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How to execute contracts remotely?

By – Ramesh Vaidyanathan & Mansi Singh

Most organizations have implemented some form of ‘work-from-home’ in response to the COVID-19 pandemic. A variety of business arrangements and agreements are being negotiated and executed virtually by parties. This has given rise to an increased demand for modern, convenient methods for consummating transactions and the use of electronic signatures (e-signatures) for recording them.

E-signature and the UNCITRAL Model Law

An e-signature is the authentication of an electronic record by a subscriber electronically. The United Nations Commission on International Trade Law (UNCITRAL) adopted a model law on e-commerce in 1996 to have a uniform e-commerce law at the international level and to provide equal treatment to paper-based and electronic information. This was subsequently adopted by the General Assembly of the United Nations and India also enacted the Information Technology Act, 2000 (ITA). With UNCITRAL adopting the model law on e-signature (MLES), 2001, India enacted the Information Technology (Amendment) Act, 2008 recognizing e-signatures in India.

Position under Indian law

ITA recognises contracts formed through offer and acceptance by electronic forms or by means of electronic records. Contracts executed electronically are also governed by the basic principles provided under Indian contract law, which mandate that a valid contract should have been entered with free consent and for lawful consideration between two majors. With advancement in technology, the concept of communication of acceptance has undergone a drastic change, and the Supreme Court of India has held that once a contract is concluded orally or in writing [including through email], the mere fact that a formal contract has not been prepared or initialed does not affect the validity of the contract.

Process to obtain an e-signature

Digital Signature Certificates (DSC) are the digital equivalents of physical signatures. A licensed Certifying Authority (CA) issues the DSC. CA means an entity that has been granted a license to issue DSC under the ITA. The time generally taken by a CA to issue a DSC may vary from three to seven working days and the CAs are authorized to issue a DSC with a validity of one to three years. The DSC is renewable. The cost of obtaining a DSC may vary depending upon the validity period and the type of DSC but it generally ranges between INR 1500 (approx. USD 20) to INR 6000 (approx. USD 80). Once a DSC is obtained it can be used to sign a document quite easily.

Requirements of a valid e-signature

As per the ITA, a subscriber may authenticate any electronic record by an e-signature that is secure and reliable. For an e-signature to be deemed secure and reliable, it must fulfill the following criteria:

  1. E-signature must be uniquely linked to the person signing the document. This condition is often met by issuing a digital-certificate-based digital ID.

  2. At the time of signing, the signer must have total control over the data used to generate the e-signature. For example, by personally/directly affixing the e-signature to the document.

  3. Any alteration to the affixed e-signature or the document to which the signature is affixed must be detectable. This is achieved by incorporating technology which can trace tampering of the document or deletion of the e-signature after the e-signature has been affixed. Once the e-signature is affixed, the documents have a complete audit trail that records geo-coordinates, browser/device, timestamp, etc. in the event of any changes to the document.

Are digitized (scanned) signatures the same as digital signatures?

  1. Though the two names sound very similar and are forms of e-signatures, there is a huge difference between a digital signature and a digitized (scanned) signature. Digitized signature is the conversion of the wet-ink signature into an image. Digitized signatures can be obtained by signing on a paper and scanning it. In the alternative, one can also use a signature pad that allows saving the image of a signature on the computer.

  2. While digitized signatures are legal and acceptable under Indian law, they don’t offer security against tampering, a critical element of any e-signature. The image of the scanned signature can easily be copied and pasted onto other documents. If a person’s computer is hacked or stolen, his/her digitized signature could be compromised and be used to sign any document.

  3. On the other hand, digital signatures are locked against tampering. It can be verified if a digitally signed document has been altered by using PDF viewer software. If someone has changed any part of the document (even something as simple as deleting a space), there is proof that tampering took place. Digital signatures offer a greater level of security compared to digitized signatures and they are just as convenient.

Admissibility of e-signatures as evidence in a court of law

The Indian Evidence Act, 1872 (IEA) deals with proof that can be produced or admitted in a court of law. The law enacted in 1872 naturally did not envisage e-signatures as evidence. However, after the introduction of the ITA, the IEA was amended to recognize electronic records as evidence. Accordingly, e-signatures are presently admissible as evidence in a court of law as per the IEA. A signatory has to demonstrate that the e-signature belongs to him, in the event any dispute arises in relation to the e-signature on any document. This can be achieved by verifying the e-signature data with the CA that has issued the DSC.

Offences related to e-signatures

The offences related to e-signature are generally identity theft and publication of false e-signature certificate with a fraudulent purpose. ITA provides penal provisions for identity theft and publication of e-signature certificate with a fraudulent purpose, i.e, imprisonment of up to three years and fines up to INR 1,00,000 (approx. USD 1,318).

Exclusions

Certain types of agreements and other documents require wet ink signature and e-signatures are not valid in such cases. These are:

  1. a negotiable instrument such as a promissory note or a bill of exchange;

  2. a power-of-attorney;

  3. a trust deed;

  4. a will or any other testamentary disposition; and

  5. a contract for the sale or conveyance of immovable property or any interest in such property.

Conclusion

E-signatures eliminate paper-based processes, reduce operational costs and enable a wide range of signing options to sign from any device, anytime. The pandemic has demonstrated the importance of having a robust digital framework to conduct/facilitate business transactions virtually and e-signatures will play a big part in accelerating the shift towards digitization.

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