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Facts of the NCLT Case:

The application was filled in NCLT Chennai u/s 230-232 of Companies Act 2013 for the proposed scheme of amalgamation of M/s. Real Image LLP ('Transferor LLP’) with M/s. Qube Cinema Technologies Private Limited ('Transferee Company') as a going concern. Both companies are engaged in the business of establishing and or acquiring Audio and Video Laboratories for Recording, Re­recording, Mixing, Editing, Computer Graphics, Special Effects for Film, Television, Video and Radio Productions etc.

Sections 60 to 62 of the LLP Act 2008 and Sections 230 to 234 of the Companies Act 2013 deal with the merger, amalgamation and arrangements. The wording used in both these provisions are almost identical and both the Acts empower only the National Company Law Tribunal to sanction the scheme proposed by the LLP or Company.

Companies Act 2013 does not expressively provide for any provision of amalgamation of Indian LLP with Private Limited Company. Beside this, NCLT Chennai has sanctioned the proposed amalgamation and made the following observation:

“That the legislative intent behind enacting both LLP act 2008 and Companies Act 2013 is to facilitate the ease of doing business and create a desirable business atmosphere.”

Further, NCLT observed that as per section 394(4)(b) of Companies Act 1956, transferor-company includes any “body corporate” and as per section 2(1)(d) of LLP Act 2008, “body corporate” includes Limited Liability Partnership. Therefore such cross-entity merger was allowed in Companies Act 1956.

NCLT further observed that section 234 of Companies Act 2013, allows a merger with Foreign Companies and as per explanation to said section, the expression “foreign company” includes foreign LLP.

Thus NCLT held that if the intention of the lawmakers is to permit a foreign LLP to merge with an Indian company, then it would be incorrect to presume that the merger of an Indian LLP with a company is prohibited.

Considering the above, NCLT held it as a case of casus omissus and ruled that there is no legal bar to allow or sanction the merger of an Indian LLP with an Indian company.

My comments

While NCLT order is against the literal interpretation of the law, Chennai NCLT in the present case has provided an affirmative view based on constructive and purposive intent of lawmakers. A positive ruling is a welcome note for the amalgamation of LLP’s with Indian Companies supporting the legislative intent to facilitate ease of doing business and create a desirable business atmosphere. However, on the other side, tax implication on such transaction should be evaluated, as Income Tax Act does not provide for any direct exemption on such merger which may result in huge litigations. Let’s hope that our income tax department will soon bring clarification on this.


Published by

CA Nirmit Sharma
(Tax Executive)
Category Taxpayers   Report

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