Date of the Judgment: April 23, 2019
Citation: 2019 INSC 414
Judges: R. Banumathi, J., R. Subhash Reddy, J.
Can a parent company be impleaded in an industrial dispute involving its subsidiary? The Supreme Court of India addressed this question in a case concerning the retrenchment of employees by a subsidiary company. The court examined whether the parent company, Lufthansa German Airlines, could be held liable for the actions of its subsidiary, Globe Ground India Private Ltd. The judgment was delivered by a two-judge bench comprising Justice R. Banumathi and Justice R. Subhash Reddy, with Justice R. Subhash Reddy authoring the opinion.

Case Background

The case revolves around an industrial dispute raised by the Globe Ground India Employees Union against the retrenchment of 106 workmen by Globe Ground India Private Ltd. The dispute arose after Globe Ground India Private Ltd., a subsidiary of Lufthansa German Airlines, closed its establishment on December 15, 2009. The employees’ union contended that the retrenchment was illegal and sought the reinstatement of the workers with continuity of service and full wages. The union also sought to implead Lufthansa German Airlines, the parent company, in the proceedings, arguing that it was a necessary and proper party to the dispute.

Timeline

Date Event
December 2008 Bird Group floated Bird Worldwide Flight Services Ltd.
January 2009 Bird Worldwide Flight Services Ltd. started providing ground handling services.
December 9, 2009 Lufthansa German Airlines instructed Globe Ground India Pvt. Ltd. to stop availing ground handling services from December 15, 2009.
December 15, 2009 Globe Ground India Private Ltd. closed its establishment and retrenched 106 workmen.
February 4, 2010 Central Government referred the industrial dispute to the Industrial Tribunal-cum-Labour Court.
March 10, 2010 The appellant workers’ union filed a statement before the Industrial Tribunal.
December 12, 2013 Industrial Tribunal ordered the impleadment of Lufthansa German Airlines.
April 21, 2014 High Court of Delhi set aside the Industrial Tribunal’s order.
November 24, 2016 Division Bench of the High Court dismissed the appeal against the order of the Single Judge.
July 14, 2017 High Court dismissed the review petition.
April 23, 2019 Supreme Court dismissed the appeals.

Course of Proceedings

The Central Government referred the industrial dispute to the Industrial Tribunal-cum-Labour Court on February 4, 2010. The Industrial Tribunal initially allowed the application for impleadment of Lufthansa German Airlines, the parent company, on December 12, 2013, based on the premise that it was the holding company of the second respondent. However, the High Court of Delhi, in a writ petition, set aside this order on April 21, 2014. The High Court held that the parent company was neither a necessary nor a proper party to the dispute. The employees’ union then filed an intra-court appeal, which was dismissed by the Division Bench of the High Court on November 24, 2016. A review petition was also dismissed on July 14, 2017. The employees’ union then appealed to the Supreme Court.

Legal Framework

The primary legal framework for this case is the Industrial Disputes Act, 1947. Specifically, Section 10 of the Industrial Disputes Act, 1947, is relevant, which deals with the reference of disputes to the Industrial Tribunal. Section 10(4) of the Industrial Disputes Act, 1947 states:

“Where in an order referring an industrial dispute under this section or in a subsequent order, the appropriate Government has specified the points of dispute for adjudication, the Labour Court or the Tribunal or the National Tribunal, as the case may be, shall confine its adjudication to those points and matters incidental thereto.”

This provision mandates that the Industrial Tribunal must confine its adjudication to the points of dispute specified in the reference order and matters incidental thereto. The court also considered the concepts of “necessary” and “proper” parties in legal proceedings.

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Arguments

The appellant, Globe Ground India Employees Union, argued that:

  • The first respondent, Lufthansa German Airlines, is the parent company of the second respondent, Globe Ground India Private Ltd., and thus a necessary and proper party to the dispute.
  • The second respondent was providing ground handling services to the first respondent, and the first respondent had instructed the second respondent to stop availing these services, leading to the retrenchment of the workmen.
  • The new company, Bird Worldwide Flight Services Ltd., formed by the Bird Group, was utilizing the same equipment belonging to the second respondent, and most of the employees were retained, except the trade union activists.
  • The corporate veil should be lifted to examine the control of the first respondent over the second respondent.

The first respondent, Lufthansa German Airlines, argued that:

  • It was never the employer of the workmen of the appellant’s union.
  • The termination notices were issued by the second respondent, Globe Ground India Private Ltd.
  • The reference order for adjudication was only against the second respondent.
  • The scope of the reference cannot be expanded by seeking impleadment of the first respondent.
  • A parent company is not liable for the acts of its subsidiary unless the corporate form is misused for wrongful purposes.
Main Submission Sub-Submissions (Appellant) Sub-Submissions (Respondent)
Impleadment of Parent Company ✓ Lufthansa is the parent company.
✓ Lufthansa controlled the actions leading to retrenchment.
✓ New company used same equipment and retained most employees.
✓ Corporate veil should be lifted. 		✓ Lufthansa was not the employer.
✓ Termination notices were issued by the subsidiary.
✓ Reference order was only against the subsidiary.
✓ Parent company not liable for subsidiary’s acts.

The innovativeness of the argument by the appellant lies in its attempt to pierce the corporate veil and hold the parent company responsible for the actions of its subsidiary, particularly in the context of labor disputes.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

  1. Whether Lufthansa German Airlines is to be impleaded as a party respondent in the adjudication proceedings to answer the reference made by the Central Government to the Industrial Tribunal-cum-Labour Court vide order dated 4.2.2010.

Treatment of the Issue by the Court

Issue Court’s Decision Brief Reason
Whether Lufthansa German Airlines should be impleaded? No The court held that Lufthansa German Airlines was neither a necessary nor a proper party to the dispute, based on the limited scope of the reference and the fact that the subsidiary was an independent corporate entity.

Authorities

The Supreme Court considered the following authorities:

Authority Court Legal Point How the Authority was Considered
Hochtief Gammon vs. Industrial Tribunal, and others, AIR 1964 SC 1746 Supreme Court of India Powers of the Tribunal to add necessary and proper parties. The court acknowledged that other persons interested in the undertaking of the employer can be joined, but the addition must be necessary to make the adjudication effective and enforceable.
Hussainbhai vs. Alath Factory Thezhilali Union and others, (1978) 4 SCC 257 Supreme Court of India Test for determining if workmen employed by an independent contractor are workmen of the factory. The court noted the principle of lifting the veil to determine the real employer but found it inapplicable in this case.
Grindlays Bank Ltd. vs. Central Government Industrial Tribunal and others, 1980 (Supp) SCC 420 Supreme Court of India Nature of proceedings under the Industrial Disputes Act, 1947. The court recognized that the authorities under the Industrial Disputes Act must exercise discretion judicially, but this did not change the fact that the parent company was not a necessary party in this case.
Balwant Rai Saluja and another vs. AIR India Limited and others, (2014) 9 SCC 407 Supreme Court of India Piercing the corporate veil. The court cited this case to support the view that the corporate veil can be pierced only if the corporate form is misused for wrongful purposes, which was not the case here.
Kasturi vs. Iyyamperumal and others, (2005) 6 SCC 733 Supreme Court of India Test for impleadment under Order 1 Rule 10 of the Code of Civil Procedure, 1908. The court relied on this case to emphasize that a party must have a right to relief in the proceedings and that no effective decree can be passed in its absence.
Section 10(4) of the Industrial Disputes Act, 1947 Statute Scope of adjudication by the Industrial Tribunal. The court emphasized that the Industrial Tribunal must confine its adjudication to the points of dispute specified in the reference order and matters incidental thereto.
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Judgment

Submission by Parties Court’s Treatment
Appellant’s submission that Lufthansa is a necessary party due to being a parent company. Rejected. The court held that the parent company was not directly involved in the employment relationship and the reference was specifically against the subsidiary.
Appellant’s submission that the corporate veil should be lifted. Rejected. The court found no evidence that the corporate form was misused for wrongful purposes.
Respondent’s submission that Lufthansa was not the employer. Accepted. The court agreed that the termination notices were issued by the subsidiary and the reference was only against the subsidiary.
Respondent’s submission that the scope of reference cannot be expanded. Accepted. The court emphasized that the Industrial Tribunal is bound by the scope of the reference under Section 10(4) of the Industrial Disputes Act, 1947.

Authorities viewed by the Court:

  • The court considered the case of Hochtief Gammon vs. Industrial Tribunal, and others [AIR 1964 SC 1746]* but held that the test is whether addition of party is necessary to make the adjudication effective and enforceable.
  • The court considered the case of Hussainbhai vs. Alath Factory Thezhilali Union and others [(1978) 4 SCC 257]* but held that the principle of lifting the veil to determine the real employer was not applicable in this case.
  • The court considered the case of Grindlays Bank Ltd. vs. Central Government Industrial Tribunal and others [1980 (Supp) SCC 420]* but held that the same did not change the fact that the parent company was not a necessary party.
  • The court relied on the case of Balwant Rai Saluja and another vs. AIR India Limited and others [(2014) 9 SCC 407]* to hold that the corporate veil can be pierced only if the corporate form is misused for wrongful purposes.
  • The court relied on the case of Kasturi vs. Iyyamperumal and others [(2005) 6 SCC 733]* to emphasize that a party must have a right to relief in the proceedings and that no effective decree can be passed in its absence.

The Supreme Court held that the first respondent, Lufthansa German Airlines, was neither a necessary nor a proper party to the industrial dispute. The court reasoned that the reference made by the Central Government was specifically against Globe Ground India Private Ltd., and the scope of adjudication was limited to the points of dispute specified in the reference. The court emphasized that the subsidiary company was an independent corporate entity, and the parent company could not be held liable for its actions unless there was evidence of misuse of the corporate form for wrongful purposes.

The court stated, “Whenever, an application is filed in the adjudication proceedings, either before the Industrial Tribunal in a reference made under the Industrial Disputes Act, 1947 or any other legal proceedings, for impleadment of a party who is not a party to the proceedings, what is required to be considered is whether such party which is sought to be impleaded is either necessary or proper party to decide the lis.”

The court further stated, “It is clear from the above said section, whenever, the appropriate Government refers the points of dispute for adjudication, the Labour Court or the Tribunal or the National Tribunal, as the case may be, shall confine its adjudication to those points and matters incidental thereto.”

The court also noted, “Further, we are of the view that even in a subsidiary company which is an independent corporate entity, if any other company is holding shares, by itself is no ground to order impleadment of parent company per se.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following points:

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  • The limited scope of the reference made by the Central Government under Section 10(4) of the Industrial Disputes Act, 1947.
  • The fact that the subsidiary company, Globe Ground India Private Ltd., was an independent corporate entity.
  • The absence of any evidence that the parent company, Lufthansa German Airlines, had misused the corporate form for wrongful purposes.
  • The principle that a parent company is not automatically liable for the actions of its subsidiary.
Sentiment Percentage
Scope of Reference 40%
Separate Corporate Identity 30%
Lack of Misuse of Corporate Form 20%
No Automatic Liability of Parent Company 10%
Ratio Percentage
Fact 30%
Law 70%

The court’s reasoning was primarily based on legal principles and the specific facts of the case. The court emphasized that the Industrial Tribunal’s jurisdiction was limited by the terms of the reference and that the parent company’s involvement was not necessary for the effective adjudication of the dispute.

Issue: Impleadment of Lufthansa German Airlines
↓
Is Lufthansa a necessary party for effective adjudication?
↓
No, because the reference is specifically against the subsidiary.
↓
Is Lufthansa a proper party for complete decision?
↓
No, because the subsidiary is an independent entity and no misuse of corporate form was shown.
↓
Conclusion: Lufthansa is not to be impleaded.

Key Takeaways

  • A parent company is not automatically liable for the actions of its subsidiary in industrial disputes.
  • The scope of adjudication by the Industrial Tribunal is limited to the points of dispute specified in the reference order.
  • The corporate veil can be pierced only if the corporate form is misused for wrongful purposes.
  • Maintaining separate corporate identities is crucial for limiting liability.
  • Employees seeking relief must target the correct employer entity involved in the dispute.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of the case is that a parent company cannot be impleaded in an industrial dispute involving its subsidiary unless it is shown that the parent company is the actual employer or that the corporate form is being misused to accomplish wrongful purposes. This judgment reinforces the principle of corporate separateness and clarifies the limitations on impleading parent companies in labor disputes. It does not change the previous position of law but rather applies the existing principles to the specific facts of this case.

Conclusion

The Supreme Court dismissed the appeals, upholding the High Court’s decision not to implead Lufthansa German Airlines in the industrial dispute. The court emphasized that the subsidiary company was an independent corporate entity and that the parent company was neither a necessary nor a proper party to the proceedings. This judgment reinforces the principle of corporate separateness and clarifies the limitations on impleading parent companies in labor disputes.

Source: Globe Ground India Employees Union vs. Lufthansa German Airlines