The Supreme Court Bench of Justice Rohinton Fali Nariman and Justice Vineet Saran have held that a registered trade union can file an insolvency petition in the capacity of an operational creditor against the corporate debtor and also on behalf of its members. The case was regarding a notice under Section 8 of the Insolvency and Bankruptcy Code issued by the Appellant on behalf of its workers for unpaid dues, which was dismissed by the NCLT. On further appeal, the NCLAT upheld the order of the NCLT on the grounds that a registered trade union does not render any services to the corporate debtor and also held that the workers are to file individual petitions.

Whilst the Counsel for the Appellant argued that ‘purposive interpretation’ of the IBC has to be undertaken and also placed reliance on the Trade Unions Act, 1926 and a Division Bench judgment of the Bombay High Court in Sanjay Sadanand Varrier v. Power Horse India Pvt. Ltd., (2017) 5 Mah LJ 876, the Counsel for the Respondent No 1 argued that “as no services are rendered by a trade union to the corporate debtor to claim any dues which can be termed as debts, trade unions will not come within the definition of operational creditors. That apart, each claim of each workman is a separate cause of action in law, and therefore, a separate claim for which there are separate dates of default of each debt.”

The Bench examined the various provisions of the IBC and the Trade Unions Act to conclude that a trade union falls under the definition a Person under the IBC and thereby justifying the application of the other provisions of the IBC to the Appellant on the following observations:

“6. 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. This being so, it is clear that an “operational debt”, meaning a claim in respect of employment, could certainly be made by a person duly authorised to make such claim on behalf of a workman. 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. Further, a registered trade union recognised by Section 8 of the Trade Unions Act, makes it clear that it can sue and be sued as a body corporate under Section 13 of that Act. Equally, the general fund of the trade union, which inter 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 its members with their employer, which would include wages and other sums due from the employer to workmen.”

The Bench further directed the NCLAT to hear the insolvency petition on merits and expeditiously and approved the filing of the insolvency petition by the Appellant on behalf of all its members as follows:

“11 ……

What is clear is that the trade union represents its members who are workers, to whom dues 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. Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint 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 petition on behalf of all….”

Image Link: https://bit.ly/2Y1vzfp

Judgment: JK Jute MIll Mazdoor Morcha Versus Juggilal Kamlapat Jute Mills Company Ltd and Others