All contracts in India are required to be in compliance with the Indian Contract Act, 1872 (“ICA”). Further, for the purposes of laws governing e-signatures / digital signatures in India, reliance is placed on the Information Technology Act, 2000 (“ITA”), along with various rules issued under the said Act, and the Indian Evidence Act, 1872 (“IEA”).
APPLICABLE LEGISLATIONS
Indian Contract Act, 1872
The term “contract” has been defined under ICA, as “an agreement enforceable by law is a contract”. While every contract is an agreement, but every agreement is not a contract. An agreement becomes a contract, provided the following conditions are satisfied – (i) the contract should be entered into with the free consent of the contracting parties; (ii). there should be lawful consideration for the contract; (iii). the parties should be competent to contract; and (iv) the object of the contract should be lawful.
Further, Section 3 of the ICA provides for:
Communication, acceptance and revocation of proposals.—The communication of proposals the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.
The above provision provides that, any act or omission, of the party can lead to communication of proposal and acceptance and thus, there is no requirement under the ICA to have written contracts physically signed and a contract will be valid, subject to the basic principles governing contracts in India, as indicated above are satisfied.
The Supreme Court of India in the case of Trimex International FZE Limited, Dubai v. Vedanta Aluminium, India (2010), held that where communication of acceptance is complete, the contract has been formed and the terms can be ascertained from the various correspondences exchanged between the parties. Once a contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initialed 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 initialed.
The Supreme Court of India focused on the intent of the parties, and hence did not consider it important that the formal contract be signed.
Information Technology Act, 2000
In reference to the deliberations above, Section 10A of the ITA acknowledges the validity of contracts formed through electronic means. The said Section provides:
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.
Section 5 of the ITA recognises electronic signatures, states, 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. The section explains that, the termed “signed” with reference to a person, mean affixing of his hand written signature or any mark on any document and the expression ―signature‖ shall be construed accordingly.
The term “electronic signature” has been defined under the ITA, authentication of any electronic record by a subscriber by means of the electronic technique specified in the Second Schedule and includes digital signature. The Second Schedule of the ITA provides for the “e-authentication technique using Aadhaar e-KYC services”. It must be noted that under the current laws of India, e-signature of only this form is recognised under the laws of India.
The Statutory Regulator governing Digital and Electronic Signature in India is the Controller for Certifying Authorities (“CCA”). The CCA has been set up by the government by virtue of the powers vested to it under Section 17 of the ITA. CCA is authorised to license and regulate the working of Certifying Authorities. The Certifying Authorities (CAs) issue digital signature certificates for electronic authentication of users. The list of licensed CAs is available at http://www.cca.gov.in/licensed_ca.html.
With respect to the reliability of an e-signature, Section 3A of the ITA provides that, a subscriber may authenticate any electronic record by such electronic signature or electronic authentication technique which—(a) is considered reliable; and (b) may be specified in the Second Schedule.
It further provides that any electronic signature or electronic authentication technique shall be considered reliable if:
- 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;
- 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;
- any alteration to the electronic signature made after affixing such signature is detectable;
- any alteration to the information made after its authentication by electronic signature is detectable; and
- it fulfils such other conditions which may be prescribed.
Section 15 of the ITA provides that if the electronic signature was under the exclusive control of the signatory at the time of affixation and the signature creation data was stored and affixed in an exclusive manner then in that case the electronic data could be deemed to be a secure electronic signature.
The ITA does not recognise e-signatures / digital signatures for the following description of documents / transactions:
- Negotiable instrument (except for a cheque) as defined under the Negotiable Instruments Act 1881.
- Power of attorney as defined in section 1A of the Powers-of-Attorney Act 1882.
- Trust as defined in section 3 of the Indian Trusts Act 1882.
- Will (including any other testamentary disposition, irrespective of the nomenclature) as defined in clause (h) of section 2 of the Indian Succession Act 1925.
- Any contract for the sale or conveyance of immovable property or any interest in such property.
- Any other document or transaction notified by the Central Government of India.
Indian Evidence Act, 1872
While the ICA does not provide for the requirement for any contract to be signed, however, the importance of the same is relevant for the purpose of providing evidentiary value, should there be a claim or dispute with respect to such contract, before a court of law in India.
Section 65B of the IEA, provides for the admissibility of electronic records as documents subject to the conditions provided under the said Section, which includes, proper functioning of the computer used to produce such electronic record and the information in the record being entered into the computer in the ordinary course.
The term “electronic record” is defined in the ITA 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.
Stamp duty payable on e-contracts
The ITA does not recognise e-signatures / digital signatures for documents such a negotiable instruments (except cheques), wills etc, as provided above. The rationale being that any document which needs a notarial process or registration by a Registrar or Sub-Registrar cannot use an e-signature.
The requirement payment of stamp duty is prescribed under the Indian Stamp Act, 1899 and the respective legislations enacted by the respective State Legislatures, such as Maharashtra Stamp Act, 1958 (applicable to the Indian State of Maharashtra), Karnataka Stamp Act, 1957 (applicable to the Indian State of Karnataka), etc. Stamp duty is, generally, payable in respect of instruments that are physically printed and executed.
While there is no specific provision in the Indian Stamp Act, 1899 that specifically deals with electronic records and/or the stamp duty payable on execution thereof, there are some Indian States such as Maharashtra, Karnataka, Delhi, Uttar Pradesh, Gujarat and Rajasthan include electronic record within the definition of “instrument”, thereby imposing stamp duty on such electronic records.
Instruments are defined under the Indian Stamp Act as “includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or record”. However, under the Maharashtra Stamp Act, 1958 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.”
Similarly, under the Karnataka Stamp Act, 1957, the term “instrument” has been defined to include every document and record created or maintained in or by an electronic storage and retrieval device or media by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded;
Further, in the above referred State statutes, the term “executed” and “execution” used in reference to the instruments have been defined to mean “signed” and “signature” (attributable to electronic record as well).
Therefore, based on the definitions as stated above, instruments are liable to be stamped under the relevant stamp duty laws.
Non-payment of stamp duty in respect of such record/documents would attract consequences similar to those applicable to physical instruments. To provide for few instances, in terms of the Stamp Act and most State stamp duty laws, instruments which are chargeable with stamp duty are inadmissible as evidence in case appropriate stamp duty has not been paid; stamp authorities may levy a penalty which is generally an ad valorem rate, and the maximum penalty could range from between twice the deficient stamp duty to up to ten times, etc.
Based on the requirement of e-contracts to be stamped, which may be achieved either by taking the print of the document on stamp paper or by getting the printed document franked or by procuring a stamp duty certificate by the process of e-stamping for the specific electronic contracts. However, this defeats the purpose of “paperless” e-contracts. Therefore, some States have provided provisions to stamp a document electronically. For example, State of Maharashtra introduced the Electronic Secure Bank and Treasury Receipt (e-SBTR) system which provided for e-stamping facilities by authorized banks.
In reference to the above, while there are e-stamping facilities provided but these facilities are State specific and there are administrative / logistical steps that are required for the purpose of availing these facilities as well. For example, while the State of Maharashtra provides for the e-SBTR facility, its only for documents where stamp duty payable is more than Rs 5000. Further, while the stamp duty is payable online, the physical receipt of such payment needs to presented to the authorised bank to collect the stamp paper / produce the relevant for physical franking.
On the requirement of appropriate stamp duty payable on e-contracts, while there are logistical challenges faced by stakeholders, there are service providers who provide facilities to pay the stamp duty on e-contracts online and remotely, thus mitigate the issues that may be otherwise caused with respect to the stamping / franking of e-contracts.
Electronic Contracts duly signed by e-signature are duly recognised and valid under the Information Technology Act, 2000 and Indian Evidence Act, 1872, subject to the satisfaction of the conditions provided therein.
– Naman Dubey & Anupam Prasad
Naman is a fourth-year student of law at the Institute of Law, Nirma University, Ahmedabad and is currently interning at the Firm. The Firm acknowledges and expresses gratitude for the efforts put in by Naman towards this AP Law Series write up.
