Covid-19 Series: Is The "E-Contracting-Age" Finally Here? - Coronavirus (COVID-19)

The COVID-19 outbreak has caused many organisations to revaluate
how they do business. Offices are only allowed to operate at
limited capacity, a large part of the work force is still social
distancing and work from home looks like it is here to stay. It has
become increasingly more difficult for organisations to contract,
sign and maintain documentation physically as they used to.

An alternative approach is required. In this update, we explore
the state of play of e-contracting and e-signatures as an option
under Indian law.

1. E-contracting in India

IT Law: As a general principal,
contracts under Indian law can be in written or oral form. Indian
IT laws treat (most) electronic contracts the same as physical
contracts. The (comparatively) low usage of e-contracting in India
seems more a matter of habit and convenience, than law. The
Information Technology Act, 2000 (“IT
Act“) provides legal recognition to electronic
records and electronic signatures. Where a law requires a contract
to be in written form, the IT Act allows contracting through
electronic records. An ‘electronic record’ includes any
data or record received or sent in an electronic form.

Contract Law: Under the Indian
Contract Act, 1872 (“ICA“) a valid
contract should include offer and acceptance; lawful consideration;
lawful object; free consent; parties competent to contract;
intention to create legal relationship; certainty and possibility
of performance; and not be expressly declared void. These can be
present in e-contracts too – Indian courts have even held an
exchange of emails to be a valid contract.

As such, so long as prerequisites for contract formation under
the ICA, are fulfilled, an electronic contract is enforceable in
the same way as a physical contract. There are, however, certain
types of contracts that cannot be executed electronically – these
are detailed in paragraph 3 below.

2. Electronic signatures

As a general principle, a contract can be entered into by: (a)
express consent (e.g., oral consent or written ‘wet’
signatures) or (b) by course of conduct (if a party acts on the
terms of the contract).

Digital Signatures v. Electronic
signatures: The terms digital signature and
electronic signature are sometimes used interchangeably. In
practical terms, a digital signature is a type of electronic
signature that may be considered more secure than an electronic
signature. However, both digital signatures and electronic
signatures are recognised as means of authenticating electronic
records under the IT Act.

Validity Requirements: The IT Act
recognises the following two types of electronic signatures: (a)
electronic signatures that combine an individual’s Aadhaar
identity number with an electronic Know-Your-Customer method (for
e.g., a one-time password), and (b) digital signatures that are
generated by an asymmetric crypto-system and hash function.

Digital signatures are valid when they are properly issued as
per IT Act requirements, and there is a legal presumption as to
their authenticity. For electronic signatures to be valid under
Indian law, they must satisfy the following reliability
conditions:

the electronic signature must be linked only to the
signatory;

at the time of signing, the signatory must have control over
the data used to generate the electronic signature;

alterations to the electronic record or electronic signature,
made after the electronic signature is affixed must be detectable;
and

a Certifying Authority recognised by the Controller of
Certifying Authorities appointed under the IT Act must issue the
digital signature certificate issued upon authentication.

Once these conditions are met a legal presumption is created
with regards to the authenticity and validity of the electronic
signature.

3. What’s holding back e-Contracting adoption?

The (comparatively) low usage of e-contracting in India seems
more a matter of habit and convenience, than law.

Lack of Clarity on Payment of Stamp
Duty: Indian stamp law identifies certain instruments
that must be stamped either prior to or at the time of their
execution. Stamp duty is a revenue tax payable in India to make
documents admissible before courts and authorities and it varies
from state to state. As a general principle all instruments are
required to be stamped, and electronically executed contracts have
not been exempted from payment of stamp duty. Some Indian states,
such as Maharashtra, Karnataka, and Delhi, have specifically
clarified that ‘electronic records’ are subject to stamp
duty. While the government has made it possible for parties to
purchase stamp paper online in some states, there are other states
which still do not permit such purchase. Having to physically
purchase stamp paper, may sometimes act as a roadblock in the
paperless execution of contracts.

Requirement for Physical Contracts:
Certain documents requiring a notarial process, or which have to be
registered with Government authorities, must be executed using
“wet” signatures. These include: (i) negotiable
instruments, like promissory notes, bills of exchange (other than a
cheque), (ii) powers of attorney, (iii) trust deeds, (iv) wills and
any other testaments, and (most importantly) (v) real estate
contracts, such as leases or sales agreements. Real estate
contracts, in particular, account for large portion of economic
activity, and still require physical presence.

Cost and Convenience: Until now at
least, it may be cheaper to print, sign and store hard copies of
documents. Obtaining a valid digital or electronic signature is not
simple, and third party e-sign vendors charge subscription fees. Of
course, it may not be physically possible, in some real life
instances now, to contract physically, meaning that the
cost-benefit equation relating to e-contracting is likely going to
change.

4. Towards electronic documents in the COVID 19 age

There has been a discernible movement towards e-contracting in
the recent past, in part due to the challenges posed by COVID 19.
Usage and familiarity with electronic documents and filings will
help increase the comfort with e-contracting.

Electronic Corporate Documentation:
Indian companies are allowed to sign and maintain certain
documents, records, registers, minutes, etc., in electronic form,
provided these are digitally signed and dated and are not be
capable of being edited or altered. This will likely pick up even
more, given the issues with physical records now.

Electronic Court Filings: Indian
courts have now started conducting electronic hearings and
accepting digitally signed, electronic documents through their
designated online portals. Even after COVID 19 passes, it is likely
that courts will stick to these new online methods and
procedures.

Electronic Tax Filings and Customs
Clearances: Tax filings have been digital in India
for some time now. The government has allowed paperless customs
clearances and electronic submission of documents to speed up
imports, web based goods registration, etc.

Intellectual Property Filings: It is
also possible to submit digitally signed, electronic applications
for registering certain types of intellectual property. Given that
the practice of physical submissions is becoming difficult, this
will likely pick up too.

5. What’s Next, and how we can help you

Even with electronic signatures having been in India for many
years, most contracting parties continued to contract physically
through ‘wet’ signatures. This trend seems to have
continued primarily out of habit, and also possibly due to the
other reasons noted in this update. As the pandemic continues with
no sight of when everything will go back to normal, organisations
should start considering adapting electronic signatures, as these
offer a safe and legally enforceable method of contracting
remotely. Organisations can start by identifying where to procure a
valid electronic signatures, under what circumstances it can
affixed and the internal actions required to be taken by it to
authorise personnel to contract on its behalf.

Should you wish, we can assist with and/ or advise further
on: