Trade Union as Operational Creditor: Critical Analysis of JK Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Company Limited

By June 6, 2019 December 20th, 2019 No Comments

Hon’ble Supreme Court of India recently held in the case of JK Jute Mill Mazdoor Morcha v. Juggilal
Kamlapat Jute Mills Company Limited[1],
that trade union
can be considered as ‘operational creditors’ under the Insolvency and
Bankruptcy Code, 2016 (“Code”).  A dispute arose between the parties due to
the non‑payment of outstanding dues of the workers engaged at the jute mill owned
by the respondents. 
appellant issued a demand notice under Section 8 of the Code on March 14, 2017,
on behalf of roughly 3000 mill workers for payment of outstanding dues. On April
28, 2017, the National Company Law Tribunal (“NCLT”) dismissed the petition filed by the appellant on the grounds
that the trade union is not covered under the definition of an operational
creditor.  On September 12, 2017, the
National Company Law Appellate Tribunal (“NCLAT”)
relied on the same principle as the NCLT and dismissed the appeal.
advocate on behalf of the appellant relied on the case decided by the Bombay
High Court in Sanjay Sadanand Varrier v.
Power House India Private Limited[2],
(“Sanjay Varrier Case”) to argue that a purposive
interpretation ought to be granted to the provision of the Code. Whereas the
advocates on behalf of the respondent argued that no services are rendered by
the trade union to the corporate debtor and each claim by a worker is a
separate cause of action.
deciding the case the Hon’ble Supreme Court of India relied on various
provision of the Code, Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 (“Rules”) and
Trade Unions Act, 1926 (“Trade Unions
”).  The Hon’ble Supreme decided
in favour of the appellant on the following grounds:
Union is a ‘Person’ under the Code
Hon’ble Court analyzed the definitions of ‘Operational Creditor’, ‘Operational
Debt’, ‘Person’ under the Code and held that since a trade union is an entity
established under a statue, it will fall under the definition of a ‘Person’
under the Code. The Hon’ble Court also relied on the Sanjay Varrier Case to arrive
at this decision.
comparison was also drawn by the Hon’ble Court between an ‘Operational Debt’
under the Code and ‘Trade Dispute’ under the Trade Unions Act.  The Hon’ble Court also held that a claim in
respect of employment forms part of an operational debt under the Code. 
Claims can
be made conjointly by the trade union under the Code
addition to the aforesaid, the Hon’ble Court relied on Rule 6, Form 5 of the
Rules as a note in Form 5 provided that an application may be made either in an
individual capacity or in a joint capacity.  Additionally, the Hon’ble Court held that a
trade union can spend the collections from workmen on conducting disputes
involving a member[3].
Hon’ble Court held that instead of filing individual petitions one consolidated
petition by a trade union representing a number of workmen would not be
burdensome and it would not involve process cost.  The Hon’ble Court relied on Kailash v. Nanhku and Others[4]  wherein it was held that procedure is the
handmaid of justice, and is meant to serve justice. In the aforesaid judgement,
the Hon’ble Supreme Court also relied on State
of Punjab v. Shamlal Murari[5]
wherein it was
held that procedural law is not an obstruction but an aid to justice. Further, Ghanshyam Dass v.
Dominion of India
[6] was also referred in the aforesaid
judgement to the effect that procedural law must be interpreted to subserve and
advance the cause of justice rather than to defeat it.
in light of the aforesaid case laws, the Hon’ble Court allowed the appeal and
set aside the judgement of the NCLAT. 
The matter is now remanded to the NCLAT who will decide the appeal on
July 16, 2019.
the Hon’ble Supreme Court of India has extended to the provisions of the Code
to include trade unions in the category of operational creditors under the Code,
it has overlooked the requirements set out for a person to qualify as an
operational creditor and file an application under the Code.  One of the major grounds on which the Hon’ble
Supreme Court relied upon was that Rule 6, Form 5 of the Rules provides for a
joint application filed on behalf of the operational creditor.  It is important to refer this note provided
in the aforesaid Form 5:
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
of the aforesaid note indicates that in the event there is more than one
operational creditor, any one of the operational creditors may file an
application under Form 5 on behalf of the other operational creditors.  The Hon’ble Supreme Court in its judgement
has already opined that, irrespective of the fact that a trade union does not
offer services to the corporate debtor, 
it may be considered as an operational creditor.  The judgement, however, is only with respect
to the case of JK Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute
Mills Company Limited
and may not applicable on all similar cases wherein
trade unions may have filed an application on behalf of its workers.
the Hon’ble Supreme Court has attempted to shelter the unorganized sector of
mill workers, however, uncertainty remains on certain issues such as limitation
especially considering the recent judgement of B.K. Educational Services Private Limited v.
Parag Gupta and Associates
[7] wherein
the Hon’ble Supreme Court of India held that the Limitation Act, 1963, will
apply to application made under Section 7 and Section 9 of the Code.  

[2]                  2017(3)ARB341.
[3]             Section 15(c) and (d) of the Trade Unions Act, 1929.
[4]             AIR 2005 SC 2441.
[5]             (1976) 1 SCC 719.
[6]             (1984) 3 SCC 46.
[7]             AIR 2018 SC 5601.

Leave a Reply