Legality and enforceability of eSign in India*

As a threshold matter, the ITA states that a contract cannot be denied enforceability merely because it was electronically provided the legal 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. The legal contract is valid if:

• 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, legal contracts between private parties do not require a signature for validity; the only express requirements for legal validity are those set forth above.

The ITA defines an electronic signature (eSign) 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” (discussed below).

However, except for a few filings with governmental authorities, Indian law does not require that private parties use an ITA electronic signature for any category of transactions. This means that eSign solutions that do not qualify as ITA electronic signatures are potentially enforceable, but as discussed below, electronic signatures that do not qualify as ITA electronic signatures do not have the same legal status as a handwritten signature and may require additional evidence in order to prove their validity.

a) Reliable electronic signatures that combine a unique identification number with an electronic Know-Your-Customer (eKYC) service

To be validly recognized under the ITA as an ITA Electronic Signature, an “electronic signature” must (i) be “reliable” and (ii) use an authentication technique specified in the Second Schedule to the ITA.

An electronic signature (eSign) is considered reliable under Indian law if:

• the signature creation data or the authentication data are, within the context in which they are used, linked to the signatory or, as (the case may be, the authenticator and to no other person i.e. the signature must be unique to the signatory);
• the eSign creation data or the authentication data were, at the time of signing, under the control of the signatory or, as the case may be, 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 eSign is detectable;
• there should be an audit trail of steps taken during the legal documents signing process; and
• the signer certificates must be issued by a Certifying Authority (CA) recognized by the Controller of Certifying Authorities appointed under the IT Act.

The Second Schedule provides that an “electronic signature” (eSign), or electronic record, can be authenticated using electronic authentication techniques as described in the ESEATPR. The ESEATPR provides that an “electronic signature” (eSign) 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 module, and creation of digital signature provided that the trusted third party providing such services shall be offered by any of the licensed Certifying Authority.

b) “Digital signatures” (eSign) that are generated by an “asymmetric crypto-system and hash function”

A user obtains a digital signature from a licensed Certifying Authority.

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 legal 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 legal stamp acts to specifically include “electronic records,” as defined under the ITA, under the definition of an ‘instrument’, thereby extending the legal requirement of stamping an electronic record.

An instrument that is not adequately stamped is inadmissible as evidence in a court of law in India and may further attract penalties for evasion of payment of stamp duty. Therefore, if the relevant legal document requires stamp duty to be paid, careful consideration needs to be given to the ability whether the document can be executed electronically and have the appropriate stamp tax paid.

Prohibited Documents

The documents or transactions that cannot be entered into by using eSign tools are:

• Negotiable instruments such as promissory notes or bills of exchange other than a check;
• 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, legal documents to be notarized are generally required to be physically signed, not eSigned, before the Notary Public. Documents requiring registration are also to be physically signed before the concerned registrar.

Overall, it is possible to use an eSign solution in India and eSign legal documents if they are personal agreements and contracts. The Indian government is working to create initiatives and promote the acceptance of eSign tools, which will significantly benefit the local economy and business development.

As an organization working to implement eSign solutions, one should be aware of specific requirements and specifications to avoid legal repercussions. Be sure to consult with your legal advisor and follow the IT Act to ensure the validity and legality of your eSign operations.

Last updated: May 2021