Gl Shoes vs Action Udhyog Private Limited

Company Appeal (AT)(Insolvency) No. 846 of 2022

[Arising out of order dated 06.06.2022 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench, Court-II in CP(IB) No.345/ND/2020]

IN THE MATTER OF:

M/s. G.L. Shoes 27, Sulehkul Nagar, Near Maruti Estate Crossing, Shahganj Bodla Road, Agra, U.P. 282010 ...Appellant

Versus

M/s. Action Udhyog Private Limited 98, Shahzada Bagh, Industrial Area, Old Rohtak Road, New Delhi - 110 035 ...Respondent

Present:

For Appellant: Mr. Nitin Kaushik, Mr. Mayank Kshirsagar, Ms. Abha Goel, Advocates

For Respondent: Ms. Varsha Banerjee, Mr. Udit Singh, Mr. Kaushik Khetan, Advocates

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code, 2016 ("IBC" in short) by the Appellant arises out of the Order dated

06.06.2022 (hereinafter referred to as "Impugned Order") passed by the

Adjudicating Authority (National Company Law Tribunal, New Delhi Court-II) in

CP (IB) No. 345 (NB)/2020. By the Impugned Order, the Adjudicating Authority

Company Appeal (AT)(Insolvency) No. 846 of 2022

1 has dismissed the Section 9 application filed by the Operational Creditor-M/s G.L.

Shoes (the present Appellant) seeking initiation of Corporate Insolvency

Resolution Process ('CIRP' in short) against Corporate Debtor-Action Udhyog

Private Limited (the present Respondent). Aggrieved by this impugned order, the

present appeal has been preferred by the Operational Creditor.

2. Making his submissions the Learned Counsel for the Appellant submitted

that the Operational Creditor used to supply footwear and related products to the

Corporate Debtor/Respondent on the basis of purchase orders received from

them. It was also submitted that the invoices stipulated payment to be made 75

days from the date of invoice. Goods were supplied between April - June 2016 and

payment fell due on 08.07.2016. The date of default on the part of the Corporate

Debtor as submitted by the Appellant is 08.07.2016. The Operational Creditor

issued a demand notice to the Corporate Debtor on 02.07.2019 demanding

payment of Rs.22.26 lakhs as unpaid operational debt including interest @ 18%

per annum. However, the Corporate Debtor did not issue any notice of dispute.

The Operational Creditor thereafter filed a Section 9 application before the

Adjudicating Authority.

3. The Learned Counsel for the Appellant contended that the Section 9

application was erroneously dismissed by the Adjudicating Authority on grounds

of having been barred by limitation. It was submitted that the impugned order

took note of date of default to be 08.07.2016 as mentioned in Part IV of the

Demand Notice and held that the Section 9 application having been filed on

22.01.2020 which was well after three years from the aforementioned date of

default, the same was barred by limitation.

Company Appeal (AT)(Insolvency) No. 846 of 2022

2

4. It was vehemently contended that the Corporate Debtor had clearly

acknowledged the debt in their email dated 05.05.2017 which therefore extended

the period of limitation. The Learned Counsel for the Appellant stated that the

Adjudicating Authority has erred in holding that acknowledgement of debt by

email cannot be accepted on the ground that the statement of account was

contained in an external file attachment to the main body of the email and that it

was not duly authenticated by the signature of an authorized person and did not

bear the company seal. Dilating on the issue of limitation, it was submitted that

the Hon'ble Karnataka High Court in the matter of Sudarshan Cargo Pvt. Ltd.

Vs. M/s Techvac Engineering Pvt. Ltd, 2013 SCC OnLine Kar 5063

('Sudarshan' in short) has held that an email acknowledging the debt constitutes

a valid and legal acknowledgment of debt, despite the fact that it is not a strictly

"signed" document for the purposes of Section 18 of the Limitation Act, 1908. The

email, being a legally recognized form of communication under the provisions of

Information Technology Act, 2000 ('IT Act' in short), it is a valid acknowledgement

under Section 18 of the Limitation Act, 1908.

5. Refuting the submissions made on behalf of the Appellant, it has been

strongly contended by the Learned Counsel for the Respondent that the claim of

the operational debt is clearly time-barred. It has been contended that the date of

default mentioned by the Appellant in Part IV of the application is 08.07.2016

whereas the Section 9 application was filed before the Adjudicating Authority on

22.01.2020. Hence, the application having been filed after three years from the

date of default, it was clearly barred by limitation and hence not maintainable.

6. As regards, the plea taken by the Appellant that the application was not hit

by limitation since there was an email dated 05.05.2017 from the Corporate Company Appeal (AT)(Insolvency) No. 846 of 2022

3 Debtor acknowledging the debt, it was argued that the said email cannot be relied

upon to extend the limitation since it was difficult to ascertain beyond doubt to

which date the statement of account attached therein belonged to. Buttressing

their argument, it was pointed out that the said email was neither signed by the

Corporate Debtor nor sent by any authorized person on behalf of the Corporate

Debtor. More importantly, the statement of account attached to the email

acknowledging the debt was unsigned and did not carry the stamp and seal of the

Corporate Debtor. Hence, in the absence of any date and proper authentication

thereof, the authenticity of the external file attachment containing an aged

account statement of the Corporate Debtor cannot be ascertained beyond doubt.

It was, therefore, argued that the Adjudicating Authority had rightly held that the

Company Petition filed before it was barred by limitation.

7. We have duly considered the arguments and submissions advanced by the

Learned Counsel for the parties and perused the records carefully.

8. We notice that the Corporate Debtor in their reply dated 09.03.2020 to the

Section 9 application filed by the Appellant had raised several objections, inter-

alia, non-maintainability arising out of the bar created by the Indian Partnership

Act, 1932; invalidity of demand notice being in Form III and for not containing

date of default; non-receipt of demand notice and non-service with the Information

Utility; defective issue of demand notice; etc. We also notice that the Adjudicating

Authority in the impugned order has dealt with the above contentions raised by

the Corporate Debtor in the context of maintainability of Section 9 application and

not being convinced had set aside these grounds. However, on the issue of

limitation, it held that the Section 9 application has not been filed within three

Company Appeal (AT)(Insolvency) No. 846 of 2022

4 years from date of default and in the absence of sufficient material on record to

establish extension of limitation period, Section 9 application was dismissed.

9. It is the case of the Appellant that the email of 05.05.2017 from the office

of the Corporate Debtor had acknowledged the operational debt. This email was

an official communication since the email address

saurabhsingh@actionshoes.com was generally used by the Corporate Debtor for

corresponding with the Appellant. The said email acknowledged the liability and

this mail having been issued before expiry of the limitation period of three years

it had extended the limitation period. The Section 9 application was therefore well

within limitation period.

10. It is further their contention that in terms of the definition clause contained

in Section 2 of the IT Act, an e-mail is a communication addressed to a definite

person who is intended by the 'originator' to receive such electronic

message/record and the 'originator' means a person who sends any electronic

message to any other person. In the present case, it was submitted that the

statement of acknowledgment of accounts was sent by email to the Operational

Creditor and that this email was transmitted by a person who was duly authorized

by the Corporate Debtor without any intermediary. It was further asserted that

the captioned subject of the email reads as "Aged Accounts Payable-Milano" which

indicates that the purpose of sending the main email was to send a statement of

account. This amounted to electronic communication of the statement of accounts

of the Corporate Debtor by way of e-mail instead of transmitting by paper-based

method of communication and that such electronic mode of transaction is legally

recognized under Section 4 of the IT Act, 2000. It was further pointed out that in

terms of Explanation to Section 66A of IT Act, 2000, electronic mail or electronic Company Appeal (AT)(Insolvency) No. 846 of 2022

5 mail message means a message or information created or transmitted or received

on a computer, computer system, computer resource or communication device

including attachments in text, image, audio, video and any other electronic record,

which may be transmitted with the message. Hence, the attachment being part

of the main body of email, it enjoyed the sanctity of being an electronic mail.

11. It is also submitted that with digital and new communication systems

having become all pervasive, there is rampant use of computers to create,

transmit, receive and store information in the electronic form substituting the use

of traditional paper documents. It was further submitted that the preamble of the

IT Act, 2000 also reinforces the adoption of electronic means of communication.

Digital technology facilitates scope for creation, compression, storage,

preservation of data and their easy transmission. That being so, if any party

acknowledges by way of email that certain amounts are due then it amounts to

an acknowledgement of debt. It was also pointed out that Section 18 of the

Limitation Act does not provide that the acknowledgment has to be in any

particular format and hence the email of 05.05.2017 and the file attachment

which had been transmitted electronically must be construed as meeting the

requirement of Section 18 of the Limitation Act.

12. This brings us to the counter argument advanced by the Learned Counsel

for the Respondent that the issue in question is not whether the communication

sent out electronically is legally valid or not but whether an unsigned document

sent electronically is admissible and constitutes a valid acknowledgment for the

purpose of extending the period of limitation in terms of Section 18 of the

Limitation Act. It has also been submitted that the Hon'ble Rajasthan High Court

in M/s. Babulal Rukmanand vs. The Official Liquidator, Bharatpur Oil Mills Company Appeal (AT)(Insolvency) No. 846 of 2022

6 (Pvt.) Ltd. 1967 SCC OnLine Raj 20 held that unsigned books of

accounts/statement of accounts do not constitute a valid acknowledgment under

Section 18 of the Limitation Act, 1963. Therefore, any reliance placed on the said

email of 05.05.2017 and statement of accounts attached therewith, is non-est in

law since the alleged statement is unsigned and not authenticated by the

Authorized Representative of the Corporate Debtor. The applicability of this ratio

has however been questioned by the Learned Counsel for the Appellant on the

ground that the judgment was passed prior to the IT Act, 2000.

13. Analyzing the facts of the present case, we find that the Corporate Debtor

had asked the Appellant/Operational Creditor on 23.03.2017 to send their ledger

account to one of the officers of the Corporate Debtor as seen at page 228 of Appeal

Book. The Appellant responded by sending a reply email on the same date along

with an attachment containing statement of accounts as seen at page 230 of

Appeal Book. This email was responded to by the Corporate Debtor on 05.05.2017

with the remarks 'FYI' as seen at page 231 of Appeal Book. This email has been

held by the Appellant as an acknowledgment of debt on the part of the Corporate

Debtor.

14. At this stage it may be useful to notice the findings of the Adjudicating

Authority which is to the following effect: -

33. That in order to ascertain the facts, we feel it necessary to visit the email dated 05.05.2017, the scanned copy of which is reproduced overleaf:

Company Appeal (AT)(Insolvency) No. 846 of 2022

7 Company Appeal (AT)(Insolvency) No. 846 of 2022

8 Company Appeal (AT)(Insolvency) No. 846 of 2022

9 "34. That from perusal of the aforesaid email and attachment annexed therewith, it is observed that the main body of the e-mail does not contain any statement regarding acknowledgement of the debt by the corporate debtor and the attachment relating to Accounts attached therewith is neither signed by any authorized person nor bears the Company Seal. Further, we notice that the Applicant, for the acknowledgement of debt, has referred to and relied on the attachment containing Accounts statement of the Corporate Debtor, which as we have observed, is not duly authenticated.

35.We understand that there is no requirement or scope to sign the main body of the e-mail and at the same time, there is no possibility of tampering the date and time of the main body of e-mail, which is a major factor while considering the issue of limitation. Per contra, if acknowledgement of debt is made basing on the contents of an attachment, which is an external file exported/attached with the mail and if that attachment is not duly authenticated by signature of the authorized person and date or/and Company Seal, it is not possible to ascertain beyond doubt to which date the document is generated or belongs to.

36. Further, sending a communication by way of an attachment with an email can be understood like sending a communication by a virtual speed envelope. At the end, what matters is what is there inside the virtual envelop/ attachment. Just like an unsigned document sent via physical post cannot be construed a valid acknowledgement of debt in terms of Section 18 of the Limitation Act 1963, the same way in today's technologically advanced world (where with the scanning software available, one can easily ask for / transmit Page 21 of 21 (IB)-

345/(ND)/2020 G.L. Shoes Vs Action Udhyog Private Limited a signed and stamped document from one recipient to another without any difficulty), the necessary condition of signing/authenticating a document sent/received as an attachment with an e-mail cannot be

Company Appeal (AT)(Insolvency) No. 846 of 2022

10 dispensed with for treating it as a valid acknowledgement in terms of Section 18 of the Limitation Act, 1963.

37. Further, the decision of the Hon'ble High Court of Karnataka in the Sudarshan Cargo Pvt Ltd (Supra) brings no guidance for us when the acknowledgement of debt is relied upon an external file of the attachment. Hence, the decision would be applicable in a situation, where the acknowledgement of debt is made in the main body of the e- mail and not in case of a document/file sent through an attachment.

38. Hence, the attachment containing accounts statement annexed with the e-mail dated 05.05.2017 without any signature and date or/and Company Seal cannot be held authenticated or valid in terms of Section 18 of Limitation Act for extending the period of Limitation."

(Emphasis supplied)

15. There can be no quarrel over the fact that with digital technology and

electronic communication having become common-place, the use of electronic

data as an alternative to conventional physical mode of communication is a well-

accepted norm in the realm of business practice. Digital technology has

transformed nearly every aspect of modern life and has revolutionized

communication flow in recent times and this has been reinforced by Section 4 of

IT Act, which contains a non-obstante clause.

16. We may take a quick look at the provisions of Section 4 of the IT Act, 2000

which is to the effect: -

"4. Where any law provides that information or any other matter shall be

in writing or in the typewritten or printed form, then, notwithstanding

anything contained in such law, such requirement shall be deemed to have

been satisfied if such information or matter is-:-

Company Appeal (AT)(Insolvency) No. 846 of 2022

11

(a) rendered or made available in an electronic form; and

(b) accessible so as to be usable for a subsequent reference."

17. A plain reading of the above provision makes it clear that the intent of

Section 4 of the IT Act is to allow any information which can be transmitted on

paper by physical mode to also be henceforth transmitted in electronic form too.

In other words, this section recognizes that a document sent and received

electronically shall be deemed to have complied with the requirement of sending

information in writing. Put differently, documents which were hitherto,

transmitted by handwriting or in typewritten/printed form can now be transmitted

in electronic form. Be that as it may, Section 4 of the IT Act, 2000 does not

expressly or implicitly make any special dispensation for electronic messages. It

follows therefrom that the prescribed format or procedural niceties which the

paper-based communication is required to follow is ipso facto equally applicable

to the electronic messages. We, therefore, agree with the Adjudicating Authority

that merely because a document is sent via electronic mode instead of physical

mode, the legal and mandatory requirements of authentication of documents will

not change and cannot be dispensed away.

18. We also notice that the contents of the email of 05.05.2017 and the

statement of accounts as placed at Para 33 of the impugned order shows that the

main email merely contains one cryptic word 'FYI'. On a pointed query, it was

clarified by the Learned Counsel for the Appellant that the acronym 'FYI' stands

for 'For your Information' as is used in common parlance. For the purpose of

Section 18 of the Limitation Act, 1963, an acknowledgment must be unambiguous

and clear. That it is a matter of no dispute that the statement annexed to the email

dated 05.05.2017 does not carry any signature let alone being signed Company Appeal (AT)(Insolvency) No. 846 of 2022

12 electronically. Section 18 of the Limitation Act also specifies that the

acknowledgment should be in writing and signed by the party against whom such

right is claimed though of course the word 'sign' or 'signed' has not been defined

in the said section. This requirement is required to be met irrespective of whether

it is in electronic or in physical form. Merely because a document is sent via e-

mail, the mandatory requirements of Section 18 cannot be exempted.

19. It may be pertinent to observe here that the facts of Sudarshan supra are

dissimilar to the present case in that in Sudarshan supra there was a

commitment given to clear and settle all dues which was clearly expressed in the

body of main email while in the present case there is no trace of any such element

of unconditional acceptance or admission of liability in the main body of the email.

Moreover, the statement of accounts having been attached as external file without

any signature or authentication cannot be construed as acknowledgment.

Furthermore, we are fully conscious of the fact that the Adjudicating Authority

only exercises summary jurisdiction in admitting or rejecting the Application

under Section 9 of the Code. In view of their limited jurisdiction, disputes of

authenticity of the statement of accounts annexed to an email, cannot be

adjudicated by the Adjudicating Authority. Hence, the Adjudicating Authority

cannot be found to have committed any error in not entering into the issue of

authenticity of the statement of accounts.

20. There is substance in the contention of the Respondent that the word 'FYI'

therefore cannot be comprehended by any stretch of imagination to be an

acknowledgment of debt. We are inclined to agree that by mere endorsement of

the words 'FYI', it cannot be said that the Corporate Debtor had acknowledged the

liability of operational debt. It may also be pertinent to add here that the Company Appeal (AT)(Insolvency) No. 846 of 2022

13 Corporate Debtor in their reply has also raised some dispute relating to quality of

goods supplied by the Operational Creditor. Given the fact that the debt has not

been acknowledged; that a dispute has also been raised on the quality of goods

supplied in the Section 9 application and that the veracity of statement of

accounts contained in the form of external attachment to the main body of the

email has been questioned, we are persuaded to believe that the email of

05.05.2017 cannot be viewed as an acknowledgment of liability on the part of the

Corporate Debtor and hence cannot help in extending the period of limitation.

21. In view of the foregoing discussions, we do not find merit in the submissions

raised by the Learned Counsel for the Appellant to warrant any interference in the

impugned order. We are of the view that the Adjudicating Authority did not

commit any error in rejecting the Section 9 application filed by the Appellant on

grounds of having been barred by limitation. There is no merit in the appeal.

Appeal is dismissed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Place: New Delhi Date: 24.05.2023

PKM

Company Appeal (AT)(Insolvency) No. 846 of 2022

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