TWENTY SIX YEARS OF THOUGHT LEADERSHIP IN INSOLVENCY

back to list

Trade Unions are operational creditors under the Insolvency and Bankruptcy Code, 2016

By INSOL India Editorial Team Posted On : July 15, 2019

The Supreme Court of India ("Supreme Court”), in the matter of JK Jute Mill Mazdoor Morcha vs. Juggilal Kamlapat Jute Mills Company Limited through its Director & Ors., considered whether trade unions could be said to be operational creditors under the Insolvency and Bankruptcy Code, 2016 ("IBC”/ “Code”).

 

An appeal was filed by the appellant (a trade union of workers of the mill) before the Supreme Court against the order passed by the National Company Law Appellate Tribunal (“NCLAT”) dismissing the appeal filed by the appellant before NCLAT observing that the trade union is not an operational creditor under the IBC and directed each member of the appellant trade union to file individual petitions under the Code.

 

In appeal, the Supreme Court, upon analysis of the provisions of the IBC and the Trade Unions Act, held

 

  • A trade union is an entity established under a statute i.e. the Trade Unions Act. Therefore, trade unions fall within the definition of ‘person’ under Section 3(23) (g) of the IBC;
  • As per Section 13 of the Trade Unions Act, a trade union registered under Section 8 of the Trade Unions Act can sue and be sued as a body corporate. The SC also cited a judgment of Bombay HC (Sanjay Sadanand Varrier vs Power Horse India Pvt Ltd (2017) 5 Mah LJ 876) which relying on this principle held that a petition for winding up filed by a trade union would be maintainable;  
  • A registered trade union is formed for the purpose of regulating relations between workman and their employer. Therefore, such trade union can maintain a petition as an operational creditor on behalf of its members for services rendered by its members. 
  • The Bench observed that the Code recognizes that claims may be presented either individual or conjointly. An ‘operational debt’, meaning a claim in respect of employment, could be made by a person authorised by to make such claim on behalf of workmen i.e., a trade union; 
  • Instead of one consolidated petition by a trade union representing a number of workmen, filling individual petition under the Code would be financially burdensome on each workman (pay insolvency resolution process costs, cost of appointing valuers, etc.).

The decision of the SC reiterates its commitment to making the Code a workable and practical statute. The lessons learnt under the regime of BIFR and winding up are being practically applied to avoid unnecessary burden upon the Code.