Jk Jute Mill Mazdoor Morcha vs Juggilal Kamlapa Jute Mills Co. Ltd

order dated 28th April, 2017 passed by the Adjudicating Authority

(National Company Law Tribunal (hereinafter referred to as Tribunal),

Allahabad Bench, in Company Petition No 36/ALD/2017 whereby

and whereunder the appli

Association under Section 9

2016 (hereinafter referred to as I&B

2. In the impu

differen ocuments whereby Appellant in respect

of claim/op on various Heads of workers like

payment wages, salaries, bonus, provident fund, gratuity in respect

of different workmen held that the application preferred by the

Appellant under Section 9 is not maintainable.

3. The only question arises for determination in this appeal is

whether an application under Section 9 of the I&B Code is

maintainable at the instance of Workmen Association?

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4. Ld. Counsel for the Appellant while submitted that the

Adjudicating Authority has accepted that the Respondent/ 'corporate

debtor' cannot deny the liability for making payments of workmen's

wages, contended that illegal acts and conduct of the 'corporate

debtor' is glaring from the facts as narrated. It was submitted that

the conduct of the 'corporate debtor' has already been deprecated. by

Hon'ble Supreme Court in "Ghanshycn. Sarda v. Shiv Shankar

Trading Co. &Ors." 2015 (1) SCC

proceedings under provisions orporate debtor'

obstructed the BIFR fro érne' envisaging

payment of dues of the workmen and adopted all means and methods

to ensure that no effective

epart of the 'corporate debtor' it

was contended that the default by 'corporate debtor' is admitted and

borne out from audited balance sheet.

6. Ld. Counsel for the Appellant submitted that if the Appellant is

a registered Trade union under sub-section (8) of Section 10 of the

Trade Union Act, 1926 and under section 15 of the Trade Union Act,

3 the General Fund can be used by the Appellant for prosecution or

defence of any legal proceeding.

7. It was further contended that the Appellant falls within the

meaning of 'operational creditors' under Section 5 (20) of the I&B

Code since the 'corporate debtor' owed operational debt to its

workmen and employees in respect of services, including

employment, as per sub-section (2 1), of Section 5 of the I&B Code

8. It was also contended that the Trade union is a 'person' defined

under Section 3, sub-section (23) (g) of the Trade Union Act and from

collective reading of Section 3 (2 3) (g) of the Trade Union Act with

Section 5 (20) and (21) of the I&B Code, it is clear that the trade union

being a person' the petition under Section 9 of the I&B Code is

maintainable. Reliance was placed on decisions of High Courts which

relates to Trade Union Act, however, according to us they are not

applicable to the provisions of the I&B Code.

9. Ld. Counsel appearing on behalf of the Respondent/'corporate

debtor' submitted that the application under Section 9 of the I&B

Code is not maintainable as no 'operational debt' is owed by the

corporate debtors to the Appellant/Trade Union under sub-section (2)

4 of Section 5. Further, according to Respondent, the Appellant/Trade

Union does not fulfil the criteria under sub-Section (20) of Section 5

of the I&B Code to come within in the meaning of 'operational

creditor'. Furthermore, if sub-section (20) of Section 5 is read with

Form 5 of Insolvency & Bankruptcy (Application to Adjudicating

Authority), 2016 (hereinafter referred to Adjudicating Authority

Rules), it is clear that application can only be filed by 'operational

creditor' i.e., an individualworkman himself or person specifically

authorized to act on behalf of the workman. As the Appellant is a

Trade Union, it lacks authority to issue demand notice/file an

insolvency application against the answering Respondent under the

10. According to Respondents, there is a pre-existing dispute prior

to filing of Section 9 application; a civil suit, "Juggilal Kamlapat Jute

Mills Company Limited vs J.K. Jute Mazdoor Pánchayat ITU) and

Ors." is pending before the Civil Court of First Additional Civil Judge

(CD), Kanpur Nagar. Another Writ Petition titled "J.K. Jute Mills

Mazdoor Ekta Union vs UoI and Ors." is pending wherein the Appellant is also a party and the matter is pending against the Respondent

before the High Court of Delhi.

11. It was also submitted that the Respondent/ 'corporate debtor' is

in lockout and no dues are payable to the workmen/ employees.

12. Ld. Counsel for the Respondent relied on decision of this

Appellate Tribunal in "Kirusa Software Pvt. Ltd. v. Mobilox

Innovations Pvt. Ltd". and submitted that by judgement dated 24th

May 2017, this Appellate Tribunal held that where there is a pre-

existing dispute, the petition under Section 9 is not maintainable. It

was also contended that the Appellant along with application under

Section 9 has not provided any certificate from any 'Financial

Institution' which is mandatory for filing application under Section 9

as held by the Appellate Tribunal in" Smart Timing Steel Ltd., v.

National Steel and Agro Industries Limited."

13. Further according to the Respondent, the demand notice issued

by the Appellant was not only defective and incomplete but they also

raised false claim without providing the requisite details about how

the amount as claimed has been calculated, nor provided the detailed

particulars of the workers, such as names, designation and the area of service, the period of service etc. and no default has taken place.

Further, according to Respondents, the petition under Section 9 was

filed before the expiry of prescribed period of 10 days from the date of

receipt of demand notice.

14. 19 Interveners have intervened who claim to be the members of

different Trade Unions of Respondent/ 'corporate debtor', this apart,

some of them are widow, successor of the deceased workers.

According. to them, inspite of repeated demands and reminders the

Jute Mill failed to make payment for realization of legitimate dues

towards: -

Wage Deduction 10% of wages p.m as per MoU

(iii)

(iv) Gratuity

(v) Holiday Arrears

(vi) Money deposited in company's society and savings, and

(vii) Wage from the period since the factory has closed.

It is stated that apart from that the minimum wages has also

not been paid and total dues to the members of the Intervenors are

7 more than Rs. 113.8 lacs. The details of period of lockout etc., has

been shown.

15. Another Intervening Application has been filed by Ghanshyam

Sarda who claim to be the co-promoter. According to him due to

multiple litigations by the 'corporate debtor' under management of

Govind Sarda, the Hon'ble Supreme Court earlier directed the BIFR

to decide the issue of correct net-worth position and to finalise the

DRS Further according to them, the MoU with the Trade Union is

binding on all the signatories. It is further stated that on 18th October

2008, the 'corporate debtor' under Govind Sarda entered into a MoU

with 8 Trade Unions for re-scheduling/re-payment of workers' due

which has not been honoured by Govind Sarda. According to the

intervening co-promoters, such unpaid worker/employee cannot

afford to invoke the provision of the I&B Code in view of the cost of

litigation and, therefore, the court must give effect to the purport and

object of the Act and Rules thereof and 'purposive construction'

should be made applicable in the present case. Request has been

made to set aside the impugned order and remit the matter to the

Adjudicating Authority to admit the application.

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16. In this appeal it is not necessary to decide whether the

Appellant/Trade Union come within the meaning of 'person' as

defined in sub-section (23) of Section 3 of the I&B Code which reads

as follows: -

"3. In this Code, unless the context otherwise requires, - (23) 'person" includes-- (a) an individuai

(b) a Hindu Undivided Family;

(c) acompany;

(d) a trust;

(e) a partnership;

(/) a limited liability.

(g) any other entit stablished u e, and includes a person resident ou ,de India;"

17. yen ppellant/Trade Union come

within the 'meaning-6 n', according to us it do not fall within

the meaning the meaning of 'operational creditor' as defined in sub-

section (20) of Section 5, which reads as below: -

"5. In this Part, unless the context otherwise requires, - (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;"

9 18. 'Operational Debt' as defined in sub-section (2 1) of Section 5

reads as follows:-

"(21) "operational debt" means a claim in respect of the provision 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,"

19. From the aforesaid provision w at the following persons

can claim to be an 'operational cred:

The person who has claim in respect of provision

of goods (supplied) to the 'corporate debtor';

who have provided services to the

'corporate debtor', including those who are in

employment; and

Central Government, State Government and

Local Authorities, who are entitled to claim debt

in respect of dues arising under any Law for time

being in force.

20. In view of definition aforesaid, while we hold that a workman or

employee who has rendered services to the corporate debtor

10 individually come within the meaning of 'operational creditor'. The

Trade Union or Association of Workmen/ employee, do not come

within the meaning of 'operational creditor' as no services is rendered

by the Workmen's Association/ Trade Union to the 'corporate debtor'

to claim any dues which can be termed to be 'debt' as defined in sub-

Section (11) of Section 3, and reads as follows -

"3. In this Code,

"(11) "debt" means a ha 1Ispect of a claim which is due from any per inancial debt and operational debt,'

21. In absence of any liability or application in respect of any claim which

is due to Workmen Association/Trade Union from a corporate debtor' and

as they d rice to c 'corporate debtor', the question of

default of de oes noi arise and therefore they cannot claim to be

'operational creditor' for preferring any application under Section 9 of the

I&B Code.

22. This apart, members of a Trade Union/Workmen Association, who

are workman or employee of a 'corporate debtor', some amount may be due

to such individual workman/ employee from a 'corporate debtor' including

salary, gratuity, provident fund etc., in view of services rendered by them, but in such cases, in respect of each workman there will be separate cause

of action, separate claim and separate date of default of debt.

23. For example, as pleaded by 19 Interveners, each workman/ employee

and those deceased and now represented through their widows or legal

heirs/legal representatives in respect of each of them, there are separate

claim of salary or retirement benefits or other dues for different period. In

majority of the cases, the date of default of debt will also be different.

Without ascertaining any such amoun er Section 9 in

Form 5 will be complete nor the Adjudica tin can give any finding

with regard to the individual claim nor it will ble for the Interim

Resolution Professional to cct the de

21. There may employees who are also member of the

Workmen Association/Trade Union but ma not have any claim at all. In

absence of their dcbt or default no application on behest of such members

can be maintained by Trade Union under Section 9.

24. In the case of" Uttam Galva Steels Limited V. DF Deutsche Forfait

AG & Anr" in Company Appeal (Insolvency) No. 39 of 2017, this Appellate

Tribunal by Judgement dated 28th July 2017 held that joint application

under Section 9 is not maintainable and observed as follows: -

"17. Under sub-section (1) of Section 8 of the MB Code, an 'Operational Creditor' on occurrence of a default, is required to

12 deliver the notice of payment of unpaid debt or get copy of the invoice payment of the defaulted amount served on the Corporate Debtor. This is the condition, precedent under Section 8 & 9 of the MB Code, unlike Section 7 before making an application to the adjudicating authority under Section 9 of the I&B Code. Under sub-Section (1) of Section 9 of the Code, the right to file an application accrues after expiry often days from the delivery of demand notice or copy of invoice, as the case may be if the operation creeditor does not receive payment from the corporate Debtor or notice of dispute under sub Section • (2) of Section 8, the Operational Creditor only thereafter may file an, application before the Adjudicating Authority for the initiation of corporate insolvency resolution process

18. An application under Sec Ilk 1&B Code is required to be filed in such, format and rn accompanied by such fee, as may be prescribed The .?eratidi1 "red itor along with the application is required to nts as mentioned in clause (a), (h), (c) an Section 9 of MB Code, and quoted. belo "9. Application for mi crate insolvency resolution process by opé onal credztor - (1) After the expiry of the period of ten days the date of delivery of the notice or invoice demanding payrneijt under sub-section (1) of ection the operational creditor does not receive payment orate debtor or notice of the dispute under sub- section. 8, the operational creditor may file an licäti he Adjudicating Authority for initiating a co: orate inso resolution process. (2) The application un ub-section thall be filed in such form and manner and accorpctnied with such, fee as may be prescribed. (3) The operational creditor shall, along with the application furnish--

(a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;. (b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; (c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operation debt by the corporate debtor; and (d) such other information as may be specified. (4) An operational creditor initiating a corporate insolvency process

13 under this section, may propose a professional to act as an interim resolution professional.

19. From the aforesaid provisions of Section 8 and 9 of I&B Code, it is clear that unlike Section 7, a notice under Section '8 is to be issued by an "Operational Creditor" individually and the petition under Section 9 has to be filed by Operational Creditor individually and not jointly.

20. Otherwise also it is not practical for more than one 'operational creditor' to filea joint petition. Individual Operational Creditors' will have to issue their individual claim notice under Section 8 of the I&B Code. The claim will vary which will be different. Date of notice irnder Section 8 of the I&B Code in different cases will be different. It will have to be issued informat(s). Separate Form,.:,- or Form -4 u'ill have to be filled. Petition under Section 9 in the format will contain separate individual data.

26. In view of the finding as recor that the application

under Section 9 at the instan uie Mill Mazdoor Morcha

has rightly rejected the

claim though for so

27. can that an application under Section 9 of I&B

Code is maintainable at the instance of an individual

employee/workfrahivho has rendered services to the 'corporate debtor' and

if there is debt and default such individual workman/ employee can prefer

an application under Section 9 giving details of debt and date of default but

it should not be less than one lakh rupees in view of Section 4 of the I&B

Code. In such cases if corporate insolvency resolution process if started

against the corporate debtor, it is always open to the other creditors, including workmen/ employees, their legal heirs to file claim before the

Insolvency Resolution Professional once notice is published in the

newspaper under Section 15 of the I&B Code and/or prior to completion of

insolvency resolution process. This observation we are making so that in

such case the 'corporate debtor' cannot take plea that earlier the

application moved by workers' association/Trade on in respect of such

workmen/ employee/ legal heirs of deceased employees under Section 9 and

the appeal under Section 61 have been

28. In absence of any the i:ce of JK

Jute Mill Mazdoor Morcha to individual

workman/employee to r debt and default.

However, in the fad hail be no order as to cost.

(Mr. Balvinder Singh) (Justice S.J. Mukhopadhaya) Member (Technical) Chairperson

NEW DELHI

12th September, 2017