An LLP�۪s Amalgamation with a Private Limited Company Insights from Real Image vs Qube Cinema

The question whether an Indian limited liability partnership (“LLP”) can be amalgamated with an Indian private limited company was recently considered in the case of Real Image Limited Liability Partnership vs. Qube Cinema Technologies Private Limited[1](“Real Image vs Qube Cinema”).

This article intends to examine the judgments of the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”) in the aforesaid case and the applicability of  principle of ‘case omissus’ in circumstances of an amalgamation of an LLP with a private limited company.

Real Image vs Qube Cinema

In Real Image vs Qube Cinema, Real Image LLP, the transferor limited liability partnership (“Real Image”), was incorporated under the provisions of Limited Liability Act, 2008 (“LLP Act”) and Qube Cinema Technologies Private Limited, the transferee company (“Qube Cinema”) was incorporated under the provisions of the Companies Act, 2013 (“Act”).

Real Image and Qube Cinema were in the business of establishing and/or acquiring audio and video laboratories for movies, television video, radio recordings etc. Real Image had filed a petition before the NCLT proposing to merge with Qube Cinema under Sections 230-232 of the Companies Act, 2013 read with Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 and National Company Law Tribunal Rules, 2016. Accordingly, the statutory authorities (viz. the Regional Director and Official Liquidator) had filed their report with the NCLT stating that they have no objection to the proposed amalgamation.

The Issue and Governing Legislation

The NCLT was posed with the issue, “Whether a Limited Liability Partnership (LLP) can be allowed to amalgamate with a private limited company under a scheme of amalgamation filed before the NCLT?”. While compromises, arrangements and amalgamations between Indian companies and its creditors and/or members are provided for under Sections 230-232 of the Act, the explanation to Section 234(2) of the Act provides for merger or amalgamation of an Indian company with a 'foreign company' or vice versa. The term 'foreign company' is defined to include ‘any company or body corporate incorporated outside India whether having a place of business in India or not’[2]. A bare perusal of the said provision shows that a body corporate will include an LLP registered outside India, and as such, Section 234 of the Act provides for merger of a foreign LLP with a company incorporated in India. Further, Section 366 of the Act provides for an LLP to be registered as a company.

The NCLT’s decision

The NCLT inter alia held that the legislative intention behind the Act and the LLP Act is to make doing business easy and desirable for companies and LLPs and thus, both the statutes provided for mergers and amalgamations. While the former Companies Act, 1956, provided for merger of an LLP with a company[3], the new Act is silent about the same. Further, the NCLT observed that Section 234 of the Act provides for a foreign body corporate (which includes LLPs) to merge/amalgamate with Indian companies.

The NCLT held it would be wrong to presume that the intention of the Act was to prohibit merger of an Indian LLP with an Indian company. The tribunal interpreted this as a case of ‘casus omissus’ i.e. a situation omitted from or not provided for by statute and held that there is no express legal bar to allow merger of an Indian LLP with an Indian company. Accordingly, it allowed the petition for amalgamation of Real Image with Qube Cinema.

Appeal to the NCLAT

Aggrieved by the order passed by NCLT, the Registrar of Companies preferred an appeal before the NCLAT. The issue placed before the NCLAT was, “Whether the NCLT was correct in applying the principle of ‘casus omissus’ to allow a petition seeking for amalgamation of an Indian LLP with an Indian Company?”

The NCLAT held that the principle of ‘casus omissus’ must be used only in cases where there is clear necessity to do so and when the reason for the same is found within the Act itself as held by the Supreme Court of India in the case of Union of India vs. Rajiv Kumar[4].  The Supreme Court in the foregoing case had held that the principle of ‘casus omissus’ should be used when literal construction of a particular clause results in absurdity or anomaly and that the said principle should not be used liberally to read intentions into the statutes unless and until it is a dire necessity to avoid absurd and anomalous results. Further, the Supreme Court had held that the solution to avoid the absurdity or anomaly must be found within the four corners of the statute itself.

In view of the above, the NCLAT held that as the Act provides for LLPs to be registered as a company under Section 399, therefore, upon registration of an LLP as a company, it can subsequently be amalgamated with the proposed company. Hence, the NCLAT upheld the appeal by the Registrar of Companies and rejected the petition for amalgamation of Real Image with Qube Cinema.

Conclusion

It is pertinent to note that the Supreme Court has settled the law regarding applicability of ‘casus omissus’, whereby the Supreme Court has upheld that the said principle must be used only when the situation necessitates to do so and when the solution for the necessity is found within the four corners of the statute itself.

From its judgement in Real Image vs Qube Cinema, the NCLT has provided clarity on the issue of merger of an Indian LLP with an Indian Company.

However, the NCLAT, in the appeal filed by the Registrar of Companies, failed to consider that the erstwhile Companies Act, 1956, which not only provided for an Indian LLP to be merged with an Indian company but also provided for an LLP to be registered as a company, similar to the provisions under Section 366 of the Companies Act, 2013.  As such, though the aforesaid decision rendered by the NCLAT indirectly provides for an Indian LLP to be merged with an Indian company, the same can be taken cognizance of only if the LLP gets registered as a company under the provisions of the Companies Act, 2013. This further complicates the process of a merger of an Indian LLP with an Indian company.

Further, the NCLAT, while stating that the intention behind the legislation of the Companies Act, 2013 was to give path to ease of doing business, has taken a step back in solving the complexity and intricacy of this issue, which only goes to show that there needs to be a clear benchmark and precedent set for an issue as complicated as this.

The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal Hyderabad.

[1] CP/123/CAA/2018

[2] Section 2(42) of the Act

[3] The erstwhile Companies Act, 1956, provided for a wider definition of 'transferor company' which included ‘any-body corporate, whether a company within the meaning of the Companies Act 1956 or not’ under Section 394(4)(b).

[4] 6 SCC 516 (2003)