India – NeSL: The New Way Of Electronic Execution.

INTRODUCTION
 

Execution of a document means the placement of signatures by all persons who are required by the character of the instrument to sign the same in order to give it a binding effect under law. It is based on the classic principle of consensus ad idem i.e. two parties entering a contract should agree upon the same thing in the same sense. One amongst the many problems for closure of transactions posed by COVID-19 is the mechanism of execution of documents. The traditional way of executing agreements involved the parties to be physically present at a place and affix the signatures, stamps, common seals, etc., along with paying the necessary stamp duty as prescribed under the relevant stamp laws. However, with the imposition of a nationwide lockdown, travel restrictions and norms of social distancing in place, the manner of execution of documents has had to be reimagined.
 

Finding an effective and legal solution to this issue has been crucial and challenging at the same time. One such solution has come in the form of a notification from the Ministry of Finance (“MoF”) dated August 11, 2020[1], requiring all scheduled commercial banks to integrate with the Digital Document Execution (“DDE”) platform of the National E-Governance Services Limited (“NeSL”) and to nominate a nodal officer to liaise with NeSL and monitor the progress of such integration (“DDE Notification”). The underlying idea behind such an initiative was to devise solutions for enabling e-signing and e-stamping of documents, thereby enhancing ease, security and convenience to the public and avoiding the need for physical presence. This is truly a welcome change and is likely to have a positive impact in the commercial sphere, not only for the customers having loan requirements, but also for banks. 
 

BACKGROUND OF NeSL
 

NeSL was incorporated to augment the information infrastructure in India, with a focus on delivering services to the public, government and public financial institutions. NeSL is India’s first Information Utility (“IU”) and is registered with the Insolvency and Bankruptcy Board of India (“IBBI”) under the aegis of the Insolvency and Bankruptcy Code, 2016.[2]
 

While the primary role of NeSL is to serve as a repository of legal evidence, holding the information pertaining to any debt/claim, as submitted by the financial or operational creditor and verified and authenticated by the parties to the debt, it is also capable of facilitating digital execution of documents for financing transactions by way of DDE. The DDE was conceptualised as a robust, fully automated digital contract execution platform from NeSL. As an advanced paperless contracting solution, DDE digitises the end-to-end loan process and helps financial institutions in instantly executing digital contracts within a short span of time and at significantly lower administrative costs.[3]
 

MODES OF ELECTRONIC SIGNATURE 
 

NeSL allows three ways to affix / imprint electronic signatures (“e-Sign”) [4]: (a) Aadhaar-based OTP e-sign, (b) biometric based e-sign, and (c) dongle based e-sign. The following are the preferred modes of affixing e-Sign in India:
 

1. E-Aadhaar verification: e-Aadhaar is a password protected electronic copy of Aadhaar, which is digitally signed by the competent authority of Unique Identification Authority of India (UIDAI). e-Aadhaar can be used only by persons to whom an Aadhaar number has been issued. Aadhar electronic signature service validates the authenticity of the person and provides for a public key infrastructure to sign documents digitally. This service is offered by certifying authorities licenced under the Information Technology Act, 2000 (“IT Act”). Aadhaar e-Sign requires the signing party to use their Aadhaar number to generate a time-bound one time password (“OTP”) on their registered mobile number. On entering the OTP, electronic signature of the signing party gets placed/stamped on the document. e-Aadhaar signatures are recognised as an accepted method of secure electronic signatures under the IT Act.
    

2. Digital Signatures: Digital signatures are undertaken using ‘Digital Signature Certificates (“DSC”) issued by certifying authorities under the IT Act. A digital signature certificate is stored on a USB dongle or any other secure storage device and can be accessed using a password. The system is based on pairs of keys called public key and private key. Each digital signature is enabled using a DSC and contains a unique private and public key pair that serves as the identity of an individual. Private keys are not shared, they are simply stored at the user’s end (e.g., in the USB dongle). The public key on the other hand is published to everyone, granting other users an easy and convenient method for verifying digital signatures.
    

KEY FEATURES
 

1. Legal Admissibility
 

The DDE platform also allows financial institutions to download the contract along with a section 65B certificate from NeSL IU, a mandatory requirement under the Indian Evidence Act, 1872 (“Evidence Act”). The Indian legal framework recognises the validity of electronic records and the same are enforceable in a court of law if all the conditions under the IT Act and the Evidence Act are followed. As per Section 65-B of the Evidence Act, 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, for instance, a certificate must be presented by a person occupying a responsible official position in relation to the operation of the relevant device or the management of the relevant activity. A three-judge bench of the Supreme Court recently held that the requirement of a certificate under Section 65B(4) of the Evidence Act, is a condition  precedent to the admissibility of electronic record in evidence except if the original document itself is produced.[5]
 

2. Ease of stamp duty payment
 

One other major issue addressed by DDE is that it facilitates electronic stamping through Stock Holding Corporation of India Limited (“SHCIL”) or Government Receipt Accounting System (“GRAS”). SCHIL is a public sector company, appointed as the sole central record keeping agency (“CRA”) by the Government of India. The SCHIL appoints authorised collection centres (“ACCs”), which act as the intermediary between the CRA and the duty payer. The procedure for SHCIL-based stamp duty payments involves the customer to approach an ACC appointed by SHCIL and complete the application form as prescribed in the e-stamping system. A tamper proof e-stamp certificate is generated after the realisation of funds. While the facility of e-stamping is available in certain states and union territories[6], due to the outbreak of COVID-19, SCHIL has allowed citizens to pay stamp duty online and print e-stamp certificates from the convenience of their homes for NCT of Delhi, Karnataka, Himachal Pradesh and UT of Ladakh without having the need to visit an ACC[7]. GRAS on the other hand is a state-specific infrastructure that enables users to pay online stamp duty without the need to visit a bank. The digitally signed receipt of the payment can be appended to the electronic document that is digitally signed.
 

Further, DDE allows online and real-time generation of stamp duty certificate inscribed with a unique stamp duty number from SHCIL or GRAS, thereby making the contract execution process seamless, online and real-time in conjunction with the extant technology. The MoF has issued directions for the state governments to facilitate implementation of NeSL-SHCIL or GRAS platform as a valid mode of payment of stamp duty[8]. While most states are already integrated with NeSL through SHCIL, the government is actively pursuing with the remaining states to integrate their GRAS with NeSL. It is evident from the DDE Notification that the government has also written to all states to put in place the legal enablement for e-stamping.
 

3. Uniformity across banks
 

Apart from providing these key facilities, it is also relevant from the perspective of promoting uniformity of process for all banks across states, doing away with the need for signing multiple pages and thereby reducing the scope for mistakes and fraudulent activities. It also allows lenders the option to do CERSAI filing from the same platform at a future point of time, thereby making that process more efficient as well.
 

4. Systemic benefit to stakeholders
 

The ease of convenience provided by the NeSL DDE platform is beneficial not only for the borrower and lender, but also for guarantors, security providers, auditors of the debtor, prospective lenders, credit rating agencies, credit scorers, policymakers and judicial system. When all these stakeholders can view the same debt balance at a single source, it serves as a single source of information, providing data of each financial contract, including the amount of debt, outstanding balance, security interest of lenders, default and financial statements or repayment history.
 

5. Reduced Costs
 

Having a one-stop platform for electronic execution of financing contracts can provide a level-playing field by providing ease of access of the NeSL DDE platform to the parties to a contract, at reduced costs. It envisages to reduce costs related to retrieval of documents and storage and effectively be one-tenth of the cost as compared to the cost involved in physical execution.
 

6. Safe and Secure
 

As a completely paperless mode of execution, DDE provides best in class data security with safeguards like authenticating the terms of contract, digital storage of details by IU in a central server. The fact that the DDE platform is linked with the lenders’ existing online loan system through APIs, and advanced encryption is comforting in terms of a secure platform with less vulnerability to frauds.
 

CONCLUDING REMARKS
 

There are however challenges which arise with execution of certain kinds of documents by electronic signatures, especially in terms of financing deals which are based on security creation as one of the key elements. One being that there is no alternatives yet for electronic execution of documents like a power of attorney, which requires notarisation[9]. While the linkage between DDE and SHCIL/GRAS might address issues related to e-stamping, but documents which require witnesses to be present at the time of signing or require mandatory registration with an authority in their office may not have reached efficacious levels of electronic execution yet and remain to be seen. To mitigate this issue, larger policy changes will be required to be carried out in the IT Act, the Indian Registration Act, 1908, Power of Attorney Act, 1882, Evidence Act or any other relevant legislations as may be required.
 

As detailed above, despite certain shortcomings that are yet to be addressed, the DDE platform can be a significant breakthrough in the financing sector and can likely be adapted for other commercial deals in the future. Many banks are internally considering the implementation of this innovative and convenient way of electronic execution. The NeSL DDE platform is thereby enhancing ‘Ease of Doing Business’, especially in times where quick financing is the need of the hour for businesses.
 

 

For further information, please contact:

 

Subhojit Sadhu, Partner, Cyril Amarchand Mangaldas

subhojit.sadhu@cyrilshroff.com

 

[1] F. No. 6/2/2019-BO. II.

[2] https://nesl.co.in/welcome-to-nesl/

[3]Paperless Contracts – The New Normal in the COVID World, May 14, 2020, Available at : https://nesl.blog/2020/05/14/paperless-contracts-the-new-normal-in-the-covid-world/

[4] https://nesl.co.in/workflow/

[5]Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal, 2020 SCC OnLine SC 571; Also analysed here: https://corporate.cyrilamarchandblogs.com/2020/07/section-65b-of-the-indian-evidence-act-1872-requirements-for-admissibility-of-electronic-evidence-revisited-by-the-supreme-court/

[6] e-Stamping is currently operational in the States/UTs of Gujarat, Karnataka, NCT Delhi, Assam, Tamil Nadu, Rajasthan, Himachal Pradesh, Uttarakhand, UT of Dadra & Nagar Haveli, UT of Daman & Diu, Puducherry, Uttar Pradesh, Chhattisgarh, Jharkhand, , Punjab, Chandigarh, Odisha, Andhra Pradesh, Bihar, Andaman & Nicobar, Tripura & UT of Ladakh; Available at: https://www.shcilestamp.com/

[7] https://www.shcilestamp.com/

[8]No. S-33013/04/2019-ST-1-DoR dated June 30, 2020, Available at: https://nesl.co.in/wp-content/uploads/2020/08/digital-e-stamping.pdf

[9] Section 1(4) of the IT Act states that nothing in the IT Act shall apply to documents or transactions provided in the first schedule of the IT Act.