18 September 2020
The Government’s increased efforts on ease of doing business, streamlining the storage of records, and improving the safety, security and cost-effectiveness of records, has resulted in promotion of the use of digital technologies by individuals and companies, which includes electronic signing of agreements, documents and contracts.
Given that Indian law recognizes electronic signatures or e-signatures, there has been an increase in the usage of e-signatures in recent times. This, in part, is due to the Government’s decision to focus on enabling electronic transactions using Aadhaar ID, the unique identification number issued by the Government of India.
Further, the on-going COVID-19 pandemic has given a huge impetus to electronic execution of documents due to the worldwide lockdowns, physical unavailability of people and the inability to travel.
The traditional way of executing contracts/agreements involved the parties to be physically present at a place and affix the signatures, stamps, common seals, etc., which is currently not possible due to the on- going COVID-19 pandemic and the consequent inability to travel. In this manner, electronic execution of contracts/agreements makes it easier for parties to execute a document without any unnecessary delays attributed to the concept of wet/physical signatures such as unavailability of all parties at the same place at the same time.
Further, Indian law treats electronic signatures as equivalent to physical signatures, subject to a few exceptions, and generally allows documents to be signed using e-signatures. However, the e-signatures must satisfy a number of conditions and certain checks must be done before it can be relied upon.
E-signatures under the IT Act and applicable rules
Under Indian law, a written signature/signature in manuscript is not necessarily required for a valid contract. Validity of a contract is determined basis the legal capacity/competency of the parties to enter into a contract, the subject matter of the contract (i.e., the contract must be for a lawful purpose) and
acceptance of the offer by the parties.
The Information Technology Act, 2000 (“IT Act”) identifies e-signatures and deals with the legality of such signatures. The IT Act was amended by the Information Technology Amendment Act, 2008 to permit the use of electronic signatures. The amendment (by way of Section 3A) provides the procedure for authentication of any electronic record by electronic signature.
The IT Act, which provides for the adoption of electronic signatures, read with the relevant rules and regulations acknowledges the following forms of electronic signatures:
(a) Digital signatures method – Through this method digital signatures are created which are unique to the executor of the document as well as the document being executed, and / or
(b) Aadhaar e-KYC method – Through this method electronic signatures are carried out using the Aadhaar ID of the signatory which is authenticated by Unique Identification Authority of India (UIDAI).
Further, the Central Government vide the Electronic Signature or Electronic Authentication Technique and Procedure Rules, 2015 has incorporated guidelines with respect to e-authentication technique using Aadhaar e-KYC services in the Second Schedule of the IT Act. These rules recognise e-authentication technique using Aadhaar e-KYC services as valid authentication of an electronic record.
Difference between the digital signature method and the Aadhaar e-KYC method
Digital signatures are carried out using a digital signature certificate (DSC) issued to the signer by the Government authorised Certifying Agencies (CAs). The signer has to use the DSC that is stored on a USB e-token in order to complete the signing requirements. On the other hand, the Aadhaar e-KYC based e-signature facility has been introduced by the Government recently to allow an individual having an Aadhaar ID and Aadhaar registered mobile number to sign documents instantly without having to procure a digital signature certificate (DSC). This mode of e-signature saves cost and time and is also legally valid in terms of the IT Act so long as the entity providing such e-signature services has complied with the requirements under the IT Act (as discussed further in this article).
While a digital signature is ideal for signers who need to sign documents on regular basis or want to sign documents in bulk or want to sign and exchange documents on international level, an Aadhaar based e- signature service is ideal for processes where signers need to sign documents instantly but not regularly and hence do not want to invest time and money in procuring a DSC.
Authenticity and legality of e-signatures
The relevant provisions of the IT Act specify that an electronic record can be authenticated by an electronic signature or electronic authentication technique which is considered reliable and is specified in the second schedule of the IT Act.
Further, the IT Act provides that an electronic signature or electronic authentication technique shall be considered reliable if:
(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.
However, e-signatures/digital signatures cannot be used for executing all types of documents/contracts. The documents that cannot be executed electronically are (i) a negotiable instrument (other than a cheque), (ii) a power of attorney, (iii) a trust deed, (iv) a will (including any other testamentary disposition by whatever name called), and/or (v) any contract for the sale or conveyance of immovable property or any interest in such property.
Conditions for using Aadhaar e-KYC based e-signature model
While e-signatures by way of a valid DSC does not require any further compliances in terms of its use, the Aadhaar based e-signatures requires certain aspects to be considered. For an e-signature by way of the Aadhaar e-KYC based model to be compliant in terms of Indian law, the service provider providing such e-signature facilities needs to be either of the following:
(a) a Central/State Government Ministry/Department or an undertaking owned and managed by Central/State Government,
(b) an authority constituted under a Central/State Act, or
(c) a not-for-profit company/special purpose organization of national importance,
(d) a bank/financial institution/telecom company, or
(e) a legal entity registered in India.
Further, the service provider is required to be integrated with an e-sign service provider (ESP) as certified by the Controller of Certifying Authorities. Thus, only in the event an ESP is empaneled with an authorized certifying agency can it offer e-signature facilities/services to the service providers. Therefore,
it becomes imperative for companies to check for fulfillment of the aforementioned conditions, prior to selecting a service provider to tie up with for e-signature facilities, in order to be compliant with the applicable law in India.
Admissibility of e-signatures under Evidence Act
The Indian Evidence Act, 1872 (“Evidence Act”) has been amended from time to time, especially to provide for the admissibility of electronic records along with paper based documents as evidence in the Indian courts. Perhaps the most important amendment to the Evidence Act has been the introduction of sections 65A and 65B under the second schedule of the IT Act, which provides for special provisions as to evidence in relation to electronic records and the admissibility of electronic records, respectively.
Section 65B of the Evidence Act, is the guiding law in terms of admissibility of electronic record and rovides that, notwithstanding anything contained in the Evidence Act, any information contained in an electronic record (whether it be the contents of a document or communication printed on a paper, or stored, recorded, copied in optical or magnetic media produced by a computer), is deemed to be a document and is admissible in evidence without further proof of the production of the original, provided the conditions set out in section 65B for the admissibility of evidence are satisfied, which have been set out as under:
(a) At the time of creation of the electronic record, the computer output containing the information was produced from a computer that was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer,
(b) During the period, the kind of information contained in the electronic record was regularly fed in to the computer in the ordinary course of the activities,
(c) Throughout the material part of the said period, the computer was operating properly or, if not, then in respect of any period in which it was not operating properly or was out of operation during that part of the period, was not such as to affect the electronic record or the accuracy of its contents; and
(d) The information contained in the electronic record reproduces or is derived from such information fed into the computer in the ordinary course of the said activities.
As regards admissibility of documents which have been signed electronically, the Evidence Act provides that these will be admissible as evidence, subject to the authenticity and integrity of the electronic/digital signature being proved in the court by the signer. Further the Evidence Act provides for presumption as to the authenticity of electronic records and electronic signatures. However, such presumption would only be with respect to a secure electronic record or a secure electronic signature.
Conclusion
E-signatures are increasingly becoming popular and useful especially in todays’ times with the on-going COVID-19 pandemic where the parties are in different cities/countries. In the backdrop of the COVID-19 pandemic, the adoption of electronically signed contracts are gaining traction and is the evident next step to conclude contracts. Further, e-signatures, being digital in nature and made by cryptographic technology, cannot be validated by ordinary authentication procedures. Thus, the chances of tampering with it are minimal. Considering that documents/agreement are executed between parties across countries/continents, it is likely that sooner than later the concept of wet/physical signatures will completely vanish.
However, like with every technology, it does have its own limitations and challenges, such as risk of identity theft and publication or creation of false signatures. Combating such issues becomes important while using e-signatures. Thus, it is imperative for companies/individuals using e-signature facilities to consider these challenges before opting for such a service.
For further information, please contact:
Vasudha Luniya, Clasis Law
vasudha.luniya@clasislaw.com
