Introduction:

Electronic contracts also known as e-contracts are quickly replacing paper-based contracts as we move towards digital India. Parties prefer e-contracts for the benefits they offer, including being cost-effective, faster to execute, harder to forge, and not requiring the logistical hassles of signing paper contracts. In addition to these benefits, the COVID-19 outbreak and resulting nationwide restrictions in movement and physical interactions made it difficult for people to come together physically and sign paper contracts. The urgency in certain matters and the need for the companies to move ahead have made e-contracts more and more appealing.

Legal recognition 

Section 4 of India’s Information Technology Act, 2000 (“IT Act”) provides for recognition of electronic records i.e. any document which is required by law to be in writing, typewritten or in printed form, will be considered to be valid if it is rendered or made available in electronic form and accessible for a subsequent reference in future.

Section 10A of the IT Act provides that, in case of a contract formation, where the communication of proposals and acceptance are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose. 

In other words, the recognition, validity and enforceability of e-contracts has been clearly set out under Indian law, and has also been accepted by courts and authorities as a binding form of agreement.

Recognized forms of electronic signatures

The IT Act recognises two types of e-signatures to verify and authenticate electronic documents and records.

  1. Digital signatures that work through the application of symmetric cryptosystems and hash functions. These are associated with certificates issued by third-parties licensed by the government, and provide for digital IDs which can be used to authenticate the identity of the signatory. Due to the security and verifiability of digital signatures, this is now the preferred method for signing high-risk contracts or where there is a need for compliance with regulations requiring digital signatures; and 

  1. Electronic signatures, e-signatures or electronic authentication methods, which include providing of signatures through any electronic process, including the digital signatures mentioned above. The IT Act recognises certain types of electronic signatures as being equivalent to physical signatures, subject to their reliability which is subject to, inter alia, the signature being capable of being authenticated and any alteration being detectable. This includes methods such as biometric or OTP based verification, through Aadhar and digital signatures. In practice, it has also become commonplace to affix a digital image of a physical signature or including the name of the signatory in lieu of a signature; however, this can result in legal challenges to the validity of the signature and the contract in the event of a dispute or legal proceeding, and is not advisable in contracts which involve any level of risk.

Procedure for obtaining and using digital signatures, and e-authentication techniques

Use of digital signatures first requires procurement of digital signature certificates (“DSC”). 

DSCs are signed by a Certifying Authority (which are trusted service providers licensed by a government authority to issue electronic/ digital signature certificates), after successful verification of the identity and the address of the applicant. 

The CCA is the authority appointed under the IT Act to license and regulate the CAs.

Usually, a DSC is contained in a universal serial bus (“USB”) token with a personal PIN which can be used by plugging the USB into a computer and signing the digital document using that PIN. A DSC consists of three elements:

  1. Names and extensions including nationality, email address, details of one’s workplace, holder’s picture, a layout of his fingerprints, passport number etc.;
  2. Public key information of the holder; and
  3. The license details and verification of the Certifying Authority.

Validity and enforcement

As per section 5 of the IT Act, electronic signatures (including digital signatures) are recognized as valid signatures and any requirement of signature will be considered and deemed satisfied if the document is authenticated by way of electronic signature in the manner prescribed under the IT Act. 

There is no difference between the enforceability of electronic/digital signatures and other accepted valid electronic signatures having the same status as handwritten signatures under Indian law. 

There is a presumption of validity for electronic records signed using a valid electronic signature (as recognized under the IT Act), which is treated as equivalent to a wet-ink / physical signature.

Admissibility of digitally signed documents

Section 3 of the Indian Evidence Act, 1872 (“Evidence Act”) recognizes electronic records as documentary evidence.

As per Section 65B of the Evidence Act, any information contained in an electronic record is deemed as a document and will be admissible as evidence in any proceedings without further proof of the original, if it is accompanied by a certificate stating that:

  1. the computer through which the electronic record was produced, was in regular use by a person having lawful control over the system at the time of producing it;
  2. the information contained in the electronic record was stored or received in the said computer during the ordinary course of activities;
  3. the output computer was in a proper operating condition, or, operational difficulties, if any, with the computer must not have affected the accuracy of the data entered; and
  4. the information contained in the electronic record reproduces information fed into the computer in the ordinary course of activities.

Moreover, Section 85A of the Evidence Act states that every contract that purports to be an agreement containing the electronic signatures of the parties shall be presumed to be concluded by affixing the signatures of the parties. However, this presumption extends only to electronic signatures as recognised under the IT Act.

As per Section 85B of the Evidence Act, in any proceeding involving secure electronic/digital signatures, the court is required to presume that the secure electronic/digital signature is affixed by the subscriber with the intention of signing or approving the electronic record, unless proved otherwise.

Conclusion

Therefore, e-contracts and documents which are electronically signed will be deemed to be valid, unless proven otherwise.

Disclaimer:

The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife Consulting is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

Download Startup Guide
A guide with complete lifecycle of startup
Download
close-link

Treelife Ventures Services Private Limited.
All Rights Reserved. © 2022.