India: Electronic Contracts – The Likely ‘New Normal'

Introduction

The calamitous situation of COVID-19 pandemic and the consequent lockdown and other restrictions imposed by the Government of India have caused road-blocks for all commercial activities and posed several logistical difficulties. Several transactions which were under negotiation prior to the pandemic would be in abeyance as the physical signing of contracts has become challenging. At a time like this, companies as well as individuals have considered opting for electronic contracts (E-Contracts). An E-Contract is not a new concept and has been recognized in India even in the pre-pandemic time. In view of this pandemic, there has been an increase in the execution of electronic contracts and electronic signing of documents.

Validity of E-Contracts

An E-Contract, like any other physical contract, is also primarily governed by the provisions of the Indian Contract Act, 1872 (ICA). Therefore, the validity of an E-Contract depends on due satisfaction of all the essentials of a valid contract as under including (i) Offer and Acceptance; (ii) Lawful consideration; (iii) Lawful object; (iv) Consent; (v) Competency of parties to contract; (vi) Intention to create legal relationship.

Applicable Statutes to E-Contracts

Given the nature of E-Contracts, there are certain statutes that have some specific provisions for governing E-Contracts. All such statutes have to be read together with the provisions of ICA and not in isolation thereof.

Applicability of Information Technology Act, 2000 E-Contracts as well as electronic signatures (E-Signature) are recognised under Indian law and are governed by the Information Technology Act, 2000 (IT Act). Section 4 of the IT Act provides that the requirement for any information or matter to be in writing or in typewritten or printed form under any law shall be deemed to have been satisfied if such information or matter is in an electronic form and is accessible so as to be usable for a subsequent future reference. Section 4 of the IT Act reads as under:

Further, Section 10A of the IT Act provides that in a contract formation, the communication, acceptance and revocation of proposals and acceptances may be expressed in electronic form or by means of electronic records. Section 10A of the IT Act reads as under:

In view of the aforesaid provisions of the IT Act, the courts in India also have from time to time confirmed the validity of contracts executed in an electronic form.

In the case of Trimex International FZE Ltd. Dubai vs. Vedanta Aluminium Ltd.¹, wherein the offer and acceptance had been conveyed by the parties through email in the absence of signed documents, the hon'ble Supreme Court of India had observed that once a contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initialled by the parties would not affect either the acceptance or implementation of such contract. In another case of Tamil Nadu Organic Private Ltd. and Ors. vs. State Bank of India²theHigh Court of Madras had applied the provisions of the IT Act to an e-auction and observed that contractual liabilities could arise by way of electronic means and that such contracts could be enforced under law. Section 10A of the IT Act validates contracts formed through electronic means and the IT Act enables the use of electronic records and electronic means for the conclusion of contracts provided that the contract complies with the provisions of the Indian Contract Act, 1872.

Further, as far as the signing of the contracts is concerned, electronic signatures are treated as equivalent to traditional wet signatures and are also legally recognised under Section 5 of the IT Act. Section 5 of the IT Act reads as under:

Exceptions of Applicability of IT Act

There are certain exceptions under the IT Act with respect to the documents that can be executed in an electronic format and by the use of an electronic signature. The First Schedule of the IT Act specifically excludes the following documents from being executed in an electronic format and being electronically signed:

(i) Negotiable instruments (other than a cheque);

(ii) Power of attorney;

(iii) Trust deeds;

(iv) Wills (including any other testamentary disposition); and

(v) Contracts for the sale or conveyance of immovable property or any interest therein.

Therefore, as per the IT Act, contracts of any form, except the specific exclusions listed hereinabove, may be executed electronically by affixing an E-Signature. Please note that an E-Signature under the IT Act includes (i) digital signatures which are stored in a USB token and used along with a personal pin and (ii) an electronic signature or electronic authentication technique using any e-KYC authentication (as provided in Second Schedule of the IT Act).

Admissibility of E-Co ntracts and E-Signat ures as Evidence

The Indian Evidence Act, 1872 (Evidence Act) was also appropriately amended to bring it in consonance with the electronic methods of execution of documents introduced by the IT Act. Under the Evidence Act, electronic records, electronic agreements and electronic contracts are admissible in evidence. In this regard, the Supreme Court of India, in the case of State of Punjab and Ors. vs. Amritsar Beverages Ltd. and Ors.³, had observed that Section 63 of the Evidence Act includes the admissibility of computer outputs in various media like paper, optical or magnetic forms. Further, the procedure for furnishing electronic documents as evidence is provided under Section 65-B of the Evidence Act. 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 from it 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 Evidence Act. Section 73A prescribes procedures for verification of digital signatures.

Sections 85A and 85B of the Evidence Act raise a presumption as regards validity of digital signatures in electronic contracts, secure status of electronic records and digital signature certificates and digital signature certificates, unless contrary is proved.

Conclusion

The COVID-19 situation has digitalized India to a large extent, including the Indian courts, taking it to a new paradigm of paperless state of things. E-Contracts and E-Signature enable people to continue their transactions and other commercial activities while also maintaining the social distancing norms. However, payment of stamp duty as required under law continues to be a point of contemplation and steps in this regard are now being actively taken by several state governments by way of opening online portals for payment of stamp duty.

Footnotes

1 2010 (2) AWC 1170 (SC ).

2 AIR2014Mad103.

3 AIR2006SC 2820.

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