Amalgamation between Different Body Corporates: An Analysis of Companies Act, 2013 and Limited Liability Partnership Act, 2008

August 19, 2018

Alok Bhardwaj is a third-year B.A.LL.B. (Hons.) student at Dr. Ram Manohar Lohiya National Law University, Lucknow.

 

There are broadly two types of amalgamation under the Indian corporate law regime viz. amalgamation of companies under the Companies Act, 2013 (Act of 2013), and amalgamation of limited liability partnerships under the Limited Liability Partnership Act, 2008 (LLPA). However, an amalgamation of different body corporates is not expressly provided under the said Acts. Such type of amalgamation last found mention under the Companies Act, 1956 (Act of 1956), but after the enactment of the Act of 2013, the provision has not been carried forward.

 

The relevant provisions of various legislations providing for the amalgamation are section 394 of the Act of 1956, sections 60-62 of LLPA and sections 232-234 of the Act of 2013. The language employed in LLPA and the Act of 1956 is almost identical. However, the Act of 2013 differs from the Act of 1956 as section 394(4)(b) of the latter legislation explicitly provided for the amalgamation of different corporate bodies and any body corporate (whether a company under the Act of 1956 or not) could become a transferor and be subsequently amalgamated with the transferee body corporate which mandatorily had to be a company as defined under section 3 of the Act of 1956.[1]  The underlying rationale was that the resultant body corporate should only be an entity governed by the Act of 1956. However, in Andhra Bank Housing Finance Ltd. v. M/s. Andhra Bank, the restriction that only a company as defined under the Act of 1956 can be a transferee company for the purpose of amalgamation was relaxed. The court stated that it is necessary to read sections 4 and 394 to give effect to the object and scheme of the Act of 1956. It is, therefore, important to take note of section 4(4), which provides that a company becomes a holding company of another only if that other company is its subsidiary, and, for the purpose of section 4(4), the expression “company” includes any body corporate as per section 4(5) thereof. Therefore, the court concluded that the transferee company under section 394 also includes a body corporate in light of the provisions of section 4 of the Act of 1956.

 

However, no provision corresponding to section 394(4)(b) can be found under the Act of 2013 or LLPA to provide for the amalgamation of different body corporates. Therefore, after the commencement of LLPA and the Act of 2013, section 394 (4)(b) of the Act of 1956 lost its relevance, and amalgamation between different body corporates became a thing of the past.

 

Ironically, in sheer contrast to section 232 of the Act of 2013, section 234 of the same Act allows any body corporate registered outside India to be amalgamated with a company as defined under the Act of 2013.[2] This body corporate can be any type of body corporate including an LLP registered outside India, and can be amalgamated with a company. It can, therefore, be inferred that the provisions of the Act of 2013 perpetrates discrimination between body corporates registered in India and outside of it with respect to matters of amalgamation. However, in the wake of the recent pronouncement of the National Company Law Tribunal, Chennai, the author would attempt to throw light on the issue of amalgamation between different body corporates registered under the Act of 2013 and LLPA respectively.

 

Under section 60 of LLPA, an application for compromise or arrangement between an LLP and its creditors or partners can be proposed to the National Company Law Tribunal.[3]  In the said application, if it is shown to the tribunal that the purpose of such arrangement or compromise is to facilitate the amalgamation of LLP, then the same can be done by the tribunal according to the provisions of section 62 of LLPA.[4] However, it must be noted that under section 5 of LLPA, any body corporate[5] can be a partner of an LLP,[6] meaning thereby, any body corporate, which is partner of an LLP, may move an application for amalgamation between such an LLP and itself. However, if we resort to the literal interpretation of the relevant provisions of LLPA, we may find that an amalgamation under the legislation is possible only between two LLPs.

 

The same situation exists in relation to the Act of 2013. Under section 230, an application for compromise or arrangement between a company and its creditors or members can be submitted to the National Company Law Tribunal.[7] If it is shown to the tribunal that such compromise or arrangement is for the purpose of amalgamation of the company, the same can be done by it in accordance with the provisions of section 234 of the Act of 2013.[8] However, it has to be noted that under section 2(55) of the Act of 2013, even a body corporate (including an LLP under LLPA) can be a member of the company because a body corporate has a separate legal personality and is a juristic person.[9] meaning thereby that any body corporate, which is a member, may move an application for the amalgamation between such a company and itself. However, resorting to the literal interpretation of the relevant provisions of the Act of 2013, one may infer that amalgamation under this Act can be possible only between two companies and not between two different body corporates.

 

It is submitted that the literal rule of interpretation causes a situation of uncertainty which could be against the legislative intent of the above-mentioned statutes. However, the National Company Law Tribunal, Chennai, in its order, applied the golden rule of interpretation and changed the course of law pertaining to amalgamation. In the matter of M/s. Real Image LLP v. M/s. Qube Cinema Pvt. Ltd., the tribunal held that under section 232 of the Act of 2013, a scheme of amalgamation between a company and any body corporate (including an LLP) can be approved. The tribunal decided the matter on the basis that the legislative intent behind enacting LLPA and the Act of 2013 was to facilitate the ease of doing business and create a desirable atmosphere for companies and LLPs. With this intention in mind, both the Acts have laid down provisions for amalgamation of two or more companies and LLPs respectively. However, the issue of amalgamation of different body corporates such as that of an LLP and a company has not been dealt with by these Acts explicitly. In this regard, the tribunal held that the omission to have an explicit provision in this regard under LLPA or the Act of 2013 can best be termed as a case of casus omissus. The rationale behind this conclusion is that if Parliament has permitted a foreign body corporate (including an LLP) to be amalgamated with a company under section 234 of the Act of 2013, it would be absurd to presume that an LLP registered under LLPA and for that purpose any other body corporate cannot be amalgamated with a company under section 232 of the Act of 2013.

 

By delivering such a crucial order, the tribunal, it is submitted, gave effect to the intent of the legislature and made the process of amalgamation possible and easy for different body corporates. Further, the said order not only clears the state of ambiguity, but also ends the discrimination carried out by the provisions of the Act of 2013 upon those body corporates which are registered in India on account of the casus omissus indicated above. Moreover, as the law regarding amalgamation will become clear, the legal prospects of the corporate regime in India will definitely be on the rise.

 

 

[1] Companies Act, 1956, sections 394(4)(b) and 3.

 

[2] Companies Act, 2013, section 234.

 

[3] Limited Liability Partnership Act, 2008, section 60.

 

[4] Ibid, section 62.

 

[5] Ibid, section 2(d).

 

[6] Ibid, section 5.

 

[7] Companies Act, 2013, section 230.

 

[8] Ibid, section 232.

 

[9] Ibid, S 2(55); General Clauses Act, 1897, section 3(42).

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