This article is written by Atchaya J, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
Table of Contents
Introduction
Electronic signatures, e-signatures or e-sign may not be an element of novice nature. They indeed have been existing for a long period of time but have gained great traction with the COVID-19 pandemic altering our way of life as well as the way of conducting business. Did you know that e-signature is a better alternative to digital signature? Let us explore how and identify the provisions enforcing the validity of these e-signatures.
What are e-signatures?
An electronic signature (e-sign) is an online digital signature that acts as an equivalent to a physical signature binding the respective parties to a contract. Section 2(1)(ta) of the Information Technology (Amendment) Act, 2008 defines “electronic signature” as “authentication of any electronic record by a subscriber by means of electronic techniques (specified in Schedule II of the Information Technology Act, 2000), including digital signatures”.
Difference between e-signature and digital signature
As similar as they might sound, in reality, e-signature and digital signature are two different types of signatures. Both are legally valid, recognises assent and binds the parties to a contract.
E-signature is applied by authenticating the identity of the user/party through Aadhaar ID (the unique identification number issued by the Indian Government) using an eKYC(Electronic Know Your Customer) service such as OTP(One Time Password). This eKYC service is provided by an e-sign service provider. A user can securely sign the documents with e-signature, using a mobile or web app interface which is provided to them through e-signature service and Application Service Provider integration.
Whereas, a digital signature is a digital certificate authorised by a reputed Certifying Authority (CA). A trusted list of CA root certificates is maintained by Operating Systems and Browsers to verify digital certificates issued by a CA. The user is also entitled to receive a USB token containing the digital certificate-based ID and personal pin to securely sign documents. Unlike e-signature, digital signatures require a physical cryptographic token that has been used for filing tax returns and filings with various government agencies.
E-signatures came into the picture to avoid the hassle of hardware cryptographic tokens, which were mandatory for the “digital signature”. This USB/dongle based facility proved to be financially unfeasible, thus paving way for e-signatures.
What is the validity of e-signature?
E-signature is the consent of the party which is an essential ingredient for a valid contract. Thus, an e-signature should align with all the requirements of valid consent according to Section 14 of the Indian Contract Act 1872. Apart from these requirements, an e-signature must align with conditions laid down under Section 3A(2) of the IT Act, which is as follows:
- Link: During the time of signing, the e-signature authenticated should be linked to the signatory or the authenticator but no other person.
- Control: During the time of signing, the e-signature authenticated should be under the control of the signatory or the authenticator but no other person.
- Alteration done to the signature: Any alteration or modification made to the e-signature after affixing should be detectable.
- Alteration done to information: Any alteration or modification made to the information after the execution of the e-signature should be detectable.
- Condition: The e-signature should fulfil any other condition which may be prescribed.
Up until recently, there was no legal provision for authentication techniques until the Electronic Signature or Electronic Authentication Technique and Procedure Rule, 2015 came into effect. The authentication of electronic records through the Aadhaar eKYC service as discussed above is recognised as a valid authentication technique through this provision. Currently, there are four agencies qualified and empanelled with Controller of Certifying Authorities or CCA (gateway for eSign) to operate as eSign Service Providers). They are as follows:
- E-Mudhra Ltd,
- CDAC,
- Code Solutions,
- NSDL e-government digital signatures.
E-signature in the COVID-19 era
Technological adoption in India started way before the pandemic through the government’s Digital India initiative which prioritizes the development of digital infrastructure and aims at transforming India into a paperless economy. This slow shift has been actually accelerated with disruption created due to COVID-19. All the business models are being pushed to embrace the change and switch to methods that can be executed online to reduce the spread of the virus and abiding by governmental rules. Hence, even contractual transactions have been digitizing at a rapid pace. Understanding and familiarizing with the concept of e-contracts, online negotiation, exchange and finalization of terms via emails, assenting through e-signatures have become the need of the hour for successful business transactions. E-signatures can be applied to internet transactions, assenting to a contract via email as well as paper documents.
Advantages of e-signing
According to a report published by KPMG and Google, India witnessed twice the growth in profits for digital SMBs as compared to offline companies. E-signature has been that pivot for that shift towards digitization. It is not only an alternative solution during lockdown restriction but also a better solution for the contractual parties given its benefits.
Firstly, e-signature speeds up the whole contractual process. Gone are the days when contracts had to be signed, shipped, faxed or scanned etc. It involved huge time consumption, delay in execution and huge costs as well. All these no longer pose a problem with e-signature. Even if the parties are geographically diverse, negotiating, flagging critical issues, correcting, tracking and signing electronically removes the time barrier in the whole process. In time-sensitive industries such as Healthcare, this factor is crucial and can be a matter of life and death.
Secondly, e-signature is preceded with trackability conditions as specified under Section 3A(2) of the IT Act. It means all the changes are detectable, thereby reducing the risk of tampering with the signature or information unlike with physical paper contracts or signatures.
Thirdly, the most obvious advantage is Cost Reduction. Not only the cost related to shipment as discussed earlier is reduced but also cost relating to human error, signing mistakes and others are drastically reduced with e-signature. AI advanced or specifically programmed software can detect suspicious records of signatures.
Other than these e-signatures provide a better defensible stand point than wet ink signatures in the court of law.
Challenges with e-signature
There are certain documents which by law require the completion of certain procedures and cannot be executed through e-signatures. Such documents require a notarial process or registration with Registrar or Sub-Registrar, which mandatorily requires handwritten signatures. As per Schedule I of the IT Act following cannot be executed through e-signatures:
- Negotiable instruments,
- Trust deed,
- Power of Attorney,
- Will and other testamentary disposition,
- Lease, sale agreement and other real estate contracts dealing with immovable property.
Status of legal validity provided to e-signature through IT Act pose a challenge to the non-Indians who cannot make use of the digital signature or Aadhaar enabled e-sign. Moreover, e-signature becomes an issue in conveying acceptance. For instance, ambiguous terms may not be completely clear for any of the parties but concrete e-signature will make it difficult to prove such complexity in the court of law.
The whole process of securing documents with e-signature might be far from normal understanding of a common man. From encryption to verification process involves exchange of personal data and might pave the way for breach of personal information through systematic fraud. The third-party platforms which don’t follow encryption might also result in compromising sensitive information. Once the documents are up in the server, there are endless possibilities of hacks and fraud. Thus, only trusted, verified and government or regulatory body approved platforms should be utilised for highly-sensitive documents.
Last but not the least, technological access throughout the country’s population is extremely biased and unequal. For poor people, uneducated, rural and unaware population, securing documents through e-signature not only seem unfathomable but also impractical.
Is it the end of “wet ink” signature?
As discussed earlier, under the ambit of the IT Act certain documents must be assented to with hand signature. Even UETA (Uniform Electronic Transactions Act) in the US contains exceptions such as probate, domestic law documents, real estate foreclosures etc which cannot be executed through e-signatures. With continuous limitations imposed in the form of governmental lockdown and movement confinement, pandemic way of life is becoming the new normal. This situation pushes the execution of deals through methods that minimize risk and human contact and simultaneously cut costs. Thereby, even post-pandemic, the use of e-signatures will rapidly continue given the advantages. Despite the current climate, wet ink signatures will remain and survive given the exceptions and disparity of technology access among the population.
Conclusion
With the growing volume of online transactions and contractual transactions, implementation of e-signature can shape the way for more efficient e-commerce functions. Various countries are coming up with their own separate legislation for e-signatures every year. Even virtual notarizing is being executed in some technologically advanced countries. With proper legislation in place, India can aim towards a paperless regime with digitizing processes such as notarization and e-stamping. According to the Stamp Act, any instrument creating any right or liability, when executed in India is required to be stamped as per changing times, nature of the instrument and state laws. To have a system in place for e-stamping such instruments creating a fully compliant e-document in the future, we can look forward to.
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