J K JUTE MILL MAZDOOR MORCHA versus JUGGILAL KAMLAPAT JUTE MILLS COMPANY LTD. THROUGH ITS DIRECTOR on 30 April 2019

SUPREME COURT REPORTS

[2019] 7 S.C.R.

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J K JUTE MILL MAZDOOR MORCHA

v.

JUGGILAL KAMLAPAT JUTE MILLS COMPANY LTD.THROUGH ITS DIRECTOR

(Civil Appeal No. 20978 of 2017)

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APRIL 30, 2019

[R. F. NARIMAN AND VINEET SARAN, JJ.]

Insolvency and Bankruptcy Code, 2016– ss.3(23), 5(20),(21)and 8– A trade union, whether an operational creditor for theCpurpose of the 2016 Code – Respondent-Jute mill was being closedand reopened several times until it was finally closed in 2014 –Proceedings pending under the 1985 Act, the appellant-trade unionissued demand notice on behalf of around 3000 workers, u/s.8 ofthe Code, for their outstanding dues – Replied by the respondent –DNational Company Law Tribunal (NCLT) dismissed the petitionholding that a trade union is not an operational creditor – NCLATdismissed the appeal filed by the appellant stating that each workermay file individual application before the NCLT– Held: Under s.5(20)of the Code, an operational creditor refers to any “person”– s.3(23)states that “person” inter alia includes “any other entity establishedEunder a statute...”– A trade union is certainly an entity establishedunder a statute- the 1926 Act, and would therefore fall within thedefinition of “person” u/s.3(23) – An “operational debt”, meaninga claim in respect of employment, could certainly be made by aperson duly authorised to make such claim on behalf of a workman–FRule 6, Form 5 of the 2016 Rules, also recognises the fact thatclaims may be made not only in an individual capacity, but alsoconjointly – Further, a registered trade union recognised by s.8 ofthe 1926 Act, makes it clear that it can sue and be sued as a bodycorporate u/s.13 of that Act– Instead of one consolidated petitionby a trade union representing number of workmen, filing individualGpetitions would be burdensome as each workman would have topay insolvency resolution process costs, costs of the interim resolutionprofessional etc.– Thus, a registered trade union formed for thepurpose of regulating the relations between workmen and theiremployer can maintain a petition as an operational creditor on H

J K JUTE MILL MAZDOOR MORCHA v. JUGGILAL KAMLAPATJUTE MILLS CO. LTD. THR. ITS DIR.

behalf of its members– A joint petition could be filed u/r. 6 r/w Form5 of the 2016 Rules, with authority from several workmen to one ofthem to file such petition on behalf of all – Judgment of the NCLATset aside – Matter remanded to the NCLAT to be decided on merits,expeditiously –Trade Unions Act, 1926 – ss.2(g), (h), 8, 13, 15(c)and (d) – Sick Industrial Companies (Special Provisions) Act, 1985– Insolvency and Bankruptcy (Application to AdjudicatingAuthority) Rules, 2016 – r.6 r/w Form 5 – Insolvency andBankruptcy Board of India (Insolvency Resolution Process forCorporate Persons) Regulations, 2016 – Regulations 31 and 33.

Interpretation of Statutes – “noscitur a sociis” – Held: InSection 3(23) of the Code, a “person” would include any otherentity established under a statute under Clause (g) – Clause (g) hasto be read noscitur a sociis with the previous clauses of s.3(23) –Insolvency and Bankruptcy Code, 2016 – s.3(23)(g).

Words & Phrases –”established under a statute” – Discussed.

Allowing the appeal, the Court

Conclusion

HELD: 1.1 A trade union is certainly an entity establishedunder a statute – namely, the Trade Unions Act, 1926 and wouldtherefore fall within the definition of “person” under Sections3(23) of the Insolvency and Bankruptcy Code, 2016. This beingso, it is clear that an “operational debt”, meaning a claim in respectof employment, could certainly be made by a person dulyauthorised to make such claim on behalf of a workman. Rule 6,Form 5 of the Insolvency and Bankruptcy (Application toAdjudicating Authority) Rules, 2016 also recognises the fact thatclaims may be made not only in an individual capacity, but alsoconjointly. Further, a registered trade union recognised by Section8 of the Trade Unions Act, makes it clear that it can sue and besued as a body corporate under Section 13 of that Act. Equally,the general fund of the trade union, which inter alia is fromcollections from workmen who are its members, can certainly bespent on the conduct of disputes involving a member or membersthereof or for the prosecution of a legal proceeding to which thetrade union is a party, and which is undertaken for the purpose ofprotecting the rights arising out of the relation of its members A

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Awith their employer, which would include wages and other sumsdue from the employer to workmen. [Para 6] [1056-F-H;1057-A-B]1.2 In Section 3(23), a “person” includes a company inclause (c), and would include any other entity established underBa statute under clause (g). It is clear that clause (g) has to beread 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 entitiesgoverned by the Companies Act, the Indian Trusts Act, and thePartnership Act, which are not “established” under those ActsCin the sense understood in Canara Bank and the judgmentsfollowed by it. The context, therefore, in which the phrase“established under a statute” occurs, makes it clear that a tradeunion, like a company, trust, partnership, or limited liabilitypartnership, when registered under the Trade Union Act, wouldDbe “established” under that Act in the sense of being governedby that Act. For this reason, the judgment in Canara Bank wouldnot apply to Section 3(23) of the Code. Even otherwise, insteadof one consolidated petition by a trade union representing anumber of workmen, filing individual petitions would beburdensome as each workman would thereafter have to payEinsolvency resolution process costs, costs of the interimresolution professional, costs of appointing valuers, etc. underthe provisions of the Code read with Regulations 31 and 33 ofthe Insolvency and Bankruptcy Board of India (InsolvencyResolution Process for Corporate Persons) Regulations, 2016.FA registered trade union which is formed for the purpose ofregulating the relations between workmen and their employercan maintain a petition as an operational creditor on behalf of itsmembers. Procedure is the handmaid of justice, and is meant toserve justice. [Paras 9, 10] [1058-D-H; 1059-A-B]

G1.3 The NCLAT, by the impugned judgment, is not correctin refusing to go into whether the trade union would come withinthe definition of “person” under Section 3(23) of the Code.Equally, the NCLAT is not correct in stating that a trade unionwould not be an operational creditor as no services are renderedby the trade union to the corporate debtor. The trade unionH

represents its members who are workers, to whom dues may beowed by the employer, which are certainly debts owed for servicesrendered by each individual workman, who are collectivelyrepresented by the trade union. Equally, to state that for eachworkman there will be a separate cause of action, a separate claim,and a separate date of default would ignore the fact that a jointpetition could be filed under Rule 6 read with Form 5 of theInsolvency and Bankruptcy (Application to AdjudicatingAuthority) Rules, 2016, with authority from several workmen toone of them to file such petition on behalf of all. The judgment ofthe NCLAT is set aside. The matter is now remanded tothe NCLAT who will decide the appeal on merits expeditiouslyas this matter has been pending for quite some time. [Para 11][1060-D-G]

Commissioner of Income Tax (TDS), Kanpur and Anr.

v. Canara Bank (2018) 9 SCC 322 – held inapplicable.

Kailash v. Nanhku and Ors. (2005) 4 SCC 480 – reliedon.

Sanjay Sadanand Varrier v. Power Horse India Pvt.Ltd. (2017) 5 Mah LJ 876 ; Sarah Mathew v. Instituteof Cardio Vascular Diseases and Ors. (2014) 2 SCC62 – referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 20978of 2017.

From the Judgment and Order dated 12.09.2017 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No. 82 of 2017.

Gopal Jain, Gopal Shankar Narayan, Amit Singh Chadha, Navneeti A

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APrasad Singh, Anip Sachthey, Sr. Advs., Pankaj Jain, Bijoy Kumar Jain,Ankit Kohli, Ms. Gayatri Verma, R. C. Kohli, Ashok Kumar Jain, ArjunAggarwal, Shashank Shekhar Singh, A. Venayagam Balan, AtanuMukherjee, Ms. Srishti Govil, Pradeep Aggarwal, Gaurav Kejriwal, NarHari Singh, Ms. Anjali Chauhan, Ms. Ria Sachthey, Ms. Rekha Pandey,A.K. Sharma, Hitendra Nath Rath, Ms. Ruchi Kohli, Mushtaq Ahmad,BAdvs. for the appearing parties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J.

1. The present appeal raises an important question as to whetherCa trade union could be said to be an operational creditor for the purposeof the Insolvency and Bankruptcy Code, 2016 [“Code”]. The facts ofthe present case reveal a long-drawn saga of a jute mill being closed andreopened several times until finally, it has been closed for good on07.03.2014. Proceedings were pending under the Sick IndustrialDCompanies (Special Provisions) Act, 1985. On 14.03.2017, the appellantissued a demand notice on behalf of roughly 3000 workers under Section8 of the Code for outstanding dues of workers. This was replied to bythe respondent No.1 on 31.03.2017. The National Company Law Tribunal[“NCLT”], on 28.04.2017, after describing all the antecedent factsincluding suits that have been filed by the respondent No.1 and referringEto pending writ petitions in the High Court of Delhi, ultimately held that atrade union not being covered as an operational creditor, the petitionwould have to be dismissed. By the impugned order dated 12.09.2017,the National Company Law Appellate Tribunal [“NCLAT”] did likewiseand dismissed the appeal filed by the appellant before us, stating thatFeach worker may file an individual application before the NCLT.

2. Shri Gopal Jain, learned Senior Advocate appearing on behalfof the appellant took us through various provisions of the Code and theTrade Unions Act, 1926, [“Trade Unions Act”] and cited a DivisionBench judgment of the Bombay High Court in Sanjay Sadanand VarrierGv. Power Horse India Pvt. Ltd., (2017) 5 Mah LJ 876 [“SanjaySadanand Varrier”] to argue that even literally speaking, the provisionsof the Code would lead to the result that a trade union would be anoperational creditor within the meaning of the Code. Even otherwise, apurposive interpretation ought to be granted, as has been done in variousrecent judgments to the provisions of the Code, and that therefore, such H

an application by a registered trade union filed as an operational creditorwould be maintainable.

3. On the other hand, Shri Navaniti Prasad Singh, Shri Jayant K.Sud, and Shri Anip Sachthey, learned Senior Advocates appearing onbehalf of respondent No.1 supported the NCLAT judgment to arguethat as no services are rendered by a trade union to the corporate debtorto claim any dues which can be termed as debts, trade unions will notcome within the definition of operational creditors. That apart, eachclaim 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 eachdebt. This being so, a collective application under the rubric of a registeredtrade 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 otherwiserequires,—

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(20) “operational creditor” means a person to whom anoperational debt is owed and includes any person to whomsuch debt has been legally assigned or transferred;

Section 5(21) defines operational debt as follows:

“5. Definitions.—In this Part, unless the context otherwiserequires,—

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(21) “operational debt” means a claim in respect of the provisionof goods or services including employment or a debt in respectof the payment of dues arising under any law for the timebeing in force and payable to the Central Government, anyState Government or any local authority;

Rule 6 of the Insolvency and Bankruptcy (Application toAdjudicating Authority) Rules, 2016 states as follows:

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A“6. Application by operational creditor.—(1) An operationalcreditor, shall make an application for initiating the corporateinsolvency resolution process against a corporate debtor underSection 9 of the Code in Form 5, accompanied with documentsand records required therein and as specified in the Insolvencyand Bankruptcy Board of India (Insolvency Resolution ProcessBfor Corporate Persons) Regulations, 2016.

(2) The applicant under sub-rule (1) shall dispatch forthwith, acopy of the application filed with the Adjudicating Authority, byregistered post or speed post to the registered office of thecorporate debtor.”CForm 5, to which Rule 6 refers, contains Part V, in which the notestates:

“Note: Where workmen/employees are operational creditors, theapplication may be made either in an individual capacity or in aDjoint capacity by one of them who is duly authorised for thepurpose.”

An operational creditor refers to any “person”. “Person” is definedunder Section 3(23) of the Code to include the following:

“3. Definitions.—In this Code, unless the context otherwiseErequires,—

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(23) “person” includes—

(a) an individual;

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(c) a company;

(d) a trust;

(e) a partnership;

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(f) a limited liability partnership; and (g) any other entity established under a statute, and includes aperson resident outside India;

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J K JUTE MILL MAZDOOR MORCHA v. JUGGILAL KAMLAPATJUTE MILLS CO. LTD. THR. ITS DIR. [R. F. NARIMAN, J.]

5. When we come to the Trade Unions Act, Section 2(h) definesa trade union as follows:

“2. Definitions.—In this Act, ‘the appropriate Government’means, in relation to Trade Unions whose objects are not confinedto one State, the Central Government, and in relation to otherTrade Unions, the State Government, and, unless there is anythingrepugnant in the subject or context,—

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(h) “Trade Union” means any combination, whether temporaryor permanent, formed primarily for the purpose of regulating therelations between workmen and employers or between workmenand workmen, or between employers and employers, or forimposing restrictive conditions on the conduct of any trade orbusiness, and includes any federation of two or more Trade Unions;

Equally, trade disputes under the said Act are defined under Section2(g) as follows:

“2. Definitions.—In this Act, ‘the appropriate Government’means, in relation to Trade Unions whose objects are not confinedto one State, the Central Government, and in relation to otherTrade Unions, the State Government, and, unless there is anythingrepugnant in the subject or context,—

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(g) “trade dispute” means any dispute between employers andworkmen or between workmen and workmen, or betweenemployers and employers which is connected with the employmentor non-employment, or the terms of employment or the conditionsof labour, of any person, and “workmen” means all personsemployed in trade or industry whether or not in the employmentof the employer with whom the trade dispute arises; and

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

“8. Registration.—The Registrar, on being satisfied that theTrade Union has complied with all the requirements of this Act in A

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regard to registration, shall register the Trade Union by enteringin a register, to be maintained in such form as may be prescribed,the particulars relating to the Trade Union contained in thestatement accompanying the application for registration.”

“13. Incorporation of registered Trade Unions.—EveryBregistered Trade Union shall be a body corporate by the nameunder which it is registered, and shall have perpetual successionand a common seal with power to acquire and hold both movableand immovable property and to contract, and shall by the saidname sue and be sued.”

“15. Objects on which general funds may be spent.—Thegeneral funds of a registered Trade Union shall not be spent onany other objects than the following, namely,—

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(c) the prosecution or defence of any legal proceeding to whichDthe Trade Union or any member thereof is a party, when suchprosecution of defence is undertaken for the purpose ofsecuring or protecting any rights of the Trade Union as such orany rights arising out of the relations of any member with hisemployer or with a person whom the member employs; E

(d) the conduct of trade disputes on behalf of the Trade Unionor any member thereof;

6. On a reading of the aforesaid statutory provisions, whatbecomes clear is that a trade union is certainly an entity establishedFunder a statute – namely, the Trade Unions Act, and would therefore fallwithin the definition of “person” under Sections 3(23) of the Code. Thisbeing so, it is clear that an “operational debt”, meaning a claim in respectof employment, could certainly be made by a person duly authorised tomake such claim on behalf of a workman. Rule 6, Form 5 of theGInsolvency and Bankruptcy (Application to Adjudicating Authority) Rules,2016 also recognises the fact that claims may be made not only in anindividual capacity, but also conjointly. Further, a registered trade unionrecognised by Section 8 of the Trade Unions Act, makes it clear that itcan 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 fromH

collections from workmen who are its members, can certainly be spenton the conduct of disputes involving a member or members thereof orfor the prosecution of a legal proceeding to which the trade union is aparty, and which is undertaken for the purpose of protecting the rightsarising out of the relation of its members with their employer, whichwould 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, includingSection 15, has held:

“13. As can be seen from the said section, Registered TradeUnions can prosecute or defend any legal proceeding to whichthe Trade Union or member thereof is a party, when suchprosecution or defence is undertaken for the purpose of securingor protecting any right of the Trade Union as such, or any rightsarising out of the relations of any member with his employer orwith a person whom the member employs. In fact, the TradeUnion can even spend general funds on the conduct of tradedisputes 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 theprovisions of the Trade Unions Act, 1926, we are clearly of theview that looking to the mandate of sections 13 and 15 of theTrade Unions Act, 1926, there is no doubt in our mind that a Petitionfor winding up would be maintainable at the instance of the TradeUnion. This is for the simple reason that section 15(c) and (d)clearly mandates that the prosecution or defence of any proceedingto which the Trade Union or any member thereof is a party aswell as the conduct of trade disputes on behalf of the Trade Unionor any member thereof can be done by the Trade Union. Thiswould clearly go to show that the Trade Union, for and on behalfof its members can certainly prefer a winding up Petition ascontemplated under section 439 of the said Act. This is for thesimple reason that if the workmen have not been paid their wagesand/or salary by the Company, they would certainly be a creditoror creditors as contemplated under section 439(1)(b) of theCompanies Act, 1956. Section 15 clearly mandates that the TradeUnion can take up this cause for and on behalf of its members.Hence, after complying with the provisions of section 434 of the A

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ACompanies Act, 1956 the Trade Union would certainly becompetent to present a winding up Petition.”

8. No doubt, this judgment was in the context of a winding uppetition, but the rationale based upon Section 15(c) and (d) equally appliesto a petition filed under the Code.

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9. However, learned counsel appearing on behalf of the respondenthave cited the judgment reported as Commissioner of Income Tax(TDS), Kanpur and Anr. v. Canara Bank, (2018) 9 SCC 322 [“CanaraBank”]. This judgment dealt with the expression “established by or undera Central, State or Provincial Act” contained in Section 194-A(3)(iii) ofCthe Income Tax Act, 1961. After exhaustively reviewing the case lawon the subject, this Court came to the conclusion that the NOIDA authoritywas established as an authority under the State Act. While dealing withseveral judgments of this Court, the Court, in paragraphs 20, 24, and 25,followed judgments stating that a company incorporated and registeredunder the Companies Act cannot be said to be “established” under theDCompanies Act. The context of Section 3(23) of the Code shows thatthis judgment has no application to the definition contained in Section3(23). Here, a “person” includes a company in clause (c), and wouldinclude any other entity established under a statute under clause (g). It isclear that clause (g) has to be read noscitur a sociis with the previousEclauses of Section 3(23). This being the case, entities such as companies,trusts, partnerships, and limited liability partnerships are all entitiesgoverned by the Companies Act, the Indian Trusts Act, and the PartnershipAct, which are not “established” under those Acts in the sense understoodin Canara Bank (supra) and the judgments followed by it. The context,therefore, in which the phrase “established under a statute” occurs, makesFit clear that a trade union, like a company, trust, partnership, or limitedliability partnership, when registered under the Trade Union Act, wouldbe “established” under that Act in the sense of being governed by thatAct. For this reason, the judgment in Canara Bank (supra) would notapply to Section 3(23) of the Code.

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10. Even otherwise, we are of the view that instead of oneconsolidated petition by a trade union representing a number of workmen,filing individual petitions would be burdensome as each workman wouldthereafter have to pay insolvency resolution process costs, costs of theinterim resolution professional, costs of appointing valuers, etc. under H

the provisions of the Code read with Regulations 31 and 33 of theInsolvency and Bankruptcy Board of India (Insolvency ResolutionProcess for Corporate Persons) Regulations, 2016. Looked at from anyangle, there is no doubt that a registered trade union which is formed forthe purpose of regulating the relations between workmen and theiremployer can maintain a petition as an operational creditor on behalf ofits members. We must never forget that procedure is the handmaid ofjustice, and is meant to serve justice. This Court, in Kailash v. Nanhkuand Ors., (2005) 4 SCC 480, put it thus:

“28. All the rules of procedure are the handmaid of justice. Thelanguage employed by the draftsman of processual law may beliberal or stringent, but the fact remains that the object ofprescribing procedure is to advance the cause of justice. In anadversarial system, no party should ordinarily be denied theopportunity 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 oughtnot to be construed in a manner which would leave the courthelpless to meet extraordinary situations in the ends of justice.The observations made by Krishna Iyer, J. in Sushil Kumar Senv. 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’sconscience and points an angry interrogation at the lawreformer.

The processual law so dominates in certain systems as tooverpower substantive rights and substantial justice. Thehumanist rule that procedure should be the handmaid, not themistress, of legal justice compels consideration of vesting aresiduary power in judges to act ex debito justitiae where thetragic sequel otherwise would be wholly inequitable. … Justiceis the goal of jurisprudence — processual, as much assubstantive.”

29. In State of Punjab v. Shamlal Murari [(1976) 1 SCC 719 :1976 SCC (L&S) 118] the Court approved in no unmistakableterms the approach of moderating into wholesome directions whatis 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 anobstruction but an aid to justice. Procedural prescriptions arethe handmaid and not the mistress, a lubricant, not a resistantin the administration of justice.”

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

This judgment was followed by the Constitution Bench decisionCin Sarah Mathew v. Institute of Cardio Vascular Diseases andOrs., (2014) 2 SCC 62 [at paragraph 49].

11. The NCLAT, by the impugned judgment, is not correct inrefusing to go into whether the trade union would come within thedefinition of “person” under Section 3(23) of the Code. Equally, theDNCLAT is not correct in stating that a trade union would not be anoperational creditor as no services are rendered by the trade union tothe corporate debtor. What is clear is that the trade union represents itsmembers who are workers, to whom dues may be owed by the employer,which are certainly debts owed for services rendered by each individualworkman, who are collectively represented by the trade union. Equally,Eto 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 factthat a joint petition could be filed under Rule 6 read with Form 5 of theInsolvency and Bankruptcy (Application to Adjudicating Authority) Rules,2016, with authority from several workmen to one of them to file suchFpetition on behalf of all. For all these reasons, we allow the appeal andset aside the judgment of the NCLAT. The matter is now remanded tothe NCLAT who will decide the appeal on merits expeditiously as thismatter has been pending for quite some time. The appeal is allowedaccordingly.

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Divya Pandey

Appeal allowed.

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