Merger of Indian LLP with Company: Analyzing Casus Omissus Principle

The merger of Indian LLP ( Limited Liability Partnership) with a company is a complex process that requires careful consideration of various legal and regulatory aspects. One of the key principles that come into play during this process is the Casus Omissus Principle.

Understanding the Casus Omissus Principle

The Latin term ‘Casus Omissus’ translates to ‘a case omitted’. In legal parlance, it refers to a situation or circumstance that has not been specifically provided for in a statute. The principle of Casus Omissus asserts that courts cannot read into a statute something that the legislature has not expressly provided.

Application in the Context of LLP and Company Merger-

The casus omissus principle in context of LLP and Company comes into play due to lack of specific provisions in both Companies Act 2013 and Limited Liability Partnership Act 2008.

Section 230-232 of Companies Act 2013 provides for the merger of two or more companies but it does not explicitly mention the merger of an LLP with a company. Similarly, Section 60 of LLP Act 2008, allows for the merger of LLP with another LLP but does not provide for the merger of an LLP with a company. 

Legal Interpretation and Judicial Precedents-

Given the absence of explicit provisions, the application of the Casus Omissus Principle would suggest that such a merger is not permissible. However, in a recent judgement the Chennai branch of National Company Law Tribunal (NCLT) had sanctioned the merger of Real Image LLP, a limited liability partnership with Qube Cinema Technologies Private Limited, a company incorporated under the provisions of Companies Act 2013 pursuant to provisions of Section 230-232 of the Act. 

Aggrieved by the said order, the Ministry of Corporate Affairs (MCA) jointly with Registrar of Companies (ROC) filed an appeal before NCLAT challenging the order.  

Relevant provisions under the Act-

• Sections 230-232 of the 2013 Act provides for compromises, arrangements and amalgamations between ‘companies’ and its creditors and/or members. Further, Section 234 of the 2013 Act provides for provisions in relation to the merger or amalgamation between a company and a ‘foreign company’ or vice a versa. 
• Hence, it can be adhered that a body corporate will include an LLP registered outside India and accordingly, a merger of an LLP registered outside India with a company incorporated in India would be permissible under the provisions of section 234 of the 2013 Act. 
• The Companies Act further provides that the LLP will be treated as a Company if it applies for registration as a Company under section 366 and once the LLP is registered as Company under the said provisions, then the Company can be merged into an Indian Company. 

Decision of NCLAT

• The court held that the absence of any specific provision for merger of an LLP with a company was a clear case of casus omissus. Further, since Section 234 of Companies Act 2013 permitted merger of foreign LLP with a company, it would be wrong to presume that the Companies Act prohibited merger of an Indian LLP with an Indian Company.
• The NCLAT observed that even though there is no express enabling provision for merger of LLP into a company directly under the Act, the legislature has enacted enabling provisions for registering the LLP as a company under section 366. This facilitates merger of such LLP registered as a company with another company subsequently. 
• The NCLAT relied on the judgement of the Hon’ble Supreme Court in case of Union of India Vs Rajiv Kumar, the NCLAT held that the principal of casus omissus cannot be applied except in the case of clear necessity and when reason for it is found in the four corners of the statute itself. Since there is no such occasion to apply the principal of casus omissus in the present case, there is no question of prejudice or infringement of any constitutional rights of Real Image LLP to merge with the company. 
• Therefore, LLP can apply to register as a company under Section 366 of Companies Act and once the LLP is registered as company, it can be merged in another company as per Section 232 of the Companies Act, 2013. 

Can a LLP be acquired by Private Limited Company?

Yes, a LLP can be acquired by a Private Limited Company only after obtaining the consent of all the partners of the LLP. The partners must agree that the LLP shall be liquidated after transferring all the assets and liabilities to the Private Limited Company.

The acquiring company must ensure that all the regulations and legal compliances related to the process of acquisition are strictly adhered to.

Acquisition can be made by way of consideration either in cash or equity. Acquisition by way of cash consideration is the simplest method where the company can put a purchase offer to the LLP for acquiring its assets and liabilities and in case of acquisition by way of equity shares, CA is involved for valuation of LLP and other regulatory paperworks. 

Can LLP be a partner in Partnership Firm?

The Kerala High Court in case of Raj Shipping Agencies v. Barge Madhwa held that a Limited Liability Partnership could form a partnership with an individual or other persons.

The High Court of Kerala held that a partnership can be entered into between two persons. Such persons can be an incorporated body of individuals and therefore, a LLP is a body corporate. 

The Court observed that Section 4 of the Partnership Act permits the constitution of a firm or partnership between one or more persons. In this case, the partnership deed was executed between an individual and an LLP, a body corporate having a legal entity and coming within the definition of “person”. The individual liability of the partners of LLP would not be relevant when the LLP itself would have liability independent of the liability of the partners. Therefore, the difference in the provisions under the Partnership Act relating to the firm’s liability or the individual partners would not stand in the way of the constitution of a partnership with an LLP.

The Court held that LLP could not be disqualified from entering into a partnership with an individual or other persons.

 Can LLP give corporate guarantee?

A corporate guarantee is an agreement in which one party, called the guarantor, takes on the payments or responsibilities of a debt if the debtor defaults on the loan. In general, an LLP (Limited Liability Partnership) can provide corporate guarantee on behalf of another entity, subject to the terms and conditions set forth in the partnership agreement and compliance with applicable laws and regulations. The LLP should keenly review documents ensure thorough due diligence, conduct risk assessment and documentation and seek legal and financial advice before granting any corporate guarantee. 

Conclusion

In summary, while the Casus Omissus Principle suggests that the merger of an LLP with a company is not explicitly provided for in Indian law, the final interpretation would depend on the courts. They would consider the legislative intent, the purpose of the law, and the need to suppress any mischief that could arise from a narrow interpretation. Therefore, until there is explicit legislative provision or a definitive judicial precedent, the merger of an LLP with a company in India remains a grey area, open to legal interpretation and judicial scrutiny.

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