Esops of Reliance cannot be revoked by IIHL General: Attorney

 Esops of Reliance cannot be revoked by IIHL General: Attorney

Employee stock option (Esop) as well as incentive programs of Reliance General Insurance Co. cannot be eliminated as part of IndusInd International Holdings Ltd's (IIHL) resolution agreement with the parent company, Reliance Capital, according to law firm Khaitan & Co.

Mint looked at a copy of the letter, which is in response to an inquiry from the insurance.

A subsidiary of the bankrupt Reliance Capital, Reliance General, inquired as to the resolution applicant, IIHL,'s power to alter the rights of workers at Reliance Capital's associates and subsidiaries.

The need for a legal opinion emerged when IIHL moved to end all Esops, phantom stocks, and other incentive programs of Reliance Capital and its subsidiaries, particularly the insurer, as part of its resolution plan for Reliance Capital. The action was taken to avoid RCAP and IIHL having any further costs after the transaction.

Khaitan noted, however, that when the Hindujas' resolution plan is put into effect, it would essentially have authority over the assets and liabilities of Reliance General. According to the implementation plan, IIHL will indirectly control Reliance General's board and shareholding, effectively controlling the insurance company's assets and liabilities and having the power to change those assets and liabilities, Khaitan wrote in a seven-page note.

The company said that any such modification "would be required to be performed in accordance with terms of the contract it cannot simply be implemented by IIHL or Reliance Capital unilaterally."

According to Khaitan, a resolution plan can specify how assets and liabilities will be treated only for the company undergoing insolvency of corporations resolution, in response to a question from Reliance General about whether the resolution applicant will be permitted to change the status of already-existing assets and liabilities.

The resolution plan for the holding company cannot discharge obligations or specify how the assets of its subsidiaries will be treated if the CIRP is only brought against the holding company and not its subsidiaries, it was said.

"The IBC acknowledges the principle of separate legal entity, which means that immediately incorporated, the company represents a separate legal person and has a mentality which is distinct from the person whoever is responsible for its constitution," said Khaitan.

Khaitan cited earlier Supreme Court rulings in saying that in the case of Vodafone International Holdings BV vs. the Union of India and Others, the court determined that a holding company and a wholly-owned subsidiary (WOS) have separate legal identities, the holding company does not own the subsidiary's assets, and the subsidiary's board of directors is legally responsible for running the subsidiary's operations.

In reality, the letter said, "The insolvency of the holding company per se does not directly affect its subsidiary." It cited the aforementioned Supreme Court ruling in support of its claim.