease of doing business it is expected that the government takes cognizance of this aspect and extends the exemption benefit to the amalgamation of LLP into the company. 
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