FACTS
Proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 were pending against a permanently closed mill namely Juggilal Kamlapat Jute Mills Company Ltd. (“Jute Mills”). The trade union (“Union”) issued a demand notice on behalf of approximately 3000 workers under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) for the payment of their outstanding dues.
The National Company Law Tribunal (“NCLT”) after hearing both the parties and referring to the pending writ petition in the Hon’ble High Court of Delhi, held that a trade union cannot be covered as an operational creditor under the Code and dismissed the petition. The matter was challenged by the Union at the National Company Law Appellate Tribunal (“NCLAT”). The NCLAT dismissed the appeal and held that each worker may file an individual application before the NCLT. The said judgment was challenged by the Union before the Supreme Court of India.
POINT OF CONTENTION
Whether a trade union could be said to be an operational creditor for the purpose of the Insolvency and Bankruptcy Code, 2016.
ARGUMENTS
The Union, referring to various provisions of the Code and the Trade Unions Act, 1926 (“TU Act”) contended that by literal interpretation of the statutes, registered trade unions would come within the ambit of operational creditor, within the meaning of the Code. The Union further contended that a purposive interpretation of the Code must be granted and hence an application by a registered trade union filed as an operational creditor would be maintainable.
The Jute Mills contended that since no services are rendered by a trade union to the Jute Mills to claim any dues which can be termed as debt, trade unions will not come within the ambit of operational creditor and that the claim of each workman would be a separate cause of action and hence would be filed individually before the NCLT.
JUDGEMENT
The apex court observed that as per Section 2 (h) of the TU Act, a “Trade Union” means “any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business, and includes any federation of two or more Trade Unions”. Further, as per Section 3(23) of the Code the term “person” includes “any other entity established under a statute”. Therefore, a trade union would fall under the definition of “person” under the Code.
The court further inferred that 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 and therefore an “operational debt” which under Section 5 (21) of the Code is defined to mean “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”, could be made by any person duly authorised to make such claim. The court also observed that the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 expressly states that claims may be made not only in an individual capacity but also conjointly. The court also acknowledged the powers of the trade union under the Trade Unions Act, 1926 to sue and be sued as a body corporate.
Setting aside the NCLAT judgment, the court allowed the appeal and took a purposive interpretation of the Code stating that procedural law should be interpreted in a way to aid and not hinder justice and that if each workmen filed an individual application, it would be burdensome and they would have to bear several expenses, thereby hindering justice. It also held that a trade union represents its members and can collectively represent them for debts owed for services rendered by each workman. Disclaimer: This article is meant for information purpose only and does not purport to be advice or opinion, legal or otherwise, whatsoever. Pioneer Legal does not intend to advertise its service through this article.
