24 May 2019

SUPREME COURT | REGISTERED TRADE UNION CAN NOW FILE INSOLVENCY PETITION AS OPERATIONAL CREDITOR ON BEHALF OF ITS MEMBERS

The Supreme Court of India has held in the case of J K Mill Mazdoor Morcha versus Juggilal Kamlapat Jute Mills Company Ltd through its director & Ors 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.

BRIEF FACTS OF THE CASE

The Appellant trade union issued a demand notice on behalf of about 3000 workers under Section 8 of the Insolvency and Bankruptcy Code for outstanding dues of workers. The National Company Law Tribunal (NCLT) dismissed their application on the ground that trade unions are not covered under the definition of operational creditor and stated that the registered trade union specifically does not render any services to the corporate debtor and hence cannot file an IBC application on behalf of its members. Upholding the NCLT order, the National Company Law Appellant Tribunal (NCLAT) observed that each worker may file an individual application before the NCLT.

DECISION OF THE SUPREME COURT

• After examining various provisions of the IBC and the Trade Unions Act, 1926, the Supreme Court observed that a trade union is an entity established under a statute and would thus fall within the definition of ``person`` under Sections 3(23) of the said Code. 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. Further the court observed that a registered trade union is formed for the purpose of regulating the relations between workmen and their employer and can therefore maintain a petition as an operational creditor on behalf of its members.

• Hence, in view of the aforesaid observations, the Supreme Court held the NCLAT 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 in stating that a trade union would not be an operational creditor as no services are rendered by the trade union to the corporate debtor.

• Further, the Supreme Court observed 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.

• Accordingly the Appeal was allowed. The matter is now remanded to the NCLAT for deciding the appeal on merits expeditiously.

MHCO Comments: This judgement of the Supreme Court is purposive and progressive and simplifies the entire process of recovering the dues as the workmen would now be able to file the IBC Application collectively and also the Tribunal would not be burdened by multiple applications. This is also in line with amendments to the IBC in 2018 in which home buyers could be represented by an ``authorised representative``.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.comfor any assistance.