–Anita Baid and Richa Saraf (legal@vinodkothari.com)

Introduction

With the evolution of technology, the way of executing documents have also evolved. With the increasing demand for modern, convenient methods for entering into binding transactions, electronic agreements and electronic signature have gained a lot of momentum in recent years. Technological developments have not only changed the ways in which these transactions are entered into but the execution process has also revolutionised significantly.

Speaking about e- agreements, while there has been various case laws, wherein email between parties has also been accepted as a binding contract, the validity and enforceability of click- wrap agreements still continues to be a cause of concern. The recent report of the Steering Committee on Fintech Issues[1] has also discussed about re-engineering of legal processes for the digital world. The Committee suggests that insistence on wet signatures on physical loan agreements be replaced by paperless legal alternatives, as these can enable cutting costs and time in access to finance, repayment, recovery, etc., for businesses and financial service companies. To achieve the goal of paperless economy also the requirement of physical loan agreements are unwanted. The Committee has, therefore, recommended that the Department of Legal Affairs should review all such legal processes that have a bearing on financial services and consider amendments permitting digital alternatives in cases such as power-of-attorney, trust deeds, wills, negotiable instrument, other than a cheque, any other testamentary disposition, any contract for the sale or conveyance of immovable property or any interest in such property, etc., (where IT Act is not applicable), compatible with electronic service delivery by financial service providers.

In this article, we have discussed the legal validity of electronic agreements and electronic signatures.

Validity of E- Agreement as per the Contract Act, 1872[2]

Section 10 of the Contract Act lays down as to what agreements are contracts. It states:

“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

Contracts executed electronically are also governed by the basic principles provided in the Contract Act, which mandates that a valid contract should have been entered with a free consent and for a lawful consideration between two majors. The intent of the parties is, therefore, relevant.

In case of click wrap agreements also, if the terms and conditions are provided to the user (offer) and he confirms to the same by ticking on “I Agree” (acceptance), then he shall be held liable to honour the obligations under the contract.

Recognition of E- Agreement and Digital Signature under the Information Technology Act, 2000[3]

Section 10A of the IT Act expressly provides for validity of contracts formed through electronic means and states that-

“Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, 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.”

An e-agreement subsequent to its execution is stored/recorded with the executing parties in electronic form, and is considered as an electronic record under the IT Act. In this regard, it is relevant to refer to Section 2(1)(t) of the IT Act, which defines an electronic record as “data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche”.

The terms electronic signature and digital signature have been defined under the IT Act.

In fact, the IT Act quite comprehensively covers the legalities of digital signature certificates (DSCs). Section 5 of the IT Act gives electronic signatures their legal character.

“5. Legal recognition of electronic signatures: Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of electronic signature affixed in such manner as may be prescribed by the Central Government. “

Considering that the IT Act has recognised e-signatures as legal and binding, the same may also form a strong basis for initiating litigation before a court of law.

Recognition of E- Agreement and E- Signature under Stamp Acts

While a majority of state stamp laws do not specifically include electronic records within their ambit, some state stamp duty laws do recognise “electronic records” within the purview of “instrument”. For instance, Section 2(l) of the Maharashtra Stamp Act, 1958[4] specifically refers to electronic records in the definition of the term “instrument” as under:

“instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt;

Explanation. – The term “document” also includes any electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000.”

The Maharashtra E-Registration and E-Filing Rules, 2013[5] also make appending of electronic signature or biometric thumb print mandatory, thereby further giving recognition and legal validity to e-contract and e- signature. The Indian Penal Code, the Banker’s Book of Evidence Act 1891 and the Reserve Bank of India Act, 1934 also contain provisions in relation to such electronic contracts which contain digital signature.

Admissibility of E- agreements as evidence?

Under the Evidence Act, 1872[6], an e-agreement has the same legal effect as a paper based agreement. The definition of “evidence” as provided under Section 3 of the Evidence Act includes “all documents including electronic records produced for the inspection of the court.” Section 65B(1) of the Evidence Act provides that any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be also a document and shall be admissible in any proceedings, without further proof or production of the original, as evidence of any contents of the original or of any fact stated therein of which direct evidence would be admissible”.

Further, Section 47A of the Evidence Act stipulates that when the Court has to form an opinion as to the electronic signature of any person, the opinion of the Certifying Authority which has issued the electronic Signature Certificate is a relevant fact, and Section 85B of the Evidence Act stipulates that unless the contrary is proved, the Court shall presume that-

• the secure electronic record has not been altered since the specific point of time to which the secure status relates;
• the secure digital signature is affixed by subscriber with the intention of signing or approving the electronic record.

Global Laws

UNCITRAL Model Law on Electronic Signatures[7]

In 1996, the United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Electronic Commerce to bring uniformity in the law in different countries. Based on which, India enacted the Information Technology Act, 2000. Subsequently, in 2001, as an addition to the existing Model Law, a Model Law on Electronic Signatures was adopted by the General Assembly of UNICTRAL.

Article 2 (a) of the Model Law defines electronic signatures as below:

“Electronic signature” means data in electronic form in, affixed to or logically associated with, a data message, which may be used to identify the signatory in relation to the data message and to indicate the signatory’s approval of the information contained in the data message;”

The Model Law has further examined various electronic signature techniques being used, and has broadly recognised two categories of electronic signatures-

• Digital Signatures relying on public-key cryptography; and
• Electronic Signatures relying on techniques other than public-key cryptography.

UK Law Commission- Consultation Paper on Making a Will[8]

The Law Commission has considered various forms of e- signatures such as typed names and digital images of handwritten signatures, passwords and PINs, biometrics, and digital signatures. The following are the key discussions in the Consultation Paper with respect to alternative modes of signature:

• A rudimentary electronic signature may consist of a typed name in an electronic document, or a digital image of a handwritten signature. Such digital images may be produced by a scan or a photograph of the signature. However, there is a high risk of fraud in these forms of e- signature, as any person can copy the signature of any other person.
• A biometric signature is a type of electronic signature that measures a unique physical attribute of the signatory in order to authenticate a document. For instance, fingerprints, retina scan, voice recognition, facial recognition. A biodynamic manuscript signature is also a type of biometric signature that is increasingly being used, where the unique way by which a person signs is recorded by way of various parameters including speed, pressure, and even the angle of the stylus, however, the reliability of biodynamic signatures varies on the systems used to record and analyse them.

Conclusion

On a combined reading of the national and international laws, it can be said that e-agreements are valid and enforceable in the courts, however, since the risk associated with e-signatures are high, for high stake transactions, parties still insist on wet signatures on physical agreements. For fintech entities, who have been vigorously using e- mode of documentation and execution, in order to avoid fraud or forgery, e- signatures can be used with an additional layer of security, for instance, by verifying the electronic signature via sending an OTP at the registered mobile number, or by using geo location, to capture the IP address, or such other mechanism to track the detail of the electronic device from where the e-signature has been affixed. Such two-tier verification process shall also ensure authenticity of the signatory.

 

[1] https://dea.gov.in/sites/default/files/Report%20of%20the%20Steering%20Committee%20on%20Fintech_2.pdf

[2] https://indiacode.nic.in/bitstream/123456789/2187/3/a1872___9pdf.pdf

[3] https://indiacode.nic.in/bitstream/123456789/1999/3/A2000-21.pdf

[4]https://indiacode.nic.in/bitstream/123456789/6916/1/maharashtra_stamp_act_%28lx_of_1958%29_%28modified_upto_05.12.2018%29.pdf

[5] http://igrmaharashtra.gov.in/writedata/PDF/e-Registration%20and%20e-Filing%20Rules%202013.pdf

[6] http://legislative.gov.in/sites/default/files/A1872-01.pdf

[7] https://www.uncitral.org/pdf/english/texts/electcom/ml-elecsig-e.pdf

[8] https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2017/07/Making-a-will-consultation.pdf

 

Our other write-ups on e-agreements and fintech lending can be referred here:

• https://vinodkothari.com/wp-content/uploads/2019/03/Single-point-collection-of-stamp-duty.pdf
• https://vinodkothari.com/articles-fintech-startups/