In order to combat with the global warming, ‘go green’ has become a global appeal of all nations and international organisations to the citizens across the countries. It is the responsibility of all citizens to safeguard the environment, while government initiatives are playing a huge role in helping find solutions to the problem. Reducing paper work would save the trees and hence it has been the goal of every organisation to tend towards using of electronic data.
Secondly, the highest competition of the current age in the financial sector is to fulfil the needs of its customer within minimum possible time in a hassle free and efficient manner.
On the other hand, it is a challenge to every financial organisation to mitigate risks of frauds on the other hand, a responsibility to comply with the applicable laws and rules.
The outbreak of COVID-19 forced to change the way in which business is done. One of the biggest challenges is signing of documents. Due to travel restrictions and the possibility of lockdowns, physical execution of documents has become very hard. One possible solution to overcome this challenge is execution of contracts and signing of the documents electronically.
What is electronic signature:
Pursuant to the provisions of Section 3A of Information Technology Act, 2000 (IT Act) read with Second Schedule thereof, electronic signature means using of reliable authentication technique, such as, digital signature issued by a Certified Authority, or e-authentication technique using Aadhaar e-KYC services by a subscriber to authenticate any electronic record.
Electronic signature, in order to be reliable, should fulfil the following criterion as mentioned in the IT Act:
(a) the signature creation data or the authentication data are, within the context in which they are used, linked to the signatory or, as the case may be, the authenticator and to no other person;
(b) the signature creation data or the authentication data were, at the time of signing, under the control of the signatory or, as the case may be, the authenticator and of no other person;
(c) any alteration to the electronic signature made after affixing such signature is detectable;
(d) any alteration to the information made after its authentication by electronic signature is detectable; and
(e) it fulfils such other conditions which may be prescribed.
Procedure prescribed under second schedule of IT Act for e-authentication technique using Aadhaar e-KYC services
Authentication of an electronic record by e-authentication Technique which shall be done by-
(a) the applicable use of e-authentication, hash, and asymmetric crypto system techniques, leading to issuance of Digital Signature Certificate by Certifying Authority
(b) a trusted third party service by subscriber’s key pair-generation, storing of key pairs and creation of digital signature provided that the trusted third party shall be offered by the certifying authority.
The trusted third party shall send application form and certificate signing request to the Certifying Authority for issuing a Digital Signature Certificate to the subscriber.
(c) Issuance of Digital Signature Certificate by Certifying Authority shall be based on e-authentication, particulars specified in Form C of Schedule IV of the Information Technology (Certifying Authorities) Rules, 2000, digitally signed verified information from Aadhaar e-KYC services and electronic consent of Digital Signature Certificate applicant.
(d) The manner and requirements for e-authentication shall be as issued by the Controller from time to time.
(e) The security procedure for creating the subscriber’s key pair shall be in accordance with the e-authentication guidelines issued by the Controller.
(f) The standards referred to in rule 6 of the Information Technology (Certifying Authorities) Rules, 2000 shall be complied with, in so far as they relate to the certification function of public key of Digital Signature Certificate applicant.
(g) The manner in which the information is authenticated by means of digital signature shall comply with the manner and standards specified in rules 3 to 12 of the Digital Signature (End entity) Rules 2015 in so far as they relate to the creation, storage and verification of Digital Signature
Section 5 of IT Act provides 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.
Validity of e- Agreement and electronic records
1. Section 10A of the IT Act provides, as follows, for Validity of contracts formed through electronic means:
“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 records, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”
Electronic Records as defined under Section 2(1)(t) of the IT Act, are data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche.
2. The Hon’ble Madras High Court in Tamil Nadu Organic Private Ltd v. State Bank of India, AIR 2014 Mad 103, observed that “contractual liabilities could arise by way of electronic means and that such contracts could be enforced through law.” The High Court further stated that Section 10A of the IT Act enables the use of electronic records and electronic means for the conclusion of agreements, contracts and for other purposes.
3. Section 10 of The Indian Contract Act, 1872 provides that 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.”
Therefore, an Agreement executed electronically in order to be a valid contract must have the following essential features:
It must have been executed –
(i) with a free consent of both parties;
(ii) for a lawful consideration;
(iii) for a lawful object and which are not expressly declared to be void by the said Act; and
(iv) by two or more competent parties.
Therefore, if the terms and conditions are provided to the an user of an electronic form and he confirms to the same by ticking on “I Agree” button, then he shall be bind by that Agreement and be held responsible to honour the obligations under the contract.
4. Section 2(l) of the Maharashtra Stamp Act, 1958 recognised electronic records in the definition of the term “instrument”.
5. Section 3 of The Indian Evidence Act, 1872 provides that Evidence means and includes, inter alia, all documents including electronic records produced for the inspection of the Court, such documents are called documentary evidence.
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.
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 85B of the Evidence Act specifies that –
(1) In any proceedings involving a secure electronic record, the Court shall presume unless contrary is proved, that the secure electronic record has not been altered since the specific point of time to which the secure status relates.
(2) In any proceedings, involving secure [electronic signature], the Court shall presume unless the contrary is proved that—
(a) the secure [electronic signature] is affixed by subscriber with the intention of signing or approving the electronic record;
(b) except in the case of a secure electronic record or a secure [electronic signature], nothing in this section shall cerate any presumption, relating to authenticity and integrity of the electronic record or any [electronic signature.]]
Limitations of execution of electronic documents
(i) First Schedule of the IT Act provides that following documents or transactions to which the act shall not apply.
1. A negotiable instrument (other than a cheque) as defined in section 13 of the Negotiable Instruments Act, 1881.
2. A power-of-attorney as defined in section 1A of the Powers-of-Attorney Act, 1882.
3. A trust as defined in section 3 of the Indian Trust Act, 1882.
4. A will as defined in clause (h) of section 2 of the Indian Succession Act, 1925, including any other testamentary disposition by whatever name called.
5. Any contract for the sale or conveyance of immovable property or any interest in such property.
(ii) The documents which require a notarial attestation, or documents which are to be registered with a Registrar physically, cannot be executed electronically. These would require hard copy documents executed and signed manually in order to be legally enforceable.
(iii) Documents on which Common Seal of a Company has to be affixed, should be executed in hard copies.
(iv) The Reserve Bank of India, in its Master Direction – Know Your Customer (KYC) Direction, 2016 (as updated in August 2019) has limited term loans sanctioned using OTP based e-KYC (in non-face-to-face mode) not to exceed INR 60,000 in a year. This cap is for KYC purposes.
Therefore, e-Signing of Agreements for non-face-to-face customers for providing term loans exceeding INR 60000 in a year is not allowed.