Holding company cannot be prosecuted over dispute with subsidiary

holding company

In the case of Globe Group India Employees Union v Lufthansa German Airlines and Anr, the Supreme Court considered whether the holding company can be impleaded as a party before the labour court, when the reference is only made against a subsidiary company.

The case came up after the Central Government Industrial Tribunal (CGIT) passed an order impleading Lufthansa as a party in an industrial dispute case pertaining to the closing down of its subsidiary Globe Globe Ground India on 15 December 2019, and retrenchment of 106 employees. The employees’ union had filed an application to implead Lufthansa in ongoing proceedings relating to the dispute. The order was set aside by a single bench of Delhi High Court, which was confirmed by a division bench of Delhi High Court. The employee’s union then filed an appeal before the Supreme Court.

While dismissing the appeal, the Supreme Court observed that whenever an application is filed to implead a third party, who is not a party to the reference under the Industrial Disputes Act or any other proceedings pending before the court, it has to be considered whether the party is either a necessary or proper party to decide the lawsuit. A company, whether a holding or subsidiary, is a juristic person and is entitled to enter into contracts with third persons and also to engage employees.

In any civil litigation or industrial dispute, the holding or subsidiary company ex-facie need not be impleaded as a party for a dispute between the contracting parties, or in case the dispute is between the employer and the employee. The normal and general principle is that a company incorporated in accordance with law is a juristic person or a body corporate, capable of being sued and with a right to sue a third party. Debts and legal obligations of a company are not the debts payable by the subscribers to the memorandum or the shareholders. The parent company cannot be made party to the labour proceedings merely because it is the holding company. It was further held that the corporate veil cannot be pierced until and unless it is shown that corporate form is misused to accomplish certain wrongful purposes.

It was also held that the labour court only has to decide the reference made by the government and the issues cannot travel beyond the terms of reference.

The dispute digest is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in. Readers should not act on the basis of this information without seeking professional legal advice.