2020 (2) TMI 761 - AT - Companies Law

Indian Tribunal Rules LLP Must Convert to Company Before Merging

The Tribunal set aside the NCLT's order, ruling that an Indian LLP cannot merge directly into an Indian company under the Companies Act, 2013, without ... Principal of casus omissus - Amalgamation of the Limited Liability Partnership firm into Private Limited company - Section 421 of the Companies Act, 2013 - whether by applying the principal of casus omissus a Indian LLP incorporated under the LLP Act 2008 can be allowed to merge into a Indian Company incorporated under the Act, 2013? HELD THAT:- It is apparent that as per Section 232 of Act, 2013 a company or companies can be merged or amalgamated into another company or companies. The Act, 2013 has taken care of merger of LLP into company. In this regard Section 366 of the Act, 2013 provides that for the purpose of Part I of Chapter XXI the word company includes any partnership firm, limited liability partnership, cooperative society, society or any other business entity which can apply for registration under this part. It means that under this part LLP will be treated as company and it can apply for registration and once the LLP is registered as company then the company can be merged in another company as per Section 232 of the Act, 2013 - Section 55 to Section 57 of Chapter X of Limited Liability Partnership Act,2008 provides conversion from firms, private company and unlisted public company into limited liability partnership. NCLT rightly held that Act 1956 provides that any body corporate can merge into a company. However Act 2013 provides that foreign company or body corporate incorporated outside India can be merged into a Indian company. Applicability of principal of casius omissus - HELD THAT:- On reading of the provisions of Act 2013 as a whole in reference of conversion of Indian LLP into Indian company there is no ambiguity or absurdity or anomalous results which could not have been intended by the legislature. The principal of casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself. There is no such occasion to apply the principal of casus omissus. Thus we are unable to convince with the interpretation of NCLT. The legislature has enacted provision in the Companies Act, 2013 for conversion of Indian LLP into Indian Company and vice versa in the Limited Liability Partnership Act, 2008. Thus there is no question infringement of any constitutional right of the Respondent - impugned order is not sustainable in law - Appeal allowed. Issues Involved:1. Whether an Indian LLP can merge into an Indian company under the Companies Act, 2013 by applying the principle of casus omissus.2. Interpretation of Section 232 and Section 366 of the Companies Act, 2013.3. Applicability of the principle of casus omissus in this context.4. Examination of the provisions for conversion under the Companies Act, 2013 and LLP Act, 2008.Issue-wise Detailed Analysis:1. Whether an Indian LLP can merge into an Indian company under the Companies Act, 2013 by applying the principle of casus omissus:The National Company Law Tribunal (NCLT) allowed the amalgamation of an LLP into a private limited company by applying the principle of casus omissus, which fills legislative gaps when the statute is silent on a specific issue. The NCLT reasoned that since a foreign LLP can merge with an Indian company under Section 234 of the Companies Act, 2013, it would be incorrect to presume that the Act prohibits the merger of an Indian LLP with an Indian company. This interpretation was challenged by the appellants, arguing that the Act explicitly provides for the conversion of LLPs into companies before any merger can occur.2. Interpretation of Section 232 and Section 366 of the Companies Act, 2013:Section 232 of the Companies Act, 2013, deals with the merger and amalgamation of companies, specifying that a company can merge with another company. Section 366 extends the definition of a company to include LLPs, allowing them to apply for registration as a company. The appellants argued that an LLP must first register as a company under Section 366 before it can merge with another company under Section 232. The Tribunal found that the Act, 2013, does not explicitly prohibit the merger of an LLP into a company but requires the LLP to convert into a company first.3. Applicability of the principle of casus omissus in this context:The principle of casus omissus allows courts to fill in legislative gaps only in cases of clear necessity and when the reason for it is found within the statute itself. The Supreme Court in Union of India vs. Rajiv Kumar emphasized that a casus omissus should not be readily inferred and should be applied only to avoid absurd or anomalous results. The Tribunal concluded that there was no clear necessity or statutory basis to apply casus omissus in this case, as the Companies Act, 2013, and LLP Act, 2008, provide clear provisions for the conversion and merger processes.4. Examination of the provisions for conversion under the Companies Act, 2013 and LLP Act, 2008:The Companies Act, 2013, and the LLP Act, 2008, contain provisions for converting LLPs into companies and vice versa. Sections 55 to 57 of the LLP Act, 2008, allow for the conversion of firms, private companies, and unlisted public companies into LLPs. Similarly, Section 366 of the Companies Act, 2013, allows LLPs to register as companies. The Tribunal found that these provisions indicate a clear legislative intent for a structured conversion process before any merger can occur, negating the need to apply casus omissus.Conclusion:The Tribunal set aside the NCLT's order, concluding that the legislative framework under the Companies Act, 2013, and LLP Act, 2008, provides clear procedures for conversion and merger, and there was no necessity to apply the principle of casus omissus. The Tribunal emphasized that the right to restructure a business must be expressly provided by legislation and cannot be inferred by implication. Therefore, the amalgamation of an Indian LLP into an Indian company must follow the prescribed conversion process before any merger can be sanctioned.