Registered trade union can file insolvency petition as operational creditor on behalf of its members

A registered trade union which is formed for the purpose of regulating the relations between workmen and their employer can maintain a petition as an operational creditor on behalf of its members.

The above-mentioned observation was delivered by the Hon’ble Supreme Court of India in the matter of JK Jute Mill Mazdoor Morcha vs. Juggilal Kamlapat Jute Mills Company Ltd. Through Its Director & Ors. (Civil Appeal No. 20978/2017), decided on 30.04.2019.

CHALLENGES

The present case deals with reveal of a long-drawn saga of a jute mill being closed and reopened several times until finally, it has been closed for good in 2014. Proceedings were initiated under  the Sick Industrial Companies (Special Provisions) Act, 1985. In 2017, the appellant issued a demand notice on behalf of roughly 3000 workers under Section 8 of the Code for outstanding dues of workers. By the impugned order dated 12.09.2017, NCLAT dismissed the appeal filed by the appellant before us, stating that each worker may file an individual application before the NCLT.

The main issue before the Supreme Court was whether a trade union could be said to be an operational creditor for the purpose of the Insolvency and Bankruptcy Code, 2016

HELD

The Supreme Court first of all clarifies 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. The Court further states 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. The Court further explained that an “operational debt”, meaning a claim in respect of employment, could certainly be made by a person duly authorized to make such claim on behalf of a workman

The Supreme Court concluded its reasoning by observing that the trade union is an entity established under a Trade Unions Act and would thus fall within the definition of “person” under Sections 3(23) of the Insolvency and Bankruptcy Code 2016.