Whether a Trade Union Become an Operational Creditor Under The Insolvency and Bankruptcy Code (IBC)

An operational creditor is defined under Section 5(20) of the IBC to mean

any person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred“.

In order to ascertain whether a person would fall within the definition of an operational creditor, the debt owed to such a person must fall within the definition of an operational debt as defined under Section 5(21) of the IBC.

An operational debt is defined under section 5(21) of the IBC to mean:

a claim in respect of the provisions of goods or services including employment or a debt in respect of the repayment 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”.

Regulation 9 of the code provides for filling of a proof by a workman or employee to an interim resolution professional. It also provide for filling of proof of claim by an authorized representative in case there are large number workmen or employees of the corporate debtor

The court said that a trade union is certainly an entity established under the Trade Unions Act and would, therefore, fall within the definition of “person” under sections 3(23) of the IBC. Therefore, an operational debt, meaning a claim in respect of employment, could certainly be made by a person authorized to make such a claim on behalf of an employee.

PRECEDENT

The case was pending under the Sick Industrial Companies (Special Provisions) Act, 1985, after a long-drawn saga of the jute mill closing and reopening several times until it closed permanently in 2014. In 2017, the appellant issued a demand notice on behalf of roughly 3000 workers under section 8 of the IBC for outstanding dues of workers. The claim was filed by trade union on behalf of the workers.

The National Company Law Tribunal (NCLT) dismissed the case holding that a trade union is not an operational creditor. The order was upheld by the National Company Law Appellate Tribunal (NCLAT), which observed that each worker may file an individual application before the NCLT.

The Supreme Court held that NCLAT’s finding that a trade union would not be an operational creditor as no services are rendered by the trade union to the corporate debtor is not tenable as the trade union represents its members who are workers, to whom the employer may owe dues, which are debts owed for services rendered by each individual employee, who are collectively represented by the trade union. To state that for each employee there will be a separate cause of action, a separate claim, and a separate date of default ignores 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 employees given to one of them to file such petition on behalf of all.

 SO A TRADE UNION MAY BE ACT AS OPERATIONAL CREDITOR IN THE REPRESENTATIVE CAPACITY.

DISCLAIMER: THE ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE PREPARATION.IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.

THE AUTHOR CAN BE REACHED AT VINAYAK.CHARU@GMAIL.COM

Author Bio

More Under Corporate Law

Leave a Comment

Your email address will not be published. Required fields are marked *