1. Trade union filed application as operational creditor under Insolvency and Bankruptcy Code for outstanding workers' dues — NCLT and NCLAT dismissed the petition. (Para 1 )
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2019 Supreme(SC) 508
SUPREME COURT OF INDIA
R. F. Nariman, Vineet Saran, JJ.
JK JUTE MILL MAZDOOR MORCHA – APPELLANT
VERSUS
JUGGILAL KAMLAPAT JUTE MILLS COMPANY LTD. THROUGH ITS DIRECTOR & ORS. – RESPONDENTS
CIVIL APPEAL NO.20978 of 2017
Decided On : 30-04-2019
Important Points
IMPORTANT POINTS
(1) A registered trade union which is formed for the purpose of regulating relations between workmen and their employer can maintain a petition as an operational creditor on behalf of its members.
(2) Procedure is handmaid of justice and is meant to serve justice.
(1) A registered trade union which is formed for the purpose of regulating relations between workmen and their employer can maintain a petition as an operational creditor on behalf of its members.
(2) Procedure is handmaid of justice and is meant to serve justice.
Subject
INSOLVENCY AND BANKRUPTCY - OPERATIONAL CREDITOR
Act Referred
BANKRUPTCY CODE: S.8, S.5(20), S.3(23), S.9
COMPANIES ACT: S.434, S.439
INCOME TAX ACT: S.194(a)(3)(iii)
INSOLVENCY AND BANKRUPTCY APPLICATION TO ADJUDICATING AUTHORITY RULES: R.6
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS REGULATIONS: Reg..31, Reg..33
TRADE UNIONS ACT: S.8, S.13, S.15
COMPANIES ACT: S.434, S.439
INCOME TAX ACT: S.194(a)(3)(iii)
INSOLVENCY AND BANKRUPTCY APPLICATION TO ADJUDICATING AUTHORITY RULES: R.6
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS REGULATIONS: Reg..31, Reg..33
TRADE UNIONS ACT: S.8, S.13, S.15
Headnote
Insolvency and Bankruptcy Code, 2016 – Section 8 – Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 – Rule 6 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Regulations 31 and 33 – Whether a trade union could be said to be an operational creditor for the purpose of Insolvency and Bankruptcy Code, 2016 – A trade union is certainly an entity established under a statute (Trade Unions Act) and would fall within definition of “person” under Sections 3(23) of Code – A registered trade union which is formed for the purpose of regulating relations between workmen and their employer can maintain a petition as an operational creditor on behalf of its members – Procedure is handmaid of justice and is meant to serve justice – NCLAT, by impugned judgment, is not correct in refusing to go into whether trade union would come within definition of “person” under Section 3(23) of Code – Equally, NCLAT is not correct in stating that a trade union would not be an operational creditor as no services are rendered by trade union to corporate debtor – Trade union represents its members who are workers to whom dues may be owed by employer which are certainly debts owed for services rendered by each individual workman who are collectively represented by trade union – Impugned judgment of NCLAT set aside and matter remanded to NCLAT for decision of appeal on merits. (Paras 6, 10 and 11)
Facts of Case:
Facts of 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. Proceedings were pending under Sick Industrial Companies (Special Provisions) Act, 1985. On 14.03.2017, appellant issued a demand notice on behalf of roughly 3000 workers under Section 8 of Code for outstanding dues of workers. This was replied to by respondent No.1 on 31.03.2017. The National Company Law Tribunal [NCLT], on 28.04.2017, after describing all antecedent facts including suits that have been filed by respondent No.1 and referring to pending writ petitions in High Court of Delhi, ultimately held that a trade union not being covered as an operational creditor, petition would have to be dismissed. By impugned order dated 12.09.2017, National Company Law Appellate Tribunal [NCLAT] did likewise and dismissed appeal filed by appellant before us, stating that each worker may file an individual application before NCLT.
Findings of Court:
Instead of one consolidated petition by a trade union representing a number of workmen, filing individual petitions would be burdensome as each workman would thereafter have to pay insolvency resolution process costs, costs of interim resolution professional, costs of appointing valuers, etc. under provisions of Code read with Regulations 31 and 33 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
Result : Appeal allowed.
Legal Category Hierarchy
- insolvency and bankruptcy law
- labour law
- practice and procedure
Advocates Appeared:
For Parties: Mr. Gopal Jain, Sr. Adv. Mr. Pankaj Jain, Adv. Mr. Bijoy Kumar Jain, AOR Mr. Gopal Shankar Narayan, Sr. Adv. Mr. Ankit Kohli, Adv. Ms. Gayatri Verma, Adv. Mr. R. C. Kohli, AOR Mr. Ashok Kumar Jain, Adv. Mr. Arjun Aggarwal, Adv. Mr. Shashank Shekhar Singh, AOR Mr. A. Venayagam Balan, AOR Mr. Amit Singh Chadha, Sr. Adv. Mr. Atanu Mukherjee, Adv. Ms. Srishti Govil, Adv. Mr. Pradeep Aggarwal, Adv. Mr. Gaurav Kejriwal, AOR Mr. Navneeti Prasad Singh, Sr. Adv. Mr. Anip Sachthey, Sr. Adv. Mr. Nar Hari Singh, AOR Ms. Anjali Chauhan, Adv. Ms. Ria Sachthey, Adv. Ms. Rekha Pandey, Adv. Mr. A.K. Sharma, AOR Mr. Hitendra Nath Rath, AOR Ms. Ruchi Kohli, AOR Mr. Mushtaq Ahmad, AOR
For Parties: Mr. Gopal Jain, Sr. Adv. Mr. Pankaj Jain, Adv. Mr. Bijoy Kumar Jain, AOR Mr. Gopal Shankar Narayan, Sr. Adv. Mr. Ankit Kohli, Adv. Ms. Gayatri Verma, Adv. Mr. R. C. Kohli, AOR Mr. Ashok Kumar Jain, Adv. Mr. Arjun Aggarwal, Adv. Mr. Shashank Shekhar Singh, AOR Mr. A. Venayagam Balan, AOR Mr. Amit Singh Chadha, Sr. Adv. Mr. Atanu Mukherjee, Adv. Ms. Srishti Govil, Adv. Mr. Pradeep Aggarwal, Adv. Mr. Gaurav Kejriwal, AOR Mr. Navneeti Prasad Singh, Sr. Adv. Mr. Anip Sachthey, Sr. Adv. Mr. Nar Hari Singh, AOR Ms. Anjali Chauhan, Adv. Ms. Ria Sachthey, Adv. Ms. Rekha Pandey, Adv. Mr. A.K. Sharma, AOR Mr. Hitendra Nath Rath, AOR Ms. Ruchi Kohli, AOR Mr. Mushtaq Ahmad, AOR
Table of Contents
2. Whether a registered trade union qualifies as an operational creditor for collective claims versus whether individual workers must file separate applications for distinct causes of action. (Para 2 , 3 )
3. Trade unions are statutory entities qualifying as persons under the Code and can legally represent members to protect rights including wages and dues. (Para 4 , 5 , 6 , 7 , 8 , 9 , 10 )
4. A registered trade union is a person and operational creditor capable of maintaining a petition on behalf of its members for employment-related debts. (Para 6 , 11 )
5. Appeal allowed and NCLAT judgment set aside — matter remanded to NCLAT for decision on merits. (Para 11 )
6. Can a trade union be considered an operational creditor under the Insolvency and Bankruptcy Code?
Yes. A registered trade union is an entity established under the Trade Unions Act, qualifying as a person under Section 3(23) of the Code. It can maintain a petition as an operational creditor on behalf of its members for debts arising from employment. (Para 6 , 11 )
7. Does the requirement for separate causes of action prevent a trade union from filing a collective application for workers' dues?
No. Rule 6 and Form 5 of the Insolvency and Bankruptcy Rules allow workmen or employees to make applications in a joint capacity through a duly authorised person, making a collective petition by a trade union maintainable. (Para 6 , 11 )
8. How is the phrase established under a statute interpreted in Section 3(23) of the Code regarding registered entities?
Read noscitur a sociis with companies and partnerships, it includes entities registered under specific statutes, such as the Trade Unions Act, meaning they are established in the sense of being governed by that Act. (Para 9 )
9. Can a trade union use its general funds to pursue legal proceedings for workers' wages?
Yes. Section 15(c) and (d) of the Trade Unions Act permits the use of general funds for the prosecution of legal proceedings or the conduct of trade disputes to protect members' rights arising from employment. (Para 5 , 6 )
JUDGMENT
R.F. NARIMAN, J.
1. 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”]. 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. 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. 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. 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.
2. Shri Gopal Jain, learned Senior Advocate appearing on behalf of the appellant took us through various provisions of the Code and the Trade Unions Act, 1926, [“Trade Unions Act”] and cited a Division Bench judgment of the Bombay High Court in Sanjay Sadanand Varrier v. Power Horse India Pvt. Ltd., (2017) 5 Mah LJ 876 [“Sanjay Sadanand Varrier”] to argue that even literally speaking, the provisions of the Code would lead to the result that a trade union would be an operational creditor within the meaning of the Code. Even otherwise, a purposive interpretation ought to be granted, as has been done in various recent judgments to the provisions of the Code, and that therefore, such an application by a registered trade union filed as an operational creditor would be maintainable. Shri Gaurav Kejriwal, learned Advocate appearing on behalf of respondent No.2 has supported the arguments advanced by Shri Gopal Jain.
3. On the other hand, Shri Navaniti Prasad Singh, Shri Jayant K. Sud, and Shri Anip Sachthey, learned Senior Advocates appearing on behalf of respondent No.1 supported the NCLAT judgment to argue 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. This being so, a collective application under the rubric of a registered trade union would not be maintainable.
4. Section 5(20) of the Code defines operational creditor as follows:
“5. Definitions.—In this Part, unless the context otherwise requires,—
xxx xxx xxx
(20) “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;
xxx xxx xxx”
Section 5(21) defines operational debt as follows:
“5. Definitions.—In this Part, unless the context otherwise requires,—
xxx xxx xxx
(21) “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;
xxx xxx xxx”
Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 states as follows:
“6. Application by operational creditor.—(1) An operational creditor, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under Section 9 of the Code in Form 5, accompanied with documents and records requi
