‘E’ sign of the times

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With COVID-19, the silver lining for the legal community will be a greater adoption of e-contracts, write Puneet Gupta and Amit Wadhwa

The attitudes towards the rule of law in any society can be understood by the enforceability of agreements entered into by its members, whether it is by the erstwhile barter system or today’s complex agreements. With the requirement of codified law to govern and promote orderly growth of business, the Indian Contract Act, 1872, was enacted. This act is one of the few legislations in India that has witnessed two pandemics, the first one being the outbreak of Spanish Flu, in 1918, and now, COVID-19.

contracts
Puneet Gupta

The Indian Contract Act, which is a code in itself, covers almost all aspects of a contract, including the very fundamental concepts such as offer, consideration and acceptance, to more complex ones such as pledge, bail and agency. The ever-evolving socio-economic conditions also find resonance in the legislative framework.

With technology taking big strides and a push towards a paperless future, electronic data, electronic records, e-bills and e-contracts also find a place in Indian legislation. The first and foremost reference needs to be made to the Information Technology Act, 2000 (IT Act), which was enacted to regulate the high-tech virtual world. The IT Act also led to amendments in other statutes, notably the Indian Penal Code, the Banker’s Book Evidence Act and the Indian Evidence Act.

After almost two decades since the IT Act came into force, the business fraternity is now looking to it as a panacea in the tumultuous times of COVID-19. Different countries have been forced to announce lockdowns and implement social distancing measures. The new norm is to work from home, and the only reprieve to alleviating the situation are digital solutions including the push for e-contracts, digital signatures and e-stamping.

Going digital

Every coin has two sides. In this case, one side is COVID-19 and the lockdown, restricted movements, and an inability to carry out business as usual. On the other side, there is an emerging need for a new supply chain for healthcare, protective equipment, and essential items from within the country as well as abroad.

contracts
Amit Wadhwa

Current business needs can only be fulfilled if the final execution is possible by digital means, which not only fulfills legal requirements, but also provides the flexibility and convenience of operating, from dining tables turned into office desks and living rooms turned into
video-conferencing areas.

Section 10A of the IT Act enables e-contracts by the following provision:

Validity of contracts formed through electronic means. Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the grounds that such electronic form or means was used for that purpose.

The only essential requirement to validate an electronic contract is compliance with necessary prerequisites provided under the Indian Contract Act, and the same are taken care of by section 10A, which specifically covers aspects of proposals such as acceptance and even their revocation, the bedrock of any contract.

In fact, the Indian Contract Act does not lay down any specific way of communicating an offer or acceptance, thus the foundation laid down by the act helps to build the edifice of an e-contract. Further, if an e-contract fulfills all other conditions as laid down in section 10 of the act viz free consent of parties, lawful consideration, etc., the said e-contract is valid and enforceable, subject to any other formalities prescribed under law as required under the Registration Act, 1908, the Indian Stamp Act, 1899, etc.

Also, section 1(4) of the IT Act lists out the instruments to which the act does not apply, such as: (1) negotiable instruments; (2) power of attorney; (3) trust deeds; (4) wills; and (5) contracts for sale or transfer of immovable property.

The need for e-stamping

The parties involved in the execution of an e-contract may also opt for digital or electronic signatures, which stand defined and comprehensively addressed in section 5 of the IT Act.

The requirement under the Indian Stamp Act, 1899, is another mandate under the Indian legal system to be strictly followed. Unless an e-contract is properly stamped, the parties are exposed to the risk of it not being accepted as evidence in a court of law. Thus, an e-contract may lose its enforceability, which in turn can defeat the purpose of entering into one.

Looking at the serious situation created by COVID-19, many states have introduced e-stamping with the support of the Stockholding Corporation of India, and some of them have started the Electronic Secure Bank and Treasury Receipt (E-STBR) system, where banks can facilitate the payment and issuance of a stamp.

Maharashtra has always been a pioneer in these matters, and the state started the franking system, whereas other states in the country are changing their ways of working to meet and facilitate the revenue demands and business requirements. Now, e-contracts and e-stamping are bringing about a digital revolution in the field of contracts. The courts have also enabled e-stamping for urgent matters through central agencies like the Stockholding Corporation of India.

It is apt in the circumstances to refer to the Supreme Court judgment in Trimex International FZE Ltd Dubai v Vedanta Aluminium Ltd, India (2010), where the court expressed its views on agreements in a very different way, and held:

“Technicalities like stamps, seals and even signatures are red tape that have to be removed before the parties can get what they really want – an efficient, effective and potentially cheap resolution of their dispute. The autonomie de la volonte doctrine is enshrined in the policy objectives of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985, on which our Arbitration Act is based. The courts must implement legislative intention. It would be improper and undesirable for the courts to add a number of extra formalities not envisaged by the legislation. The courts’ directions should be to achieve the legislative intention.”

In 1996, the UNCITRAL adopted the Model Law on Electronic Commerce to bring uniformity in the law of different countries. India, in furtherance of UNCITRAL, enacted the IT Act, 2000. Thus, not only in Indian contexts, e-contracts have become a global phenomenon that are a widely accepted means of executing contracts.

E-contracts are not only valid and enforceable, but also the way forward. Talking about the benefit of e-contracts, these times provide the necessary impetus to the legal fraternity, as well as corporate houses, to explore the digital route, not only for business continuity but for the convenience of record keeping and ease of access.

Digital contracts have multiple advantages with regard to physical space requirements, maintenance staff, doing away with the need for couriers to deliver physical copies, and dealing with delays. E-contracts are the way forward and, just as demonetization in 2016 provided an impetus for the adoption of digital money, the present times will spur the greater use of e-contracts.

Puneet Gupta is head of contract and Amit Wadhwa is head of litigation at Max Life Insurance.