Trade Union is an operational creditor for the purpose of the Insolvency and Bankruptcy Code, 2016. How Trade Unions can file insolvency application for payment of workmen dues.

A jute mill in Kanpur was closed and reopened several times until finally, it was closed for good on 07.03.2014. Proceedings were pending under the Sick Industrial Companies (Special Provisions) Act, 1985. On 14.03.2017, the trade Union of the jute mill, JK Jute Mill Mazdoor Morcha (Tade  Union) issued a demand notice, to the Juggilal Kamlapat Jute Mills Company Ltd. Through Its Director (Company), on behalf of roughly 3000 workers under Section 8 (demand letter by operational creditor) of the Code for outstanding dues of workers. The Notice was replied by the Company and claims were rejected.

The Trade Union filed insolvency application under section 9 of the IBC before the National Companies Law Tribunal (NCLT).

The advocate at NCLT New Delhi argued the case for the Trade Union emphasizing that Trade Union can put forward claim and request insolvency of a Company but on 28.04.2017, after describing all the antecedent facts including suits that have been filed by the respondent-Company 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 also, stating that each worker may file an individual application before the NCLT.

The Advocate of Trade Union at NCLAT, advised it to file a Special Leave Petition through Advocate in Supreme Court of India. The Advocate in Supreme Court of India filed Special Leave Petition (SLP) to Appeal against the order dated 12.09.2017 of the NCLAT. The appeal was registered as C.A. No. 020978 – / 2017 on 07-12-2017.

The Hon’ble Supreme Court of India after hearing the advocates delivered the judgments in JK Jute Mill Mazdoor Morcha Versus Juggilal Kamlapat Jute Mills Company Ltd. Through Its Director on 30.04.2019 and observed: as herein under,

• that a trade union is certainly an entity established under a statute – namely, the Trade Unions Act, and would therefore fall within the definition of “person” under Sections 3(23) of the IBC.

• that 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.

• that Rule 6, Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 also recognises the fact that claims may be made not only in an individual capacity, but also conjointly.

• that a registered trade union recognised by Section 8 of the Trade Unions Act, makes it clear that it can sue and be sued as a body corporate under Section 13 of that Act.

• 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.

• that a “person” includes a company in clause (c) of section 3 (23), and would include any other entity established under a statute under clause (g). It is clear that clause (g) has to be read noscitur a sociis (the meaning of a word may be known from accompanying words ) with the previous clauses of Section 3(23) of IBC.

• that, the context, therefore, in which the phrase “established under a statute” occurs [under clause (g)], makes it clear that a trade union, like a company, trust, partnership, or limited liability partnership, when registered under the Trade Union Act, would be “established” under that Act in the sense of being governed by that Act.

• that 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 the interim resolution professional, costs of appointing valuers, etc. under the provisions of the Code read with Regulations 31 and 33 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Relying on above legal positions and aspects, the Hon’ble Supreme Court held that there is no doubt that 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. We must never forget that procedure is the handmaid of justice and is meant to serve justice.

The NCLAT, by the impugned judgment, was 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 was 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.

The Hon’ble Supreme court made it clear 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.

Thus, Trade Unions can file insolvency application for payment of their dues against the company and the NCLT will have to allow insolvency.

STEPS TO FILE INSOLVENCY APPLICATION BY TRADE UNIONS:

It is now clear that workmen can raise their claims and demand dues through a single collective petition under the Insolvency & Bankrutptcy Code 2016. In light of above judgment, a trade union can take following steps to recover dues from the company:

1. The President/ Secretary of the Union should invite an authorization letter from each workmen allowing the President/Secretary to take steps for the payment of salary/pension dues to the workmen.
2. The authorization letter would include a concise statement of workmen employment details and the details of the dues.
3. After collecting the authorization from the workmen, the President/ Secretary shall combine all the authorization and accordingly put a claim before the Company under section 8 of the Insolvency and Bankruptcy Code – 2016.
4. Depending on the reply from the Company (the company has to reply within 10 days), a petition for insolvency may be filed under section – 9 of the Insolvency and Bankruptcy Code – 2016.
5. The Notice under section – 8 and application under section – 9 should contain clear, precise and irrefutable data of workmen dues.

Through the above post, the NCLT / NCLAT Advocate has tried to answer the following legal questions:

• Whether trade unions can be treated as an operational creditor under the Insolvency and Bankruptcy code?
• How workmen can recover their salary dues under the Insolvency and Bankruptcy Code?
• Can trade unions file insolvency application?
• Are Trade Unions Operational creditors?
• Can a joint insolvency application be filed in NCLT under section -9.

TAGS: Insolvency Advocate NCLT New Delhi.  Insolvency Advocate NCLT Allahabad. Insolvency Advocate NCLAT.
Insolvency Advocate Supreme Court of India.