Whether trade union is an operational creditor when representing interest of workmen

30/04/2019 JK Jute Mill Mazdoor Morcha (Appellant) vs.Juggilal Kamlapat Jute Mills Ltd &ORS (Respondent)
Supreme Court-Civil Appeal No.20978 of 2017

The Apex Court Held that – Trade Union is an 'operational creditor' when representing the interests of the workmen.

Question Involved

The present appeal raises an important question as to whether a trade union could be said to be an operational creditor for the purpose of the Insolvency and Bankruptcy Code, 2016 [“Code”].

BRIEF FACTS

1. The facts of the present case reveal a long-drawn saga of a jute mill being closed and reopened several times until finally, it has been closed for good on 07.03.2014.

2. Proceedings were pending under the Sick Industrial Companies (Special Provisions)Act, 1985. On 14.03.2017, the appellant issued a demand notice on behalf of roughly 3000 workers under Section 8 of the Code for outstanding dues of workers. This was replied to by respondent No.1 on 31.03.2017.

3. The National Company Law Tribunal [“NCLT”], on 28.04.2017, after describing all the antecedent facts including suits that have been filed by respondent No.1 and referring to pending writ petitions in the High Court of Delhi,ultimately held that a trade union not being covered as an operational creditor, the petition would have to be dismissed.

4. By the impugned order dated 12.09.2017, the National Company Law Appellate Tribunal [“NCLAT”]did likewise and dismissed the appeal filed by the appellant before us, stating that each worker may file an individual application before the NCLT.

DECISION

Appeal allowed.

REASON

i) On a reading of the aforesaid statutory provisions, what becomes clear is that a trade union is certainly an entity established under a statute – namely, the Trade Unions Act, and would therefore fall within the definition of“person” under Sections 3(23) of the Code.

ii) This being so, it is clear that an “operational debt”, meaning a claimin respect of employment, could certainly be made by a person duly authorised to make such claim on behalf of a workman.

iii) Rule 6, Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,2016 also recognises the fact that claims may be made not only in an individual capacity, but also conjointly.

iv) Further, a registered trade union recognised by Section 8 of the Trade Unions Act, makes it clear that it can sueand be sued as a body corporate under Section 13 of that Act. Equally, the general fund of the trade union, whichinter alia is from collections from workmen who are its members, can certainly be spent on the conduct of disputes involving a member or members thereof or for the prosecution of a legal proceeding to which the trade union is a party, and which is undertaken for the purpose of protecting the rights arising out of the relation of itsmembers with their employer, which would include wages and other sums due from the employer to workmen.

v) Even otherwise, we are of the view that instead of one consolidated petition by a trade union representing anumber of workmen, filing individual petitions would be burdensome as each workman would thereafter haveto pay insolvency resolution process costs, costs of the interim resolution professional, costs of appointing valuers, etc.

vi) under the provisions of the Code read with Regulations 31 and 33 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Looked at fromany angle, there is no doubt that a registered trade union which is formed for the purpose of regulating the relations between workmen and their employer can maintain a petition as an operational creditor on behalfof its members. We must never forget that procedure is the handmaid of justice, and is meant to serve justice.

vii) The NCLAT, by the impugned judgment, is not correct in refusing to go into whether the trade union would come within the definition of “person” under Section 3(23) of the Code. Equally, the NCLAT is not correct instating that a trade union would not be an operational creditor as no services are rendered by the trade union to the corporate debtor.

viii) What is clear is that the trade union represents its members who are workers, to whom does may be owed by the employer, which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the trade union.

ix) Equally, to state that for each workman therewill be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that ajoint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petitionon behalf of all. For all these reasons, we allow the appeal and set aside the judgment of the NCLAT.

x) The matter is now remanded to the NCLAT who will decide the appeal on merits expeditiously as this matter has beenpending for quite some time. The appeal is allowed accordingly.

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