eSignature Legality in India

E-Signature Legality Summary

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 form the basis for:

1. what are officially recognized “electronic signatures” in India;
2. what documents or transactions cannot be entered into electronically;
3. what conditions all contracts must meet, including contracts using an electronic signature that does not meet the officially recognized requirements under the ITA; and
4. whether stamp duty needs to be paid on any particular transaction entered into electronically.

As a threshold matter, the ITA states that a contract cannot be denied enforceability merely because it was conducted electronically provided the contract fulfills 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.

Note that under Indian law, contracts between private parties do not require a signature for validity; the only express requirements for validity are those set forth above.

Types of Electronic Signature

The ITA defines an electronic signature as an “authentication of any electronic record by a subscriber by means of the electronic technique specified in the Second Schedule and includes digital signature.”

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].”

To be validly recognized under the ITA, an “electronic signature” must

1. be “reliable” and
2. use an authentication technique specified in the Second Schedule to the ITA.

An electronic signature is considered “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 recognized by the Controller of Certifying Authorities appointed under the IT Act.

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.

To create a digital signature, a user obtains a digital certificate from a licensed Certifying Authority.

Documents That May be Signed Electronically

An array of commercial agreements can be executed by using an electronic signature except for some as provided under the First Schedule to the ITA. Certain specific documents or transactions cannot be entered into by using an electronic signature:

• Negotiable instrument such as promissory notes or bills of exchange other than a cheque;
• Power-of-attorney;
• 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.

Further Guidance

The Indian Stamp Act or the relevant stamp act applicable to the state requires that certain instruments be stamped at or before the time of 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, several states (e.g., 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”, thereby extending the requirement 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.

ITA Electronic Signatures, provided such signatures meet the requirements set forth in the ITA, will be deemed valid and if a party disputes the validity of such electronic signature, such challenging party will need to produce evidence that the signature was invalid, not the party relying on the signature.

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 above-mentioned conditions, need to produce evidence to show that all the essentials of a valid contract, as per the ICA, were satisfied.

Case Law

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.