On April 30, 2019, the Supreme Court of India passed a judgment in the matter of JK Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Company Limited Through its Director, (C.A. No. 20978 of 2017) wherein the issue was whether a trade union could be said to be an operational creditor for the purpose of the Insolvency and Bankruptcy Code, 2016 (“IBC”).
The appellant trade union had issued a demand notice under section 8 of the IBC on behalf of a large number of workers for their outstanding dues. The NCLT dismissed the petition filed by the trade union stating that a trade union is not an operational creditor as no services are rendered by the trade union to the corporate debtor. The NCLAT upheld the same stating that each worker may file an individual application before the NCLT.
The definition of ‘operational creditor’ under section 5(21) of the IBC refers to a ‘person’, which includes an entity established under a statute (as per section 3(23) of the IBC). It was observed that since a trade union is an entity established under the Trade Unions Act, 1926, it would fall within the said definition of ‘person’ under the IBC. Further, Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (Application by operational creditor) refers to Form V, wherein the following note is provided in its part V:
“Note: Where workmen/employees are operational creditors, the application may be made either in an individual capacity or in a joint capacity by one of them who is duly authorised for the purpose.”
Reference was also made to the judgment of the Bombay High Court in the case of Sanjay Sadanand Varrier v. Power Horse India Private Limited, ((2017) 5 Mah LJ 876), wherein it was held that a trade union can file a winding up petition for outstanding wages of workmen.
In view of the above, the Supreme Court held 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.
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