Validity of Electronic Contracts in India
Updated: Apr 24, 2020
Companies are scrambling to complete transactions with clients and vendors faster and cheaper, and in the current COVID-19 environment, now at a safe distance. E-contracting and e-signatures have been in the marketplace for over 20 years, but companies that have not adopted the framework may be taking a closer look at E-Contracts considering the current crisis. Below is a primer to understanding the benefits and risks accompanying E-Contracts.
VALIDITY OF ELECTRONIC CONTRACTS IN INDIA
Under the provisions of the Information Technology Act, 2000 particularly Section 10-A, an electronic contract is enforceable and valid. The only essential requirement to validate an electronic contract in compliance with the necessary prerequisites provided under the Indian Contract Act, 1872. Even the courts in India give due regard to electronic contracts under the provisions of the Indian Evidence Act, 1872 under Section 65-B.
How E-Contracts Can Be Entered Into
E-Contracts can be entered into through modes of communication such as e-mail, internet, and fax. The only essential requirement to validate an E-Contract is compliance with the necessary prerequisites provided under the Indian Contract Act, 1872 which are offer and unconditional acceptance, valid consideration, parties of sound mind, and free consent.
Applicability of Stamp Duty on Electronic Contracts
In India, stamp duty is payable in respect of specified instruments in accordance with applicable Central or State level stamp duty laws, on a fixed or on ad valorem basis. Ordinarily, stamp duty is payable in respect of instruments that are physically printed and executed.
The Indian government introduced E-Stamping to tackle counterfeiting and make the payment of stamp duty easier and glitch-free. The central government has appointed the Stock Holding Corporation of India Limited (SHCIL) as the Central Record Keeping Agency (CRA) for all e-stamps used in the country. One can easily go to the SHCIL website, www.shcilestamp.com, and check if a state government allows e-stamping.
An e-stamp's authenticity can be verified online using the inquiry module on the website as each e-stamp generates a unique identification number.
Pros of E-Contracts
Ease of Access - Getting documents attested via online is easy, which saves a considerable amount of energy, both for the customers and employees.
Ensures Fast Business - It is a fast method to get the documents signed spontaneously instead of waiting for the documents to be sent through courier, which is time-consuming.
Improve Document Accuracy - It can be exhausting to verify physical documents and later find out that the signer has missed to fill crucial information or failed to sign on an important page. Such a situation can be easily overcome in electronic signatures by marking compulsory fields.
Enhance Customer Service – The electronic sign technology promotes your business and keeps you connected with your customers in this digital world.
Cons of E-Contracts
Restricted Storage – Storage leads to the dependency on other sources and becomes a concern for many businesses that are concerned about the confidentiality of the customer information.
Unassured Security - Not all vendors offer enough protection for business deals. Some of the outdated electronic signatures offer no safety while some offer basic fiddle protection. However, only the digital signature provides the highest security.
Dependency on Proprietary Software - Electronic signature relies on proprietary software, which can be a concern for businesses that do not want to depend on other vendors for contracting.
No online Notary System – As of now there is no online notary service in India so this can be a drawback in case of contracts that are compulsory to be notarized because in that case, it is compulsory for the executor of the contract to be present in person before the notary with his identity proofs to prove beyond doubt that the person executing the document is the same person and is not someone else forging another's signatures.
Conclusion
Fundamental principles of the Indian Contract Act will prevail in contracts made on the internet. All the principles will not apply in the same manner that they apply to traditional paper-based and oral contracts. Under the IT Act 2000, the amendment of 2008 to insert Section 10A has true relevance and genuine concern with the present situation wherein all of us enter into E Contracts in our daily transactions.
Please feel free to reach out to any member of the G&A Team in case you require any clarifications on the above.
Gandhi & Associates