Analysis of Impact & Effect of Trade Unions as an Operational Creditor on Rights of Workmen- By Varun Akar

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Varun Akar
4th year law student at Institute of Law, Nirma University

Analysis of Impact & Effect of Trade Unions as an Operational Creditor on Rights of Workmen

Introduction

The decision by the Hon’ble Supreme Court in the case of JK Jute Mill Mazdoor Morcha vs. Juggilal Kamlapat Jute Mills,[1] is to be seen as a positive step towards the upliftment and betterment of the social and welfare rights of the workers. Following is the brief of the case:

Facts

A Demand Notice was issued by the trade union on behalf of approximately 3000 workers under section 8 of IBC, stating their claims of the outstanding salaries to the respondent against whom proceedings were pending under the Sick Industrial Companies Act, 1985. The NCLT & NCLAT on hearing both the parties held that the trade union will not be covered under the head of “operational creditor” and held that each worker is allowed to file an individual application before the NCLT. The issue which was raised was “Whether a trade union could be said to be an operational creditor for the IBC?” 

Decision 

The Supreme Court took into consideration the definitions of ‘trade union’ as given in the Trade Unions Act (TU Act) and ‘person’ under IBC. It further observed that as per Section 2 (h) of the TU Act, a “Trade Union” shall mean “any combination, whether temporary or permanent, formed primarily to regulate the relations between workmen and employers or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business and includes any federation of two or more Trade Unions” and the term “Person” includes “any other entity established under a statute” as given under section 3(23) of the IBC. Therefore, the court concluded that a trade union will fall under the definition of “person” under the IBC.

The court further looked into section 15 (c) & (d) of the TU Act and inferred that the general fund of the trade union can be spent for the purpose prosecution or defence of a legal proceeding to which the trade union is a party and the conduct of trade disputes on behalf of the Trade Union or any member thereof. This certainly will include the due amount, in the present case wages, from the employer to employees and therefore will be classified as an “operational debt” under section 5 (21) of IBC. Hence, any person who is duly authorised to make such claim of dues as against the Corporate debtor shall be classified as an operational creditor. The court lastly by acknowledging section 13 of TU Act stated that the trade union is entitled to sue and be sued as a body corporate and set aside the impugned judgment of the NCLAT.

Impact

The major impact of the judgement will be that from now onwards instead of submitting individual claims under the IBC one consolidated petition by a trade union representing several workmen will be allowed. This will reduce the burden on each workmen filing individual petitions as each of them would thereafter have to pay insolvency resolution process costs, costs of the interim resolution professional, costs of appointing valuers, etc. under the provisions of the Code. Thus, looking from each perspective, it leaves no doubt that a registered trade union which is formed to regulate the relations between workmen and their employer can maintain a petition as an operational creditor on behalf of its members.

Further, this shall also mean that trade unions can co-jointly make an application under section 9 of the Code on behalf of one or more workers. This will serve justice to the workers in the form that they will have another option available under this Code, apart from labour legislations, to get their claims satisfied, i.e., they can go for a resolution of the company if the latter is not paying their wages and get their claims satisfied or for liquidation in case the latter is not in a position to get revived.

Similar Provisions under other Labour Laws

Payment of Wages Act, 1936

Section 3 & 5 of the Act says that it will be the responsibility of the employer to pay the wages of all the employees employed by him and that wage should be paid after the last day of the wage period in respect of which the wagers are to be paid respectively. Further, Section 15 of the Act talks about the “Claims”, which is the amount unpaid as of the wages to the workers or any arbitrary deductions from the same or any delay in payment of wages, which needs to be submitted to the authorities created under the Act through an application. If accepted and employer found guilty then the employees shall get their claim amount along with the compensation as given under the Act. Lastly, Section 16 of the Act also provides for the joint application on behalf of all the workers whom wages are not paid or delayed or some unduly deductions have been made.

Minimum Wages Act, 1948

Section 20 of the Act talks about the “Claims” which needs to be duly submitted by the workers in case the minimum wages of the workers are not paid on time or is paid less. This application can be submitted either individually or on behalf of all the workers who have been denied the right to minimum wage as given under Section 21 of the Act.

Trade Unions Act, 1926

Section 15 of the Act provides for the objects for which the general fund may be used and once such objective is the usage of the funds for defending or prosecuting in legal proceedings.

Limitation for Filing the Case

Payment of Wages Act, 1936

The application under the Act needs to be submitted within 12 months from the date on which the unduly deductions were made or from the date the payment of wages was due as given under Section 15 of the Act.

Minimum Wages Act, 1948

The application under this Act needs to be submitted within a period of 6 months from the date on which the minimum wages became due and payable as given under Section 20 of the Act.

Insolvency and Bankruptcy Code, 2016

The application under this Code can be made within 3 years from the date of default or if the period of limitation has been extended, then within 3 years from the date it was extended, but this extension should comply with Section 18 of the Limitation Act.

Period for Settlement of the Case

Payment of Wages Act, 1936

The claim under this Act shall be disposed off within 3 months of the registration of the claim. This period is further extendable to such period as deem fit for the authorities to dispose off the case.

Insolvency and Bankruptcy Code, 2016

The claim arising out of the application under this Code is liable to be disposed off within 180 days of the commencement of Corporate Insolvency Resolution Process, subject to extension of a period of 90 days and additional 60 days for the time consumed in the legal proceedings.

Effect

This effect of this judgment is that now since the trade unions are covered under the ambit of operational creditors under the IBC, they can have a timely, effective and speedy remedy if they submit their claims in the form of application under section 9 of the Code. For example, the claim arising out of the application under this Code is liable to be disposed off within 180 days of the commencement of the Corporate Insolvency Resolution Process.

Also, the workers or trade unions will get more time to file their cases under IBC as the application under this Code. It can be made within 3 years from the date of default as given under Section 238A of the IBC. This limitation period under the IBC can be extended if there is an acknowledgment of debts within the limitation period as per Section 18 of the Limitation Act, 1963, or by condonation of delay as per Section 5 of the Limitation Act. The Limitation under different labour laws is not more than the time limit given under IBC.[2]

Further, this right can be maliciously misused by the trade unions to get their unauthorised demands fulfilled by the company. Section 65 of the IBC prevents this problem. It states that if any malicious or fraudulent proceedings are initiated by the Applicant under the Code, then the person shall be penalised with not less than 1 lakh rupees which may extend to 1 crore rupees. Hence, the company/ employer is also very well secured from malicious complaints. Also, the remedy for the same under Section 15(4) of the Payment of Wages Act and Section 20(4) of the Minimum Wages Act is not sufficient and considerable.

Conclusion

The above analysis would go on to show that the Trade Union, for and on behalf of its members can certainly prefer a CIRP as contemplated under section 9 of the IBC. This is for the simple reason that if the workmen have not been paid their wages and/or salary by the company, they would certainly be a creditor or creditors as contemplated under section 5 (20) of the Code. Further, submitting their claims under the IBC will effectively give a remedy as one just only needs to show that there is a debt of 1 Lakh rupees or more which is due and payable and upon which default has been made. This amount can be both a person’s amount or a collective amount of the employees as the Code is not clear on the same.

Earlier also, the workers or the trade unions had the right to get the companies wound up, in cases where their claim was not satisfied, under section 439 of the Companies Act, 1956 r/w Section 433 & 434,[3] but the winding up was a long & tedious process thereby involving a lot of time and money. Lastly, more limitation period, timely resolution of debts, more compensation than other labour laws etc. make the filing of an application under IBC a lucrative option for the Trade Unions. Hence, this will protect the rights of the workers and will give them an effective remedy.   

 

Reference:

[1] CIVIL APPEAL NO.20978 of 2017.

[2] § 15(2) of Payment of Wages Act & § 20(2) of Minimum Wages Act.

[3] Sanjay Sadanand Varrier v. Power Horse India Pvt. Ltd., (2017) 5 Mah LJ 876.

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