INTRODUCTION

The case raises a crucial legal issue under the “Insolvency and Bankruptcy Code, 2016 (IBC)”, i.e., whether a registered trade union can be an “operational creditor” so as to trigger corporate insolvency proceedings. The controversy is the shutdown of a jute factory and the latter’s move by a trade union that has about 3000 members to recover dues due on its behalf. Both the “National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT)” dismissed the union’s case on the basis that a trade union is not an operational creditor under the Code. But this approach was opposed by the appellant on the basis of a purposive and expansive construction of the relevant provisions, particularly in view of the aims of both the IBC and the Trade Unions Act, 1926. This case, thus, has fundamental issues concerning access to justice for workers as well as procedural and substantive roles of trade unions in the insolvency regime.

FACTS

The case involves the financial crises of the Kanpur-based Juggilal Kamlapat Jute Mills Company Ltd., a jute manufacturing company. Over time, the company experienced operational difficulties, leading to several closures, and ultimately, a permanent shutdown on March 7, 2014. This closure left around 3000 workers, represented by their registered trade union—JK Jute Mill Mazdoor Morcha—without payment of wages and statutory dues for an extended period. On behalf of the workers, the union sent a demand notice under “Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC)”, on March 14, 2017, for unpaid dues of ₹32,11,15,180. Rebuttably, the company objected to the claim on March 31, 2017. Later, the union made an application under “Section 9 of the IBC to the National Company Law Tribunal (NCLT)”, Allahabad, requesting the initiation of the Corporate Insolvency Resolution Process (CIRP) against the company. But the NCLT rejected the application on April 28, 2017, on the holding that a trade union cannot be an “operational creditor” within the meaning of the IBC and hence is not eligible to make such an application. The union appealed this order before the National Company Law Appellate Tribunal (NCLAT), which confirmed the order of the NCLT. Finally, the issue went to the Supreme Court of India, posing serious questions on whether a registered trade union that acts on behalf of many workers could be treated as an operational creditor under the IBC regime.

ISSUE RAISED

1. Whether a registered trade union can be declared as an “Operational Creditor” under the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Whether a trade union is entitled to make an application under Section 9 of the IBC on behalf of its members for non-payment of dues.
3. Whether the unpaid wages of workmen are covered under the definition of Operational Debt under the IBC.

PETITIONER’S ARGUMENTS

The petitioner, a registered trade union of the workmen of “Juggilal Kamlapat Jute Mills Company Ltd.”, argued that it had the locus standi to file insolvency proceedings under “Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016”. The union averred that the unpaid wages and other amounts payable to the workmen were an “operational debt” as defined in “Section 5(21) of the IBC”, and therefore, the workmen came within the definition of “operational creditors” under “Section 5(20)”. Being the collective representative entity empowered by the distressed workers; the trade union asserted that it was at liberty to validly make the application before the “National Company Law Tribunal (NCLT) for the initiation of the Corporate Insolvency Resolution Process (CIRP)”. The petitioner pointed out that refusing a trade union the right to represent workmen under the IBC would go against the intent of the Code, which involves fair treatment of all creditors and an efficient resolution process. It also emphasized the unfeasibility of each worker making individual claims and declared that permitting the union to file the petition provided meaningful access to justice for a significant number of affected employees.

RESPONDENT’S ARGUMENTS

The respondent, had contended that the trade union, JK Jute Mill Mazdoor Morcha, lacked the locus standi to file insolvency proceedings under “Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016”. They had argued that the IBC only allows an “individual operational creditor” to file such applications, and not a collective entity such as a trade union. In the view of the respondent, the union was not a direct party to any contract for the supply of goods or services with the company and therefore could not be considered an “operational creditor” under the Code. Additionally, they contended that the acknowledgement of a trade union as a claimant would bring procedural intricacies and open the door for third-party exploitation of the insolvency process. The respondent cited the strict statutory interpretation and contended that to move away from it would need legislative amendment, rather than judicial interpretation.

JUDGEMENT

In the seminal case of “JK Jute Mill Mazdoor Morcha vs. Juggilal Kamlapat Jute Mills Company Ltd.”, the Apex Court of India decided an important matter under the Insolvency and Bankruptcy Code, 2016 (IBC), involving the right of a registered trade union to file insolvency proceedings in representation of its members—i.e., the workmen—against the corporate debtor for dues.
Earlier, the “National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) had dismissed the application made by the trade union under Section 9 of the IBC on the grounds that only an individual operational creditor was entitled to present such a petition”. They opined that a trade union could not be considered an operational creditor under the Code and hence had no locus standi to start insolvency proceedings.

The issue was raised in the Apex Court, which interpreted the IBC provisions in a wider and purposive manner. The Court considered the meanings of “operational creditor” and “operational debt” as defined in “Sections 5(20) and 5(21) of the IBC”. The Court noted that “operational debt” embraces claims for services of employment, and therefore, workmen who were owed wages or dues would be operational creditors. As the trade union represents such workmen, the Court held that the union could rightfully act on their behalf.
Justice R.F. Nariman, pronouncing the judgment, noted that the IBC does not expressly prohibit a trade union from filing proceedings as a representative of the operational creditors it represents. He emphasized that most workmen are not in a situation to seek legal recourse individually, and that trade unions are under different labor legislations recognized as representing the common interests of workmen. The Court observed that there was no stipulation in Section 9 that an operational creditor has to be a natural person. Additionally, the Supreme Court ruled that nothing in the Code or in the prescribed forms (Form 5, in this instance) prohibits the filing of an application by a trade union in a representative capacity. Indeed, Form 5 permits the filing of documents like proof of employment, letters of authorization, and default records—documents that can be easily gathered and filed by a trade union on behalf of its members.
The Court rejected the reasons submitted by the respondent company that had argued a trade union to be a third party and operational creditor under the IBC. It made clear that a registered trade union would be an agent or representative of the operational creditors (i.e., the workmen) and therefore there had been no transgression of the statutory provision. The Court emphasized interpreting the Code in a way that promotes its goals, such as resolving valid claims and safeguarding employee interests. The judgment clearly established that procedural technicalities must not defeat substantive rights, particularly where the claim is valid and the representative body is legally recognized.

CONCLUSION

The Supreme Court’s judgment constituted an important evolution of labour and insolvency law by upholding the locus standi of trade unions to file insolvency petitions on behalf of their workers. The Court was pragmatic and progressive in approach by interpreting provisions of the Insolvency and Bankruptcy Code against the background of its wider aims, most importantly the safeguarding of workers’ rights and access to justice. This decision protects the genuine claims of workmen from being outdone by procedural barriers and reinforces the function of trade unions as indispensable champions of collective worker interests in the courtrooms. It opens up a precedent for collectives of employees claiming remedies under the IBC and reinforces the preeminence of substantive justice against technical obstacles. This ruling not only reiterates the intent of the Insolvency and Bankruptcy Code but also enhances the collective bargaining force of labor unions in protecting the dues of employees through legal means.