- November 20, 2020
- Posted by: Drishti Sharma
- Category: Legal & Compliances
As the Covid-19 pandemic continues to rage across the world, it has become increasingly more difficult for organisations to contract, sign and maintain documentation physically as they used to. Most commercial negotiations rely on execution of documents in physical format and while start-ups and tech enabled businesses are amenable to adapting a virtual format through adoption of electronic contracts (‘e-contracts’), businesses which were established prior to the digital age find this transition abrupt and problematic. The pandemic severely impacted the economic health of several micro, small and medium enterprises (‘MSMEs’) due to their dearth of technical expertise which posed a grave challenge to serving and engaging customers.
However, owing to the barrage of government restrictions, frequent lockdowns and uncertainty regarding resumption of normal business practices, corporations, both old and new, on a global scale have been compelled to familiarize themselves with the concept of e-contracts, exchange and finalization of contractual terms via email and ultimately, accord their stamp of approval to such contracts through electronic signatures.
As a general principal, a contract is signed by the parties who are entering into the agreement to prove that the essential principles of contract law have been satisfied. The Indian Contract Act, 1872 (‘Contract Act’) specifies the ingredients of a valid contract, which include offer, acceptance, intention, free consent neither specifies that an agreement has to be signed nor that it must be in writing. It is through custom that we sign contracts, thus establishing a means to determine enforceability and a mutual acceptance. E-contracts attained visibility and a status of recognition under the folds of the Information Technology Act, 2000 (‘IT Act’). Section 4 of the IT Act places e-contracts on the same pedestal as physical documents since it states that a law which requires a document to be in a written, typewritten or printed format shall be deemed to be satisfied if it is in an electronic form and can be made accessible for future reference.
While doubts continue to circle the legality of e-contracts, the Indian Evidence Act, 1872 (‘Evidence Act’) provides that electronic records are admissible as evidence in a court of law. Even the Supreme Court upheld the creation of a contract through offer and acceptance of its terms, communicated via an exchange of emails in Trimex International FZE Ltd. Dubai v. Vedanta Aluminum Ltd ((2010) 2 SCC 1). These decisions reflect the favourable stance adopted by Indian courts towards enforcing e-contracts.
Post negotiations, once the parties have framed the contract to reflect their interests, the next step is the stage of execution by affixing an e-signature. While the lack of jurisprudence regarding the legal tenability and feasibility of e-signatures implies that acceptance of the same remains ambiguous, attempts have been made to resolve these doubts through amendments to the IT Act. The Information Technology (Amendment) Act, 2008 substituted the term ‘digital signature’ for ‘electronic signature’ with the objective of providing a wider scope to e-contracts.
E-contracts and e-signatures have revolutionised the remote execution of contracts and fostered swift negotiations, through adoption of an economically feasible paperless route, but they come with their own set of issues. Communication via e-mail may result in a misunderstanding because the exchange of contractual terms can often be ambiguous, informally expressed or parties may agree to certain terms but not convey acceptance of others. Proving the admissibility of the contract then becomes a hassle. This can be avoided in a physical signing, since parties often insist that documents be notarized so as to prove that both parties have read, acknowledged and accepted the terms and thereby, willingly signed the same. Moreover, while it is not compulsory, the execution of most physical contracts is attested by two or more witnesses, which may prove to be useful from an evidentiary standpoint at a later date, if either party contests the validity of the agreement, an option which is not available in an e-contract.
Moreover, while the IT Act provides for e-contracts and e-signatures, the latter is restricted to digital signatures and Aadhar e-sign which might make it problematic for non-Indians who cannot opt for either and end up relying on intention expressed through email. International transactions face problems if Indians residing abroad or foreign parties do not have the required Aadhar documentation, or their guidelines prohibit the usage of e-signature platforms and specifically require them to abide by their own set of rules while adding their e-signatures.
Under the present circumstances, with the world undergoing a transition whereby parties are being forced to adapt to a digital format to execute contracts, perhaps the need of the hour is to create a platform or an introductory workshop for corporate bodies and MSMEs to digitalise and understand the relevance of e-contracts and e-signatures. Such initiative may be taken up by the Ministry of Electronics and Information Technology, Government of India, to enable these bodies to ease into the process.