REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.20978 of 2017

JK JUTE MILL MAZDOOR MORCHA    …APPELLANT

VERSUS

JUGGILAL KAMLAPAT JUTE MILLS COMPANY LTD. THROUGH ITS DIRECTOR  & ORS.     …RESPONDENTS

J U D G M E N T

R.F. NARIMAN, J.

1. The  present  appeal  raises  an  important  question  as  to

whether a trade union could be said to be an operational creditor for

the purpose of the Insolvency and Bankruptcy Code, 2016 [“Code”].

The facts of the present case reveal a long-drawn saga of a jute mill

being closed and reopened several times until finally, it has been

closed for good on 07.03.2014. Proceedings were pending under

the Sick Industrial  Companies (Special  Provisions) Act,  1985. On

14.03.2017,  the  appellant  issued  a  demand  notice  on  behalf  of

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roughly 3000 workers under Section 8 of the Code for outstanding

dues  of  workers.  This  was  replied  to  by  respondent  No.1  on

31.03.2017.  The  National  Company  Law  Tribunal  [“NCLT”],  on

28.04.2017, after describing all the antecedent facts including suits

that have been filed by respondent No.1 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  filed  by  the

appellant before us, stating that each worker may file an individual

application before the NCLT.  

2. Shri Gopal Jain, learned Senior Advocate appearing on behalf

of the appellant took us through various provisions of the Code and

the  Trade  Unions  Act,  1926,  [“Trade  Unions  Act”]  and  cited  a

Division  Bench  judgment  of  the  Bombay  High  Court  in  Sanjay

Sadanand Varrier v. Power Horse India Pvt. Ltd., (2017) 5 Mah

LJ 876 [“Sanjay  Sadanand Varrier”]  to  argue  that  even  literally

speaking, the provisions of the Code would lead to the result that a

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trade union would be an operational creditor within the meaning of

the Code. Even otherwise, a purposive interpretation ought to be

granted,  as  has  been  done  in  various  recent  judgments  to  the

provisions of the Code, and that therefore, such an application by a

registered  trade  union  filed  as  an  operational  creditor  would  be

maintainable. Shri Gaurav Kejriwal, learned Advocate appearing on

behalf of respondent No.2 has supported the arguments advanced

by Shri Gopal Jain.  

3. On the other hand, Shri Navaniti Prasad Singh, Shri Jayant K.

Sud, and Shri Anip Sachthey, learned Senior Advocates appearing

on behalf  of  respondent No.1 supported the NCLAT judgment  to

argue that  as  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.  That apart, 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.  

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4. Section  5(20)  of  the  Code  defines  operational  creditor  as

follows:

“5.  Definitions.—In  this  Part,  unless  the  context otherwise requires,— xxx xxx xxx (20) “operational creditor” means a person to whom an operational  debt  is  owed and includes  any  person  to whom  such  debt  has  been  legally  assigned  or transferred; xxx xxx xxx”

Section 5(21) defines operational debt as follows:

“5.  Definitions.—In  this  Part,  unless  the  context otherwise requires,— xxx xxx xxx (21) “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; xxx xxx xxx”

Rule  6  of  the  Insolvency  and  Bankruptcy  (Application  to

Adjudicating Authority) Rules, 2016 states as follows:

“6.  Application  by  operational  creditor.—(1)  An operational  creditor,  shall  make  an  application  for initiating  the  corporate  insolvency  resolution  process against a corporate debtor under Section 9 of the Code in Form 5,  accompanied with  documents  and records required therein and as specified in the Insolvency and

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Bankruptcy  Board  of  India  (Insolvency  Resolution Process for Corporate Persons) Regulations, 2016. (2)  The  applicant  under  sub-rule  (1)  shall  dispatch forthwith,  a  copy  of  the  application  filed  with  the Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor.”

Form 5, to which Rule 6 refers, contains Part V, in which the note

states:

“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.”

An operational creditor refers to any “person”. “Person” is defined

under Section 3(23) of the Code to include the following:

“3.  Definitions.—In  this  Code,  unless  the  context otherwise requires,— xxx xxx xxx (23) “person” includes—

(a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f)  a limited liability partnership; and (g) any other entity established under a statute, and includes a person resident outside India;

xxx xxx xxx”

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5. When we come to the Trade Unions Act, Section 2(h) defines

a trade union as follows:

“2.  Definitions.—In  this  Act,  ‘the  appropriate Government’ means, in relation to Trade Unions whose objects  are  not  confined  to  one  State,  the  Central Government, and in relation to other Trade Unions, the State  Government,  and,  unless  there  is  anything repugnant in the subject or context,— xxx xxx xxx (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; xxx xxx xxx”

Equally, trade disputes under the said Act are defined under Section

2(g) as follows:

“2.  Definitions.—In  this  Act,  ‘the  appropriate Government’ means, in relation to Trade Unions whose objects  are  not  confined  to  one  State,  the  Central Government,  and  in  relation  to  other  Trade  Unions, the State  Government,  and,  unless  there  is  anything repugnant in the subject or context,— xxx xxx xxx  (g)  “trade  dispute”  means  any  dispute  between employers  and  workmen  or  between  workmen  and workmen, or between employers and employers which

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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; and xxx xxx xxx”

Section 8, Section 13, and Section 15(c) and (d) are relevant and

state:

“8. Registration.—The Registrar, on being satisfied that the Trade Union has complied with all the requirements of  this  Act  in  regard  to  registration,  shall  register  the Trade Union by entering in a register, to be maintained in  such  form  as  may  be  prescribed,  the  particulars relating to the Trade Union contained in the statement accompanying the application for registration.”

“13.  Incorporation  of  registered  Trade  Unions.— Every registered Trade Union shall be a body corporate by the name under which it is registered, and shall have perpetual succession and a common seal with power to acquire and hold both movable and immovable property and to contract, and shall by the said name sue and be sued.”

“15. Objects on which general funds may be spent.— The general funds of a registered Trade Union shall not be  spent  on  any  other  objects  than  the  following, namely,— xxx xxx xxx (c) the prosecution or defence of any legal proceeding to which the Trade Union or any member thereof is a party, when such prosecution of defence is undertaken for the purpose of securing or protecting any rights of the Trade Union as such or any rights arising out of the relations of

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any member with his employer or with a person whom the member employs; (d) the conduct of trade disputes on behalf of the Trade Union or any member thereof; xxx xxx xxx”

6. On  a  reading  of  the  aforesaid  statutory  provisions,  what

becomes clear is 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.

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. Further, 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.  Equally,  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

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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.  

7. The Bombay High Court in Sanjay Sadanand Varrier (supra),

after  setting  out  various  provisions  of  the  Trade  Unions  Act,

including Section 15, has held:

“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  defence  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 defence of any proceeding to which the Trade Union or

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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.”

8. No doubt, this judgment was in the context of a winding up

petition, but the rationale based upon Section 15(c) and (d) equally

applies to a petition filed under the Code.

9. However, learned counsel appearing on behalf of respondent

No.  1  have  cited  the  judgment  reported  as  Commissioner  of

Income Tax (TDS), Kanpur and Anr. v. Canara Bank,  (2018) 9

SCC 322 [“Canara Bank”]. 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

exhaustively reviewing the case law on the subject, this Court came

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to the conclusion that the NOIDA authority was established as an

authority under the State Act. While dealing with several judgments

of  this  Court,  the Court,  in  paragraphs 20,  24,  and 25,  followed

judgments  stating  that  a  company  incorporated  and  registered

under the Companies Act cannot be said to be “established” under

the Companies Act. The context of Section 3(23) of the Code shows

that this judgment has no application to the definition contained in

Section 3(23). Here, a “person” includes a company in clause (c),

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 with the previous clauses of  Section 3(23).  This being the

case, entities such as companies, trusts, partnerships, and limited

liability partnerships are all entities governed by the Companies Act,

the  Indian  Trusts  Act,  and  the  Partnership  Act,  which  are  not

“established” under those Acts in the sense understood in  Canara

Bank (supra)  and  the  judgments  followed  by  it.  The  context,

therefore, 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

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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 (supra) would not apply to Section 3(23) of the Code.  

10. Even  otherwise,  we  are  of  the  view  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. 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. We must never forget that procedure is the handmaid of

justice,  and  is  meant  to  serve  justice.  This  Court,  in  Kailash v.

Nanhku and Ors., (2005) 4 SCC 480, put it thus:

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“28. All  the  rules  of  procedure  are  the  handmaid  of justice.  The  language  employed  by  the  draftsman  of processual law may be liberal or stringent, but the fact remains that  the object  of  prescribing procedure is  to advance the cause of justice. In an adversarial system, no party should ordinarily be denied the opportunity of participating  in  the  process  of  justice  dispensation. Unless compelled by express and specific language of the  statute,  the  provisions  of  CPC  or  any  other procedural  enactment  ought  not  to  be construed  in  a manner which would leave the court  helpless to meet extraordinary  situations  in  the  ends  of  justice.  The observations made by Krishna Iyer, J. in  Sushil Kumar Sen v.  State of Bihar [(1975) 1 SCC 774] are pertinent: (SCC p. 777, paras 5-6)

“The mortality  of  justice  at  the  hands  of  law troubles  a  judge’s  conscience  and  points  an angry interrogation at the law reformer. The  processual  law  so  dominates  in  certain systems  as  to  overpower  substantive  rights and substantial justice. The humanist rule that procedure  should  be  the  handmaid,  not  the mistress, of legal justice compels consideration of vesting a residuary power in judges to act ex debito  justitiae  where  the  tragic  sequel otherwise  would  be  wholly  inequitable.  … Justice  is  the  goal  of  jurisprudence  — processual, as much as substantive.”

29. In State of Punjab v.  Shamlal Murari [(1976) 1 SCC 719 : 1976 SCC (L&S) 118] the Court approved in no unmistakable  terms  the  approach  of  moderating  into wholesome directions what is regarded as mandatory on the principle that: (SCC p. 720)

“Processual  law  is  not  to  be  a  tyrant  but  a servant, not an obstruction but an aid to justice. Procedural prescriptions are the handmaid and

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not the mistress, a lubricant, not a resistant in the administration of justice.”

In Ghanshyam Dass v. Dominion of India [(1984) 3 SCC 46] the Court reiterated the need for interpreting a part of the adjective law dealing with procedure alone in such a  manner  as  to  subserve  and  advance  the  cause  of justice  rather  than  to  defeat  it  as  all  the  laws  of procedure are based on this principle.”

This  judgment  was  followed  by  the  Constitution  Bench  decision  in

Sarah Mathew v. Institute of Cardio Vascular Diseases and Ors.,

(2014) 2 SCC 62 [at paragraph 49].

11. The  NCLAT,  by  the  impugned  judgment,  is  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 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.  What  is  clear  is  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,

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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.

The appeal is allowed accordingly.  

………..……………… J. (R. F. Nariman)

…..…………………… J. (Vineet Saran)

New Delhi. April 30, 2019.

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