Safeguard your business with eSignature best practices, and implement them confidently to support your business needs.
According to a report recently published on GlobeNewswire, one of the world’s biggest newswire distribution networks, the global digital signature market size is expected to reach USD 7.99 billion by 2027.
The growing digitalization in retail, healthcare, BFSI, government, and the IT & telecom sectors is expected to drive this market growth. These advancements have made workflows smoother, transparent, and more efficient while minimizing cybercrime. Furthermore, they have supported social distancing and online and remote work obligations during critical lockdowns in the pandemic.
In India, too, the eSignature market is expected to rise substantially thanks to the increasing government initiatives to enhance digitalisation across industries, focusing on boosting the use of e-signatures.
If you want to enhance your eSignature workflows or are simply curious about this technology, you may wonder about the legalities and validity of eSignatures in India.
This article will take you through everything you need to know about eSignatures in India, from what they are and how they work to their legal standing under the law.
Are eSignatures admissible in India?
In India, eSignatures are accepted as legitimate in legal proceedings, and the eSignatures or digital signatures produced by a Certifying Authority are considered legally valid.
You can use eSignatures in India to sign contracts, agreements, and other legal documents.
The relevant laws and regulations surrounding the use of electronic signatures in India are the ITA, the ICA, the ESEATPR, the Indian Stamp Act of 1899 and the relevant state stamp acts. These laws provide us with the framework for understanding:
- What “electronic signatures” are acknowledged by the government of India.
- What kind of documentation or transactions cannot be entered into electronically.
- What standards all contracts, including contracts using an electronic signature that does not fulfill the legally recognised requirements under the ITA, must meet.
- Whether stamp duty is due on any specific transaction entered electronically.
This framework helps businesses and individuals protect their interests when using this technology.
As a threshold matter, the ITA states that a contract cannot be denied enforceability merely because it was conducted electronically, provided the contract fulfils the essential elements of a valid contract under the ICA.
The essential elements of a valid contract are set out in Section 10 of the ICA. These elements are as follows:
- It is entered into by parties who are competent to contract.
- It is entered into by parties as a result of their free will (i.e. valid proposal and acceptance).
- It provides for mutual consideration between the parties.
- It does not require the doing of any act which is forbidden by law.
Noteworthily, under Indian law, contracts between private parties do not require a signature for validity. Instead, the requirements for validity are those set forth above.
How can we ensure the validity of eSignatures as per ITA?
Signatures have been historically used to signify an agreement or contract. However, following the massive growth of the internet, eSignatures are fast becoming the norm for signing agreements electronically.
Whether you run a small business or a large enterprise, eSignatures are a secure, efficient way to enhance your workflows without compromising security.
The ITA defines a “digital signature” as the “authentication of any electronic record by a subscriber by means of an electronic method or procedure in accordance with the provisions of section 3 [of the ITA].”
You need to ensure the validity of an eSign under ITA for the contract or agreement to be binding.
To be validly recognised under the ITA, an “electronic signature” must:
- be “reliable” and
- use an authentication technique specified in the Second Schedule to the ITA.
You may consider an electronic signature “reliable” if:
- The signature creation data or the authentication data are, within the context in which they are used, linked to the signatory or to 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 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;
- There is an audit trail of steps taken during the signing process; and
- The digital signer certificates are issued by a Certifying Authority recognised by the Controller of Certifying Authorities appointed under the IT Act.
Furthermore, the Second Schedule provides that an “electronic signature” or electronic record can be authenticated by using either of the following methodologies:
- Aadhaar e-KYC services, or
- A third-party service by subscriber’s key pair-generation, storing of key pairs on hardware security modules and creation of digital signature provided that the trusted third party providing such services shall be offered by any of the licensed Certifying Authority.
If you’re looking to create your digital signature, you’ll first need to obtain a digital certificate from a licensed Certifying Authority. This will enable you to create a unique and tamper-proof eSignature that can be used to sign any document electronically.
Which documents cannot be signed electronically?
If you’ve already adopted or are planning to implement eSignatures in your business, you may be keen to know which types of documents can be signed using this technology.
A variety of business contracts can be signed electronically, with the exception of those as specified in the First Schedule to the ITA.
You should be aware that electronic signatures are not permitted on some specified documents or transactions. These documents include the following:
- Negotiable instruments such as promissory notes or bills of exchange other than a cheque.
- Trust deeds.
- Will and any other testamentary disposition by whatever name called. and
- Any contract for the sale or conveyance of immovable property or any interest in such property.
Is there any further guidance on the validity of eSignatures for businesses in India?
Knowing how the different states have been approaching eSignatures will give you a better understanding of the legal landscape.
It’ll also allow you to tailor your eSignature processes to ensure compliance in your business jurisdictions and avoid potential risks. Here are some key points you should be aware of:
- The Indian Stamp Act or the relevant stamp act applicable to the state requires that certain instruments be stamped before execution. The Indian Stamp Act or any other law in force and effect in India does not address electronic records and the method of stamping electronic records.
- However, many states (including Maharashtra, Gujarat, Karnataka, Delhi, Uttar Pradesh, Rajasthan, etc.) have amended their respective stamp acts to specifically include “electronic records,” as defined under the ITA, under the definition of an “instrument”, extending the necessity of stamping an electronic record.
- An “instrument” includes every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded.
- If an ITA Electronic Signature satisfies the conditions outlined in the ITA, it will be regarded as valid. If a party contests the validity of an ITA Electronic Signature, the challenging party—not the party relying on the signature—must demonstrate proof that the signature was invalid.
- For non-ITA electronic signatures, if the validity of the signature is challenged, the party seeking to enforce the signature may, in addition to the conditions mentioned above, need to produce evidence to show all the essentials of a valid contract, as per the ICA, were satisfied.
For your further reading
Relevant case law addressing the use of electronic signatures includes:
- Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal; and
- Trimex International FZE Ltd, Dubai v. Vedanta Aluminium Ltd.
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