2019 (5) TMI 236 - SC - Insolvency and Bankruptcy

Trade union to be considered as an operational creditor for the purpose of the Insolvency and Bankruptcy Code, 2016 - 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 - HELD THAT - The context, in which the phrase established under a statute occurs, 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. For this reason, the judgment in Canara Bank 2018 (7) TMI 664 - SUPREME COURT OF INDIA would not apply to Section 3(23) of the Code. 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. 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 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. For all these reasons, we allow the appeal and set aside the judgment of the NCLAT. The matter is now remanded to the NCLAT who will decide the appeal on merits expeditiously as this matter has been pending for quite some time.

Summary

Issues Involved:
1. Whether a trade union qualifies as an operational creditor under the Insolvency and Bankruptcy Code, 2016.
2. Whether a trade union can file a consolidated petition on behalf of its members for outstanding dues.

Issue-wise Detailed Analysis:

1. Whether a trade union qualifies as an operational creditor under the Insolvency and Bankruptcy Code, 2016:

The core issue revolves around the interpretation of "operational creditor" under the Insolvency and Bankruptcy Code, 2016 (the "Code"). Section 5(20) of the Code defines an operational creditor as "a person to whom an operational debt is owed." Section 5(21) further elaborates that an operational debt includes claims related to employment. The appellant argued that a trade union, being an entity established under the Trade Unions Act, 1926, qualifies as a "person" under Section 3(23) of the Code. This is because a trade union is a body corporate with the capacity to sue and be sued, as per Section 13 of the Trade Unions Act. The NCLT and NCLAT had dismissed the petition, stating that a trade union does not render services to the corporate debtor and thus cannot be an operational creditor. However, the Supreme Court observed that the trade union represents the workers who provide services to the employer, and therefore, the dues owed to the workers qualify as operational debts. The Court also noted that the Trade Unions Act allows trade unions to spend funds on legal proceedings to protect the rights of its members, which includes claims for unpaid wages.

2. Whether a trade union can file a consolidated petition on behalf of its members for outstanding dues:

The appellant contended that filing individual petitions for each worker would be burdensome and inefficient, as each worker would have to bear the costs associated with the insolvency resolution process. The Supreme Court agreed, emphasizing that procedural rules should serve the cause of justice and not hinder it. The Court cited Rule 6 and Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, which allow for joint applications by operational creditors. The Court also referenced the Bombay High Court's decision in Sanjay Sadanand Varrier v. Power Horse India Pvt. Ltd., which held that a trade union could file a winding-up petition on behalf of its members. The Supreme Court concluded that a trade union could indeed file a consolidated petition as an operational creditor on behalf of its members. The Court emphasized that requiring individual petitions would be contrary to the principles of justice and efficiency.

Conclusion:

The Supreme Court allowed the appeal, setting aside the NCLAT's judgment. It ruled that a trade union qualifies as an operational creditor under the Code and can file a consolidated petition on behalf of its members. The matter was remanded to the NCLAT for a decision on the merits. The Court stressed that procedural rules should facilitate justice rather than obstruct it, ensuring that the rights of workers are effectively protected.