CS Rashmi H
Summary: Sections 60 to 62 of the LLP Act, 2008 provide the legal framework for compromises, arrangements, reconstruction, and amalgamation of LLPs through approval of the National Company Law Tribunal (NCLT). A scheme can be proposed by an LLP, its partners, creditors, or liquidator and requires consent from a majority representing at least three-fourths in value of the creditors or partners, along with full disclosure of financial and investigative matters. The Tribunal has continuing supervisory powers and may modify, enforce, or even order winding up if a scheme becomes unworkable. In reconstruction or amalgamation, the Tribunal may transfer assets and liabilities, continue legal proceedings, dissolve transferor LLPs without winding up, and protect dissenting stakeholders. A recent NCLT Mumbai ruling approved the merger of two LLPs into another LLP, citing benefits such as operational efficiency, financial strength, cash management, and cost savings. The order preserved tax authorities’ rights to examine tax implications and highlighted the need for a fast-track LLP merger mechanism.
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Section 60: Compromise and Arrangement of LLPs
Sections 60 to 62 of the LLP Act, 2008 establish the statutory framework for the amalgamation of two or more Limited Liability Partnerships. Any creditor, partner, the LLP itself, or a liquidator in cases where the LLP is being wound up may approach the National Company Law Tribunal (NCLT) to sanction a compromise or arrangement between the LLP and its creditors, or between the LLP and its partners.
Upon receiving such an application, the Tribunal is empowered to direct that meetings of the relevant creditors or partners be convened in accordance with its instructions. Importantly, the Tribunal will sanction a compromise or arrangement only after the following conditions are satisfied:
1. A majority representing at least three-fourths in value of the creditors or partners, as applicable, has provided its consent.
2. All material facts relating to the LLP, including its latest financial position and the pendency of any investigation proceedings have been disclosed by way of affidavit or otherwise.
Section 61: Power of Tribunal to enforce compromise or arrangement
Once a compromise or arrangement is sanctioned, the Tribunal retains ongoing supervisory authority over its implementation. Under Section 61, the Tribunal may also issue directions on any matter connected with the arrangement and may even modify its terms to ensure effective operation.
If the Tribunal is satisfied that a sanctioned compromise cannot be worked satisfactorily either with or without modification, it may, on its own motion or on the application of any interested party, order the winding up of the LLP.
Such a winding-up order is deemed to have been made under Section 64 of the Act, thereby activating all attendant consequences of a formal dissolution.
Section 62: Reconstruction and Amalgamation
The Tribunal is also empowered to facilitate schemes of reconstruction or amalgamation between LLPs. By sanctioning such a scheme, the Tribunal may authorise the following:
1. The transfer of the undertaking, property, or liabilities of a transferor LLP, either in whole or in part to the transferee LLP.
2. The continuation of any legal proceedings, pending against or by a transferor LLP, by or against the transferee LLP.
3. The dissolution of the transferor LLP without the need for a formal winding-up process.
4. Adequate provisions for any person who dissents from the compromise or arrangement, within such time and in such manner as the Tribunal may direct
5. Any incidental, consequential, or supplemental measures necessary to ensure that the reconstruction or amalgamation is carried out fully and effectively.
Other Important Points:
No scheme involving the amalgamation of an LLP being wound up shall be sanctioned unless the Registrar has reported to the Tribunal that the affairs of such LLP have not been conducted in a manner prejudicial to the interests of its partners or to public interest. Similarly, no dissolution order shall be made without a confirming report from the Official Liquidator no scheme is sanctioned in a manner prejudicial to the interests of its partners or to public interest.
Where the scheme provides for the transfer of property or liabilities, such transfer takes effect by virtue of the Tribunal’s order alone. Property vests in the transferee LLP, and liabilities become its obligations. In appropriate cases, property may be transferred free of any existing charge, as permitted under the terms of the compromise or arrangement.
Two definitional notes bear mention: first, “property” encompasses all property, rights, and powers of every description; and second, “liabilities” includes duties of every description. Crucially, an LLP cannot be amalgamated with a company, the scheme of amalgamation can be entered only between LLPs.
Precedent: The NCLT Mumbai Ruling:
In the matter of Scheme of Merger of PULIT TRADING LLP (“Transferor LLP 1”), NYZEL TRADING LLP (“Transferor LLP 2”), with RAOJEE LANDMARKS LLP (“Transferee LLP”) and their respective Partners.(‘Scheme’): C.P. (CAA) NO. 236 of 2025 in C.A. (CAA) NO. 138 of 2025
The National Company Law Tribunal, Mumbai Bench-I, recently approved a scheme of merger involving Pulit Trading LLP and Nyzel Trading LLP (the transferor LLPs) amalgamating with Raojee Landmarks LLP (the transferee LLP), along with their respective partners.
The primary objectives of the scheme, as articulated in the application, were as follows:
a. Greater integration and greater financial strength and flexibility for the Transferee LLP, which would result in maximizing the overall partners value, and will improve the competitive position of the combined entity.;
b. Greater efficiency in cash management of the Transferee LLP, and unfettered access to cash flow which can be deployed more efficiently to fund organic and inorganic; growth opportunities;
c. Improved organizational capacity and leadership, arising from pooling of human capital who have the diverse skills, talent and vast experience to compete successfully in a competitive industry;
d. Cost savings
e. To avail the synergy benefits of the bigger entity in place to manage it in a more efficient manner.
The Tribunal sanctioned the scheme upon receiving the unanimous approval of all partners of the applicant LLPs, and directed that the contributions of all transferor LLPs be consolidated as the contribution of the transferee LLP. The Tribunal further noted that the Official Liquidator’s report confirmed that the interests of neither the public nor the creditors were adversely affected by the proposed arrangement.
Tax and Consideration
The Tribunal’s order expressly preserved the jurisdiction of the Income Tax Department to examine whether any tax liability arose as a result of the scheme, and reserved the right of tax authorities to initiate proceedings under the Income Tax Act should the arrangement be found to amount to tax avoidance.
Consideration: since the contribution of each transferor LLP was entirely held by the transferee LLP, the partners’ contributions in the transferor LLPs stood cancelled in their entirety upon merger. Accordingly, no consideration was payable to any party pursuant to the merger.
Creditors’ Rights on Demerger
Creditors of a demerged undertaking retain the right to claim against both the resulting LLP and the demerged LLP in respect of debts incurred up to the date of demerger. Where the resulting LLP discharges such debts, it is entitled to seek reimbursement from the demerged LLP.
All regulatory authorities concerned were directed to act upon a certified copy of the Tribunal’s order along with the scheme, duly certified by the Deputy Registrar or Assistant Registrar of the National Company Law Tribunal, Mumbai.
The Case for Procedural Reform
At present, the amalgamation and reconstruction framework under the LLP Act is available exclusively between LLPs and not between an LLP and a company. Moreover, the existing procedure, involves making a two-stage application process before the Tribunal (commonly referred to as the First Motion and Second Motion petitions), is lengthy and resource-intensive.
A strong need exists for introducing a simplified “fast-track” merger procedure for LLPs, similar to streamlined mechanism available to companies under Section 233 of the Companies Act, 2013. Encouragingly, the Central Government already possesses the requisite authority: Section 67 of the LLP Act, 2008 empowers the Government to apply any provision of the Companies Act, 2013 to LLPs by way of notification in the Official Gazette which subject to Parliamentary review for a period of thirty days.
Section 67 — Application of the provisions of the Companies Act
The Central Government may, by notification in the Official Gazette, direct that any specified provisions of the Companies Act, 2013 shall apply to LLPs, either directly or with such exceptions, modifications, and adaptations as may be specified. A draft of every such notification must be laid before both Houses of Parliament for a cumulative period of thirty days, during which either House may disapprove or propose modifications.
