Can an employee of 'Subsidiary Company' proceed against the 'Parent Company' on termination of his employment by the 'Subsidiary Company'?

   

Many foreign companies (‘parent company’) have subsidiaries in India. Though, the foreign company and subsidiary company are two different entities in law, still the foreign company has control over all the major decisions of the subsidiary company. In this regard, can an employee proceed against the parent company, especially when he is aggrieved by the subsidiary company?   

Recently, the Hon’ble Delhi High Court in MS ANITA KAUR Vs UNIVERSAL WEATHER AND AVIATION INDIA PRIVATE LIMITED & ANR has answered this question in negative. In this case, the Plaintiff was an employee of the subsidiary company. His services were deputed to the parent company, however, subsidiary company terminated his services. Challenging termination of his services, he filed the present suit arraying the parent company as defendant on the premise 1) parent company controls all the activities of subsidiary company and 2) he was reporting to the parent company. 

Rejecting the first contention of the Plaintiff, the Hon’ble Delhi High Court held “A Company is a distinct legal entity from its shareholder, even if all the shares are held by one person only. Thus, merely because the defendant no.2 holds 100% of the shareholding of the defendant no.1 Company, would not make the defendant no.2 liable for the dues and acts of the defendant no.1. Admittedly both defendant no.1 and defendant no.2 are separate legal entities. No case for piercing of the corporate veil is made out.” 

With respect to the second contention, the Hon’ble Delhi High Court held “Even if that be so, merely because an employee, in the course of employment, is required to report to another instead of to the employer, would not make such another liable for any claims arising from such employment.”