While setting aside an NCLAT ruling, the Supreme Court has held that a trade union, for the purpose of triggering insolvency, can be an operational creditor (JK Jute Mill Mazdoor Morcha vs Juggilal Kamlapat Jute Mills).

The Court was hearing an appeal against a decision which rejected a Section 9 application filed by a trade union. The trade union had issued a demand notice to the corporate debtor, Juggilal Kamlapat Jute Mills, on behalf of 3000 workers and filed an application at the NCLT. The NCLT declined to entertain the application, so did the NCLAT on an appeal.

The case before the Supreme Court was an appeal filed by JK Jute Mill Mazdoor Morcha against the NCLAT judgment, which held that since no services are rendered by a trade union to the corporate debtor to claim any dues which can be termed as debts, trade unions will not come within the definition of operational creditors.

The NCLT and NCLAT both held that each claim of each workman is a separate cause of action in law, and therefore, a separate claim for which there are separate dates of default of each debt. This being so, a collective application under the rubric of a registered trade union would not be maintainable.

The Supreme Court, however, referred to provisions of the Trade Unions Act while reading the Insolvency and Bankruptcy Code and I&B (Application to Adjudicating Authority) Rules. The Court held 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 Code. This being so, it is clear 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.”

The Court particularly referred to Rule 6, Form 5 which allows claims to be made conjointly. The Court further held 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.

While disagreeing with the NCLAT reasoning on the rejection of the application, the Court held that, “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“.

To say that for each workman there will be a separate cause of action, a separate claim would ignore the fact that a joint petition can be presented by operational creditors under Form 5. The matter was accordingly remanded to the NCLAT.