A legal opinion taken by Reliance General Insurance Company (RGIC) has raised objection to Hinduja-led IndusInd International Holdings Ltd’s (IIHL) plan to extinguish ESOPs of Reliance Capital’s subsidiaries.
IIHL is the successful resolution applicant of Reliance Capital and has sought to extinguish all employees stock option plans, phantom stocks or similar incentive schemes of Reliance Capital & its subsidiaries, including RGIC.
RGIC had sought legal opinion from top law firm Khaitan & Co, because the company has issued ESOPs to its employees.
Khaitan & Co, in its legal opinion submitted to the RGIC, said since benefits in the form of the ESOPs, phantom stocks, other incentive schemes, statutory benefits such as gratuity, provident fund etc, form part of the liabilities of RGIC towards its employees, the same may not be dealt with or extinguished by IIHL in its resolution plan for Reliance Capital.
Khaitan & Co quoted several judgments of the Supreme Court & NCLT, which have held that even in a group company structure, both the holding and subsidiary company continue to retain their status as separate legal entities.
Citing the judgment of the Supreme Court in the case of Vodafone International Holdings BV Vs, Union of India & Others, Khaitan & Co stated that the Supreme Court held that the legal relationship between a holding company and wholly owned subsidiary (WOS) is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. In fact, the insolvency of the holding company per se does not directly affects its subsidiary.