Spread of COVID-19 has led us into unprecedented times which has led all the prominent corporations and businesses to opt for the work from home mechanism. The economy and the day-to-day business in India have been severely affected by the Government ordered nationwide lockdown, although need of the hour. Most businesses/ corporations are currently focusing on closing deals and executing agreements via electronic means unlike across the table customary physical signing in conference rooms. While some projects have slowed or been stalled, many routine engagements, along with other transactions, may be up for renewal in the coming months, as the situation improves. Since the logistics of executing agreements in wet ink may have become currently impractical, with signatories dispersed across the country in their households, with limited access to printing, scanning and postal services, more and more organisations have decided to opt for e-signing of the agreements.
Contrary to popular belief, e-signatures have been legally valid in India for almost over two decades now. The Information Technology Act (“IT Act”), passed in 2000, grants e-signatures the same legal status as handwritten signatures and allows the execution of certain agreements/ deeds through e-signatures. The legal recognition of electronic signature has been provided under Section 5 of the IT Act. The section provides that any information or document if confirmed by electronic signature shall have the same effect and legal status as of a handwritten signature, if procured and affixed in the manner as prescribed under the IT Act and the Government of India.
This article will help in better understanding of how parties can execute contracts electronically via e-signatures and the validity, legality and incidental aspects around the same in India.
Validity and legality of e-contracts under the Indian Law
Digitalisation has transformed India’s business landscape over the previous decades. Under Indian law, a wet ink written signature is not necessarily required for a valid contract - contracts are generally valid if legally competent parties reach an agreement, whether they agree verbally, electronically or in a physical paper document. The IT Act specifically confirms that contracts cannot be denied enforceability merely because they are executed electronically.
The IT Act broadly recognises and provides two alternatives for handwritten signatures having equivalent legal status: (i) Digital Signatures1 and (ii) Electronic Signatures2. As per Section 3A of the IT Act, any person in whose name the electronic signature has been issued, may authenticate any electronic record by asserting electronic signatures, provided such e-signature/ technique is reliable and as may be specified in the Second Schedule of the IT Act3 as mentioned herein below -
An e-signature is considered reliable if it satisfies the following requirements under the IT Act4:
- It must be linked to the person signing the document/ authenticator and should be personal and unique.
- The signatory/ authenticator must exercise complete control over the content/ data and the authentication date used to generate the e-signature and no other personnel.
- Any alteration to the e-signature made after affixing such signature must be detectable by the authenticator.
- There should be an audit trail/ history recording any and all amendments to the document and steps taken prior to and during the signing process.
Although Digital Signatures are the most reliable option recognized by the IT Act for execution of any document, due to its checks and balances, however they come at a comparatively high cost to the authenticator. Digital signatures are generated by an asymmetric crypto-system and hash function. An ‘asymmetric crypto system’ is one where different keys are employed for the operations: a private key and a public key. Both are unique to each user and can be utilized to create and verify an e-signature. These Digital Signatures may be obtained from authorized Certifying Authorities5 and may be issued as a USB containing the certificates and protected by a personalized PIN, to affix the same to any document.
Second Schedule of the IT Act provides for e-authentication technique using Aadhaar e-KYC services. With this technique, users with an Aadhaar ID, are eligible to use an online e-signature service to securely sign documents online by registering/ logging in to their personal accounts and authenticating their identity using an e-KYC service such as OTP (one-time passcode) provided by an e-signing service provider.
Can all documents/agreements be executed electronically?
As per the current laws in India, not all agreements, documents can be executed using/ affixing an e-signature, as certain documents that require a notarial process, or documents requiring registration with a Registrar or Sub-Registrar (as per Registration Act, 1908), can only be executed using handwritten signatures to be legally enforceable. Agreements which require handwritten signatures include:
- Negotiable instruments such as a promissory note or a bill of exchange other than a cheque
- Powers of attorney
- Trust deeds
- Wills and any other testamentary disposition
- Any conveyance or sale deed involving sale, lease or transfer of rights or ownership of an immovable property
- Any document listed by the government of India in the official gazette
Pursuant to the above, one can conclude that e-signature is a valid and enforceable option to execute all commercial agreements between organizations, consumer agreements, services agreements, employment agreements, etc.
For the aforementioned reasons, more and more individuals and organizations are now opting to e-sign and execute agreements online using service providers and finding e-signing as a viable option to conclude agreements and close deals amidst current pandemic. Taking the example of DocuSign, an online service provider that allows organizations to manage electronic agreements. As part of the DocuSign agreement cloud, DocuSign offers to its users eSignature, a way to sign electronically on different devices across the globe.
E-contracts as evidence under law
Under Indian law, parties have to present evidence in court to prove the validity of an agreement to enforce the same. Leading digital transaction management solutions can now provide electronic records that are admissible as evidence under Section 65B of the Evidence Act, 1872, to support the existence, authenticity and valid acceptance of a contract9. To extend the example of DocuSign, the service provider claims that for each document, DocuSign automatically generates and stores a complete, time-stamped history of every send, view, print, sign, or decline action. This information is captured in the DocuSign certificate of completion that is generated for every DocuSign transaction. Any party to the transaction who wants to review the activity associated with a document can view, download or print the certificate of completion for that document10.
Whether Stamp Duty is imposed and payable on e-contracts?
Similar to certain physically printed instruments, electronic records can also be subject to stamp duty. As per the Indian law, stamp duty is payable in respect to certain instruments prior to or at the time of completion or within a stipulated timeline and in accordance with the applicable central/ state laws. Every Instrument6 (electronic or otherwise) under which rights are created or transferred needs to be stamped under the specific stamp duty legislation. Certain states also refer to electronic records under the ambit of the definition of instruments in their respective state laws. For example, Maharashtra Stamp Act, 1958 specifically states that the definition of instruments includes electronic records as defined under Section 2(t) of the IT Act7. Hence, we can conclude that State of Maharashtra imposes stamp duty on electronic contracts/ documents as well.
Section 35 of the Stamp Act provides that instruments chargeable with stamp duty, which are not stamped properly are not admissible as evidence for any purpose under law. However, improper stamping of any instrument does not by itself make the instrument void under law, and may be admissible as evidence upon payment of applicable duty, along with the penalty prescribed by the applicable laws. In the present times of this pandemic that the world is going through, and organizations/ businesses adopting the work from home system, stamp duty payable on e-contracts can be paid through e-stamping as allowed by multiple states in India including Maharashtra. With e-stamping, parties to an agreement can e-sign/ execute the document and get it stamped electronically on the same day.
COVID-19 pandemic has been a catalyst in pushing businesses and operations away from customary practices towards a more electronic friendly methods of operations. This shift has become easily possible due to the status, enforceability and validity of e-signatures for executing and closing deals. Even in the long run, this practise should be considered by organizations as the 'new-normal' and organisations should move towards executing documents and deals over electronic platforms through recognised and reputed service providers. This paradigm shift towards e-signing, executing and completing documents using certified service providers, is bound to bring forth many advantages including cost effectiveness and is out rightly environment friendly. Additionally, it will enable organisations/individuals to create a digital library of records rather than perishable paperwork. This transit would mean longevity (preservation of records) and easy accessibility, even remotely, of all legally valid and recognised electronic records only a few clicks away.
- The Information Technology Act, 2000,sec. 2(p), No. 21, Acts of Parliament, 2000 (India).
- Id. sec 2(ta).
- Id. sec 3.
- Id. sec 3A.
- Id. sec 1(g).
- The Indian Stamp Act 1899, sec 2(14), The Gazette of India pt. V, 1898.
- The Maharashtra Stamp Act, 1958, sec 2(1), No. 60 Acts of Maharashtra State Legislature, 1958 (India)