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CASE SUMMARY
JK JUTE MILLS MAZDOOR MORCHA (TU)—Appellant
vs
JUGGILAL KAMLAPAT JUTE MILLS COMPANY LIMITED —Respondent
(CIVIL APPEAL NO.20978 of 2017)
Judgment dated 30.04.2019
by Justice R.F. Nariman And Justice Vineet Saran

1. Issue in Consideration:
This appeal addresses an important question of law as to whether a trade union fits within the definition of “Person” u/s 3(23)(g) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) i.e. “Any other entity established under a statue, and includes a person resident outside India” and can a trade union be considered as an operational creditor.

2. Brief Facts of the Case:
JK JUTE MILLS MAZDOOR MORCHA (the “Trade Union”) issued demand notice on behalf of the three-thousand (3000) workers u/s 8 of the IBC for outstanding dues of workers. This was replied by the JUGGILAL KAMLAPAT JUTE MILLS COMPANY LIMITED (“Corporate Debtor”) on March 31, 2017.

Later, on April 28, 2017, the NCLT rejected the petition filed by the Trade Union and held that a trade union cannot be covered as an operational creditor.

Aggrieved by the order of NCLT, the Trade Union preferred an appeal before the NCLAT which was not entertained and by order dated September 12, 2017, the NCLAT dismissed the appeal petition.

Thereafter, the Trade Union challenged the decision passed by the NCLAT before the Supreme Court.

3. Arguments:
Appellant:
The Appellant has argued that the trade union has an authority to appear on behalf of their union members before the Tribunals under the IBC by quoting various provisions of the IBC, 2016 and the Trade Unions Act, 1926.

The counsel for Appellant cited a Division Bench judgment of the Bombay High Court in Sanjay Sadanand varrier vs Power horse India Pvt Ltd (2017) 5 Mah LJ 876 to argue that even literally speaking, the provisions of the code would lead to the result that a trade union would be an operational creditor within the meaning of the IBC.

Respondent:
The counsel for the respondent relied on the order passed by the NCLAT that no services are rendered by the trade union to the corporate debtor to claim any dues which can be termed as debts and hence, the trade unions will not come within the definition of operational creditor. It was further argued that each claim of a workman is a separate cause of action for which there are separate dates of default and accordingly, a collective application under the rubric of a registered trade union would not be maintainable.

Respondent has cited the judgment of the Supreme Court in Commissioner of Income Tax (TDS), Kanpur and Anr. Vs Canara Bank (2018) 9 SCC 322 (click here to read our case study on this case). This judgment dealt with the expression “established by or under a Central, State or Provincial Act” contained in Section 194-A(3)(iii) of the Income Tax Act, 1961. After brief study of the above cited judgment, it was argued that trade union does not fall under the section 3(23) (g) of the IBC.

4. Case Analysis
Section 3(23) of the IBC defines the term “Person” as follows:
3. In this code, unless the context otherwise requires, –

(23) “Person” includes-
a. An Individual;
b. A HUF;
c. A company;
d. A trust;
e. A Partnership;
f. A LLP; and
g. Any other entity established under a statue, and includes a person resident outside India.

Section 2(h) of the Trade Unions Act, 1926 defines the term trade union is as follows:
2(h) “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;

Equally, trade disputes under the said Act are defined under section 2(g) as follows:
2(g) “Trade Dispute” means any dispute between employers and workmen or between workmen and workmen, or between employers and employers which is connected with the employment or non-employment, or the terms of employment or the conditions of labour, of any person, and “workmen” means all persons employed in trade or industry whether or not in the employment of the employer with whom the trade dispute arises;

Further, a registered trade union recognized 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. The Bombay High Court in Sanjay Sadanand Varrier (supra), after setting out various provisions of the Trade Unions Act, 1926 including Section 15, has held as follows:

“13. As can be seen from the said section, Registered Trade Unions can prosecute or defend any legal proceeding to which the Trade Union or member thereof is a party, when such prosecution or defense is undertaken for the purpose of securing or protecting any right of the Trade Union as such, or any rights arising out of the relations of any member with his employer or with a person whom the member employs. In fact, the Trade Union can even spend general funds on the conduct of trade disputes on behalf of the Trade Union or any member thereof.

14. On a conjoint reading of the provisions of the Companies Act, 1956 and more particularly sections 434 and 439 as well as the provisions of the Trade Unions Act, 1926, we are clearly of the view that looking to the mandate of sections 13 and 15 of the Trade Unions Act, 1926, there is no doubt in our mind that a Petition for winding up would be maintainable at the instance of the Trade Union. This is for the simple reason that section 15(c) and (d) clearly mandates that the prosecution or defense of any proceeding to which the Trade Union or any member thereof is a party as well as the conduct of trade disputes on behalf of the Trade Union or any member thereof can be done by the Trade Union. This would clearly go to show that the Trade Union, for and on behalf of its members can certainly prefer a winding up Petition as contemplated under section 439 of the said Act. This is for the simple reason that if the workmen have not been paid their wages and/or salary by the Company, they would certainly be a creditor or creditors as contemplated under section 439(1)(b) of the Companies Act, 1956. Section 15 clearly mandates that the Trade Union can take up this cause for and on behalf of its members. Hence, after complying with the provisions of section 434 of the Companies Act, 1956 the Trade Union would certainly be competent to present a winding up Petition.”

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 and hence, 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.

5. Conclusion
The Hon’ble Supreme Court held that a trade union is certainly an entity established under statue namely, the Trade Unions Act, 1926, and would fall within the definition of “Person” under Section 3(23) of the IBC.

It was further held 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. Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 also recognizes the fact that claims may be made not only in an individual capacity, but also conjointly.

It was finally ruled as follows:
Looked at from any angle, 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.”

Post Author: Team VirtuaLaw

Team VirtuaLaw focuses on writing articles of relevance in the field of law. It targets to simplify the complexity of regulations into infographics and summarised articles.

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