With the rapid growth of cyberspace transactions in the global world and no legal protection under existing laws at that time; the United Nations in 1996 observed that having a legal framework dealing with e-commerce and e-signatures was necessary. As a result, United Nations Commission on International Trade Law (UNICITRAL), adopted Model Law on Electronic Commerce (MLEC), 1996. Its main objective was to grant legal recognition to digital signature and to bring uniformity at international level regarding law relating to e-commerce. India was signatory to UNICITRAL Model Law on Electronic Commerce, 1996, hence it was necessary for India to enact Information Technology law in tune with MLEC. The Government of India thus enacted the Information Technology Act 2000 for implementation of the MLEC.
In the year 2001, as an addition to the existing Model Law, United Nations Commission on International Trade Law (UNICITRAL) adopted the Model law on Electronic Signatures (MLIES), 2001. Its main objective was to grant legal recognition to digital signature and to bring uniformity in national laws relating to e-signature. The Government of India in lieu of it adopted the Information Technology (amendment) Act 2008 for implementation of the UNCITRAL Model Law on Electronic Signatures, 2001 in India.
While e-commerce and electronic signature were gradually gaining its momentum, the novel coronavirus (COVID – 19) outbreak has acted as a catalyst and is pushing all countries including India towards a whole new digital era and has broadened the horizon of the virtual sphere. As India is focusing on speeding up the digital transformation; online transactions, commerce, digital conferences etc are becoming a norm. With the growth of e-commerce, there is rapid advancement in the use of e-contracts.
Notwithstanding that, changes have been brought up due to the outbreak of the novel virus and organisations continue to enter binding contractual arrangements with their commercial counterparties. However, in a situation like the present, where nationwide lockdown has been imposed and people are practising social distancing, one of the biggest challenges that arise is the execution and stamping of documents. The paradigm-shift towards digital transformation has augmented the importance of relying on electronic signatures and e- stamping, in lieu of traditional “wet ink.”
This Article summarises the position under Indian law in relation to “formation of E-contract”, “electronic execution” of E-contract and documents, its admissibility and discusses the applicable laws and practical guidance for ensuring valid e-signatures. This article also discusses about various issues and challenges faced by parties during execution of E-contracts.
In a simplistic term, electronic contracts are the contracts which are formed between two parties through negotiations, using any electronic means. An e-contract is a contract modelled, executed, and enacted by a software system.
E- contracts are generally borne out of the need for speed, convenience, efficiency. It reduces costs and the turnaround time for documents which ensures better enforceability. It is hassle-free and a secure form of storage which enhances user experience. Truly, it is a contactless contracting. E-contract is a boom especially in a situation like the present where parties who intend to enter into contracts are not able to meet and execute them physically due to the outbreak of the novel coronavirus.
Indian business broadly recognizes exchange of email for entering into an agreement and online agreement as different forms of e-contracts.
The emails which convey the clear intention of parties can be treated as a binding contract. The simplest e-contract is created by the exchange of text documents via electronic communications such as email. Offers and acceptance can be exchanged by e-mails. This can be inferred from the decision of Supreme Court in the case titled as Trirmex International FZE Limited, Dubai vs. Vedanta Aluminium Ltd1, in which while recognizing the change in execution of commercial transactions the Supreme Court disregarded the argument that exchanges over e-mail did not qualify as contracts and held that “once the contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initiated by the parties would not affect either the acceptance of the contract so entered into or implementation thereof, even if the formal contract has never been initiated”.
Online agreements are broadly of three kinds:
Browse Wrap Agreements: An agreement is considered as a browse wrap agreement which is intended to be binding upon the contracting party using the website. These include the User Policies and terms of service of web sites and are in the form of a “terms of use” or “terms of service”, which can be used as the links at the corner or bottom of website.
Shrink Wrap Agreements: These contracts are the license agreement by which the terms and conditions of the contract are enforced upon the contracting parties and are usually present on the plastic or in manuals accompanying the software products which the consumer buys.
Click Wrap Agreements: These agreements require the user to give his consent to the terms and conditions which are known as end user agreement and govern the licensed usage of software by clicking “I agree” or “I disagree” button.
The term “contract” has been defined in Section 2(h) of the Indian Contract Act, 1872 as “an agreement enforceable by law”. The Indian Contract Act, 1872 governs the way contracts are made and performed in India. It governs the way in which the requirements in a contract are implemented and codifies the effect of a breach of promises and obligations under the agreement. Section 10 of the Indian Contract Act2 states what constitutes a valid contract. Contracts executed electronically are also governed by the basic principles provided in the Indian Contract Act, 1872. Some of the essential prerequisites of a valid contract under the Indian Contract Act are: (a) offer;3 (b) acceptance of offer4; (c)lawful consideration5; (d) lawful object6; (e)competency to contract7; and (f) consensus ad idem8. Therefore, for an e-contract to be considered as a valid contract it must possess all the pre-requisites of a contract as enshrined under the provisions of Indian Contract Act 1872.
The above statement can be inferred by the decision of the Madras High Court in Tamil Nadu Organic Private Ltd v. State Bank of India, wherein the Hon’ble High Court of Madras categorically held that “contractual liabilities could arise by way of electronic means and that such contracts could be enforced through law”.
The aim and objective of Section 10A10 of the Information Technology (Amendment) Act, 2008 (the ‘IT Amendment Act’) is to recognize the legal binding character of e-contracts. Section 10A of the IT Amendment Act expressly provides for validity of contracts formed through electronic means11. It deals not only the issue of formation of contract but also with the form in which offer, and acceptance may be expressed. It covers not merely the cases in which both the offer and the acceptance are communicated by electronic means but also cases in which only the offer or only the acceptance (or revocation of proposals and acceptances) is communicated electronically.
There are few statutes in India which delves upon and governs the execution of e-contracts. Recognition and regulation to e-contracts primarily provided by the provisions of the Information Technology Act, 2000 and the Indian Evidence Act, 1872. The validity and enforceability of an e-contract depends upon its proper execution. The execution of e-contracts is valid and enforceable when it is digitally or electronically signed by both the parties. Further, validity and enforceability of e-contracts are also subject to the satisfaction of the provisions of Indian Stamp Act, 1899. Accordingly, an e-contract should be duly stamped for being a valid document under the eyes of law.
The Information Technology Act, 2000 (IT Act) provides for legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as “electronic commerce”, which involve the use of alternatives to paper-based methods of communication and storage of information, facilitates electronic filing of documents with the Government agencies. The IT Act was however amended by way of Information Technology (Amendment) Act, 2008, (IT Amendment Act). The IT Amendment Act was passed by the Indian Parliament in October 2008 which came into force a year later.
The terms ‘digital signature’ and ‘electronic signature’ has been statutorily recognised under Indian law. Under Section 2(p) of the IT Act, digital signature means authentication of any electronic record by a subscriber by means of an electronic method or procedure in accordance with the provisions of section 3”.
Earlier, the term electronic signature was not defined/recognised under the IT Act. However, the IT Amendment Act, in order to maintain continuity with the regime of the digital signature, introduced the concept of ‘electronic signature’. Under Section 2(ta) of the IT Amendment Act, “electronic signature means authentication of any electronic record by a subscriber by means of the electronic technique specified in the Second Schedule and includes digital signature”.
To put it simply, digital signature is a subset of electronic signature. In an electronic signature there are no standards, the same can be either a typed name or digitized image of a handwritten signature. Under the IT Amendment Act, the term ‘digital signature’ has been substituted with the term ‘electronic signature’. The substitution of the term ‘digital signature’ with ‘electronic signature’ is solely meant to expand the scope of E-contracts in a digitized world.
IT Act quite comprehensively covers the authentication and legalities of electronic and digital signatures. Section 3 and Section 3A of the IT Act provides for authentication and reliability of electronic records by use of digital and electronic signatures. Under Section 2(p) and Section 3 of the Act, digital signatures are considered reliable and secure because digital signatures employ hash functions and cryptosystems for electronic records. As per Section 3A of the IT Act, a subscriber may authenticate an electronic record with an electronic signature that is considered reliable or as stipulated in the Second Schedule of the IT Act. According to Section 3A, Schedule 3 of the IT Act, 2000, an electronic signature is considered valid if all the conditions as specified under Section 3A of the It Act are fulfilled.
Any signature that is reliable is legally recognized and valid under Section 5 of the IT Act. The section gives electronic signatures their legal character. It provides that: “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.”
In the past few years, the government’s initiative to promote a digitised economy has resulted in widespread acceptance of electronic records and electronically signed documents by government authorities. With the advancement of Technology various methods of e-sign has emerged. E-Aadhar KYC combine an Aadhaar identity number with an electronic Know-Your-Customer (e-KYC) method (such as a one-time passcode). The Aadhaar e-KYC is a paperless procedure in which the executant’s identity is confirmed using the Aadhaar authentication procedure of the Unique Identification Authority of India. The controller of Certifying Authorities (CA) initiated this form of service to bring about simplicity and safety in the signing of electronic documents. Signatures produced using the Aadhaar e-KYC technique nowadays, are coming out as the most preferred types of e-signs among Indian nationals and organizations. These signatures perfectly replace the need to acquire a certificate based digital identity number. And since they are tied to the national ID system, executant need not produce a mound of documents before getting their digital identity number. This method is known as the e-Sign Online Electronic Signature Service.
Multi factor Authentication is a unique process through which authentication is done by obtaining One Time Password with a physical digital thumb impression. To add more security, biometric scans such as face ID, retinal scan combined with movement algorithms and gestures can also be used.
Digital Signatures are generated by an “asymmetric crypto-system and hash function.” In this scenario, a executant is typically issued a fixed term (1 to 2 year) certificate-based digital ID stored on a USB token that is used—along with a personal PIN—to sign a document.
The IT Act although provides for the execution of most of the documents, however in particular, the IT Act excludes from electronic transactions the following documents:
There is no specific provision in the Indian Stamp Act, 1899 (“Stamp Act”) that specifically deals with electronic records and/or the stamp duty payable on execution of e-contracts thereof. However, Section 3 of the Stamp Act provides that a stamp duty of the amount indicated in Schedule I of the Stamp Act, shall be chargeable to every ‘instrument’ mentioned in that Schedule which has been executed by any person in India. The word ‘instrument’ as defined under section 2(14) of Stamp Act “includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or record”. The Information Technology Act has already accorded legal recognition to electronic records. Therefore, the word “document” as used under s. 2(14) of the Stamp Act should be read as to include ‘electronic document’ as well, thereby making it clear that e-contracts are amenable to stamp duty.
“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 section2 of the Information Technology Act, 2000.” Clause (t) of sub-section (1) of section 2 of the Information Technology Act 2000 defines an “electronic record” as under:
“electronic record” means data, record or data generated, image or sound stored, received or sent in an electronic form or microfilm or computer-generated micro fiche;”
The MSA also defines the term “execution” as under, which considers, attribution of electronic records as provided under Section 11 of the IT Act: “executed” and “execution” used with reference to instruments, mean “signed” and “signature”.
Explanation. -The terms “signed”, and “signature” also include attribution of electronic record as per section 11 of the Information Technology Act, 2000.”
From the foregoing, it thus appears that the specified instruments, if covered under the MSA would attract payment of stamp duty upon their execution, even if the execution takes place electronically. Similarly, some other states like Delhi, Uttar Pradesh, Karnataka, Gujarat and Rajasthan also include electronic record within the definition of “instrument”, thereby imposing stamp duty on such electronic records.
As stated hereinabove, the validity and enforceability of e-contracts are subject to the satisfaction of the provisions of Stamp Act. Accordingly, an e-contract should be duly stamped for being a valid document under the eyes of law. However, in a situation like the present, where nation-wide lockdown has been imposed for an uncertain period, execution and stamping of documents is a challenge. The Union Finance Minister has however during the enactment of the Finance Act, 2019, amended the Stamp Act to prevent tax evasion. The said amendments were to come into force w.e.f. 1st April 2020. However, as a result of the outbreak of COVID – 19, the Revenue Department vide Notification No. F. No. S.33013/3/2019 ST-I, DOR dated 30th March, 2020 notified the applicability of the Amendments to be extended and coming into force from 1st July, 2020.
In addition to the above, while discussing stamping of Agreements which are to be extended or freshly entered, there exists online stamp duty payment portals that have come to the rescue through several Banks. This is when the State of Maharashtra introduced the Electronic Secure Bank and Treasury Receipt (e-SBTR) system which provided for e-stamping facilities by authorized banks thereby, reducing the administrative costs also. The Maharashtra E-Registration and E-Filing Rules, 201513 also make affixing of electronic signature mandatory, thereby further giving recognition and legal validity to e-contract and e- signature.
On the other hand, the State of Gujarat and Delhi NCR have adopted Stock Holding Corporation of India Limited (SHCIL) which is an agency started by the Central Government for E-stamping.
Under the Evidence Act, 1872, an e-contract has the same legal effect as a traditional paper-based contract. 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.”. The Delhi High Court in the case of Société Das Products Nestle S.A and Anr. vs. Essar Industries and Ors14 recognized the introduction of Section 65 A and 65 B of the Indian Evidence Act, 1872 relating to the admissibility of computer-generated documents in a practical way to eliminate the challenges to the electronic evidence.
According to Section 65 A, the content of the electronic records can be proved by the parties in accordance with Section 65 B of the Indian Evidence Act, 1872. Section 65 B of the Indian Evidence Act, 1872 provides that, any information contained in an electronic record produced by a computer in printed, stored or copied form shall be deemed to be a document and it can be admissible as evidence in any proceeding without further proof of the original. But admissibility of the same is subject to various conditions prescribed under section 65-B of the said act. It is required that the document or e-mail sought to be produced from a computer, was in regular use by a person having lawful control over the system at the time of producing it; the document or the e-mail was stored or received during the ordinary course of activities; the information was fed into the system on a regular basis; the output computer was in a proper operating condition and has not affected the accuracy of the data entered.
An e- contract is basically a communication between two parties in respect of the transfer of goods or services. Thus, any e-mail communication and other communication made electronically is recognized as valid evidence in a Court of law. Also, the Delhi High Court in the case of State of Delhi vs. Mohd. Afzal & Ors15 held that “Electronic records are admissible as evidence”. The evidentiary value of e-contracts can be well understood in light of the various sections of Indian Evidence Act. Sections 85A, 85B, 88A, 90A and 85C deal with the presumptions as to electronic records, whereas Section 65B relates to the admissibility of the electronic record.
Government authorities such as the Ministry of Corporate Affairs, Department of Revenue and Ministry of Finance, accepts electronic records authenticated using e-signatures.
The Reserve Bank of India (RBI) recently allowed small finance banks and payment banks to rely on electronic authentication for confirmation of the terms and conditions of the banking relationship. It also allowed a onetime- passcode based e-KYC process for onboarding customers by all regulated entities. In addition, the Department of Telecommunications recently issued detailed guidelines allowing telecom service providers to use the Aadhaar e-KYC process to issue new mobile connections as an alternative to the existing proof of identity and proof of address document-based process.
Ministry of Electronics and Information Technology (MeITY) Annual Report 18-19 acknowledges wide usage of Aadhaar e-Sign. E-sign service facilitates instant signing of documents online by citizens in a legally acceptable form. The services are being leveraged by various entities, such as Digital Locker, Financial Sector, various Government agencies for internal office uses, Legal Document Signing, etc. using OTP based authentication services of UIDAI.
SEBI recently prescribed Aadhaar e-Sign for attesting documents during digital onboarding and KYC processes. The government increasingly relies on the Aadhaar-based eKYC process as a mode of delivering services and proving identity. These examples indicate the shift towards use of e-signatures.
Remedies for breach of e-contract has not been provided under any law for time being in force, but the rules regarding remedies for breach of contract as enshrined under Indian Contract Act, 1872 can be adhered to. A valid contract gives rights to co-relative rights and obligations and they are enforceable in the court of law when infringed on breach of a contract. Section 73, 74 and 75 of the Indian Contract Act,1872 deals with remedies and damages for Breach of Contract. The person whose rights are infringed by the breach of e-contract may bring action for damages or compensation under Section 73 to 75 of the Indian Contract Act, 1872.
There few legal challenges that ought to be considered by the contracting parties before executing a e-contracts. These are:
One needs to ensure that the persons who are parties to the electronic “contract” have the legal competence and capacity to enter into an agreement. The Indian Contract Act, 1872 provides for the competence of parties to enter a contract. Sections 10, 11 & 12 of the Act incapacitates a minor, a person of unsound mind and any person disqualified by law to enter a contract. The complex nature of e-contracts makes it impossible for one party to figure out whether the other party behind the computer screen is competent to contract or not. The service provider has no idea whether the individual who has clicked on “I Agree” text or icon is legally competent to enter a contract. Capacity of parties is one major requisites of a valid Contract as under the Indian Contract Act, 1872. E-Contracts entered by individuals, who are not competent to contract are void.
The scope of consent is limited in e-contracts. An opportunity to negotiate terms is stalled, as in click wrap and shrink-wrap contract, the online user simply must accept the contract without an occasion to bargain the terms. This is a great disadvantage to the user. But the option “take it or leave it” transaction is always available to the user. In the case of LIC of India Vs Consumer Education and Research Centre, the Supreme Court has held that “In dotted line contracts there would be no occasion for a weaker party to bargain as to assume to have equal bargaining power”. He has either to accept or leave the service or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forego the service forever.” Hence, it can be concluded that the user should be prudent while giving his consent to avoid troubles.
E-contracts gives wide scope for cause of action arising at very many geographical locations. This might lead to filing of cases at different places. Defending lawsuits at multiple geographical locations could be both expensive and frustrating. Hence choice of forum clause should be included in all online contracts. It makes a good legal sense for the online service providers to limit their exposure to one jurisdiction only. Thus, the online service provider has no other choice but to subject themselves to only one set of forum and applicable laws only. The user has no other choice, but to accept the service provider’s Standard Terms and Conditions by clicking an on-screen text or icon “I Agree”, “I Accept”.
Indian law offers several possibilities to validly conclude and execute most contracts electronically. Government has taken several measures to promote the use of digital platforms for public usage. Ease of living is a common goal shared by all sections of the society, including the private players. The COVID-19 pandemic is a catalyst in making people accept contracts in electronic modes. It would be advisable to conclude that an era of e-contracts is going to take over the traditional mode of execution; and willingly or unwillingly the COVID-19 pandemic has pushed people even further towards it.
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