This article is written by Dhaaranee Karunagarn, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
Agreements and contracts have become the heart and soul to carry out business in the current scenario. The various business transactions carried out among two or more parties play a vital role in developing the whole nation’s economy. The very purpose of the agreement will be successful after the execution of the same, execution or enforceability of agreements and certain other documents comes under the provisions of, the Indian Stamp act, 1899 read with Registration Act, 1908. The document becomes legally binding only after it is duly stamped according to the provisions of above mentioned Act’s.
None of us would have ever thought of a scenario, where the whole world would start working remotely and the whole nation would be shut down because of the effects of novel coronavirus, but still even after whole world has shifted to work remotely we see all the businesses is running successfully without being paused or confused how to proceed further isn’t it? How is this possible? So before we look into how these contracts are being executed let me tell you how the contracts had been executed in normal situations, normally the parties had executed the contracts by affixing the ones signature in the physical copy of the contract.
So, after knowing how important a stamping of documents is, it’s time for us to ponder upon various other questions. Now let’s discuss those issues.
- What is an E- Contract? Why is E-Contract used? How are these E-Contracts created?
- What will be an alternative to execute contracts remotely?
- Will alternatives found for the execution will be really effective?
- What would be an exception for the alternative found?
- How stamp duty on electronic contracts will be done?
- How will the payment of stamp duty be done in the present case?
Let me give you a fair idea on how to deal with the above issues:
When a Contract is created digitally and signed using an electronic signature which is just an alternative of the traditional contract, it is known as e-Contracts. It is used in terms of employment, sales, service, tenancy etc. e-Contracts are also legally binding agreements. As we know about what e-Contracts are, now let us look how these e-Contracts are created.
There are several ways in which an e-Contracts can be created such as it can be created using emails, a particular software and using endless number of tools, but if we into various business e-Contracts they use Contract Management software, this contract management software helps to lay in all the contracts in one place. There are various ways in which a business forum can make use of various types of services, but all of them will be functioning similarly. e-Contracts can be generated in two scenarios, When there is an initial request form and business terms and condition using which if the contract is generated then it is known as self-serving contract. In a second scenario an authorized person is appointed to review and assemble the contracts. We have understood what an e-Contracts and how are these e-Contracts created; now let us look into why an e-Contracts should be used?
Generally, e Contracts exist when the parties cannot meet each other regularly, due to which a lot of business contracts and transactions have been using digital communication. It in return saves a lot of time and is also cost effective. One of the major reasons why business prefer to use the e contracts is that, safety and privacy is one of the top most concern, when a contract is a paper copy there are several chances that it can be accessed by anyone, but at the same time when the contract is in the electronic form only the people who have access to the particular software will use it, thus the privacy is no way infringed. Most of the corporations have started using e contacts to reduce the carbon footprints, as a part of ongoing green initiative and become environmentally friendly.
In the current scenario, when the whole world is functioning remotely, yet there are various business transactions and various new projects are going on and still employees are employed and the whole world is still functioning, all this is possible only due to the e-Contracts. e-Contracts have played a major role during the time of COVID and eased the process thus yet the business transactions can be carried out smoothly.
Enforceability of contracts
The alternative for execution of contacts remotely, is enforceability of electronic records. The enforceability of contracts which can be executed in electronic form or by electronic record is recognized under Section 10 A of Information Technology Act 2000. Section 10 A clearly states that contracts cannot be stated unenforceable on the ground that, the communication of the proposal by one party and the acceptance of the proposal by another party are in electronic form or electronic record, adding to this Section 65A of Indian Evidence Act also recognizes the admissibility of electronic record as evidence subject to fulfillment of certain criteria according to the Act, from this we can come to the conclusion that contracts that will be executed via electronic form is enforceable in the courts of Law subjected to the validation of the electronic record as stated in the Act.
Effectiveness of execution of e-contracts
Basically, the alternative for execution will be execution of Electronic Contact.
As a primary step to execute the electronic contract, the contract needs to be authenticated by the respective parties entering into the contract. Now this contact can be authenticated by two ways:
- By affixing digital signature (DSC)
- By affixing electronic signature
Accordingly, it is very important to note that electronic signature will be reliable when certain criteria are fulfilled. The criteria are as follows:
- Electronic signature is only related to the respective individual and not any other person.
- Electronic signature while execution of contract was under the control of the signatory to whom such signature is assigned too.
- Any alteration to be made to electronic signature after affixing signature is detectable.
- There should be an audit trail of steps taken during the signing process.
The second schedule of the Act states that electronic signatures using Aadhar or E-KYC service will be considered as valid. Aadhar card users are free to use an online E-signature service, in this scenario online e-signature services integrate with an application service provider to provide users with a mobile or web app interface that they can interact with. The users then use this app interface to apply for e-KYC service such as OTP which will be provided by the e-sign service provider.
Exceptions to execute contact via electronic form
It is important to have knowledge regarding which are some of the contracts that cannot be executed via electronic form. It is to be taken in note that, documents which are compulsorily registrable under the Registration Act 1908 or documents which require to be notarized cannot be executed electronically.
Stamp duty on electronic contracts and payment of stamp duty
Now, let’s look into an important feature on how stamp duty on electronic contracts will be done, Section 35 of Indian Stamp Act, 1899 clearly states that no instrument will be admitted as evidence unless and until the respective stamp duty has been paid. It is very important to note that any agreement that needs to be executed should be duly stamped. It is to be appreciated that Indian government has commenced with e-stamping to tackle the counterfeiting and make the payment of stamp duty easier and effective. The Stock Holding Corporation of India Limited is appointed by the Central Government as a Central Record keeping agency for all e-stamps that are being used in the country. The stamp duty which needs to be affixed can be obtained via online. However, these facilities are not available pan-India. These states do not permit the payment of stamp duty via online. It is very important to note that execution of contracts electronically will be valid if it has been affixed with the digital signature and the stamp duty is duly paid. The Indian Stamp Act, 1899 has been amended by the Union Finance Minister during the enactment of the Finance Act, 2019 in order to prevent tax evasion.
The courts of law in various judgments have held that e-contracts are valid and enforceable under the laws of India. In the present circumstances India will be witnessing the hype in the execution of e-contracts as there is a surge of COVID -19, also considering the ease in execution of contracts electronically, and the execution of e-contracts will become inevitable. Yet, it is important to take note that parties have carefully analyzed the other obligations such as payment of stamp duty, etc. The parties should also notarize the e-contracts. E-notarization is still not been made effective in India, thus e-notarization of e-contacts needs framework from the appropriate authorities.
- Execution of contracts during lockdown and work-from-home
- VALIDITY OF E-CONTRACTS IN INDIA – The Art of Law
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