MANU/SC/0626/2019: Rohinton Fali Nariman and Vineet Saran, JJ

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MANU/SC/0626/2019

Equivalent Citation: AIR2019SC 2138, 2019 4 AWC 3160SC , III(2019)BC 1(SC ), 2019(3) C HN (SC ) 169, [2019]150C LA279(SC ),
2019(3)C TC 715, 2019(2)RC R(C ivil)997, 2019(7)SC ALE136, (2019)11SC C 332, 2019 (6) SC J 411, [2019]154SC L1(SC )

IN THE SUPREME COURT OF INDIA


Civil Appeal No. 20978 of 2017
Decided On: 30.04.2019
Appellants: JK Jute Mill Mazdoor Morcha
Vs.
Respondent: Juggilal Kamlapat Jute Mills Company Ltd. and Ors.
Hon'ble Judges/Coram:
Rohinton Fali Nariman and Vineet Saran, JJ.
Case Category:
COMPANY LAW, MRTP AND ALLIED MATTERS
Case Note:
Insolvency - Operational creditor - Trade union - Representation - Sections
8 and 3(23)of Insolvency and Bankruptcy Code, 2016 (Code) and Sections 8
and 13 of the Trade Unions Act, 1926 and Rule 6, Form 5 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 -
Appeal was against impugned order of National Company Law Appellate
Tribunal [NCLAT] stating that each worker may file an individual
application before the NCLT and a trade union not being covered as an
operational creditor - Whether a trade union could be said to be an
operational creditor for purpose of Code, 2016. Facts: 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 7th
March, 2014. Proceedings were pending under Act, 1985. On 14th March,
2017, the Appellant issued a demand notice on behalf of roughly 3000
workers under Section 8 of the Code for outstanding dues of workers. This
was replied to by Respondent No. 1. The National Company Law Tribunal
[NCLT] held that, a trade union not being covered as an operational
creditor, the petition would have to be dismissed. By the impugned order,
the National Company Law Appellate Tribunal [NCLAT] did likewise and
dismissed the appeal filed by the Appellant, stating that each worker may
file an individual application before the NCLT. Appellant argued that,
provisions of the Code would lead to the result that, a 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. Held, while allowing the appeal 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,

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a registered trade union recognised by Section 8 of 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 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. [6] 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. [10] 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. 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, 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 Rules,
2016, with authority from several workmen to one of them to file such
petition on behalf of all. The appeal is allowed and the judgment of the
NCLAT is set aside. 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. [11]
Ratio Decidendi:
A registered trade union can maintain a petition as an operational creditor
on behalf of its members
JUDGMENT
Rohinton Fali 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 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

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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., MANU/MH/0469/2017 :
(2017) 5 Mah L J 876 ["Sanjay Sadanand Varrier"] 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 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.
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 Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016.

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(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
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

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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
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 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

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collections from workmen who are its members, can certainly be spent on the
conduct of 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.
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:
1 3 . 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 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, MANU/SC/0707/2018 : (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 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

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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 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., MANU/SC/0264/2005 : (2005) 4 SCC 480, put it thus:
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 Code of Civil Procedure 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
[MANU/SC/0028/1975 : (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 [MANU/SC/0494/1975 : (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)

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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
not the mistress, a lubricant, not a resistant in the administration of
justice.
In Ghanshyam Dass v. Dominion of India [MANU/SC/0006/1984 : (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., MANU/SC/1210/2013 : (2014) 2 SCC
62 [at paragraph 49].
1 1 . 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, 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.
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