Technology has been an enabling factor in resuming businesses and closing transactions during the pandemic era while parties involved in such transactions are sitting miles apart from each other. In order to be in arms with the rise of digitization, the Indian Government has introduced and amended legislations to bring in electronic records and electronic execution within its purview.

In line with the same, Indian regulators have also come up with ways to encourage e-execution and lessen the burden of the stakeholders. However, the methods of e-execution that are allowed by the market regulators are different. For example the Insurance Regulatory and Development Authority of India (“IRDAI”), in certain situations, has allowed the use of electronic signatures[1] and OTP validation for e-execution.[2]

In this article, we analyze such legislations and judicial interpretations, related to electronic contracts and their execution.

The Indian legal framework

The Information Technology Act, 2000 (“IT Act”), is the legislation in India “for providing legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication”[3] which grants legal recognition to electronic signatures by stipulating that the requirement of affixing signatures shall be fulfilled if the document is affixed with electronic signatures in a manner as prescribed by the Central Government.[4] Section 4 of the IT Act also allows for maintaining physical documents in electronic format.[5]

In order to catch up with the growing trend of conducting business transactions online, the IT Act has further accommodated electronic contracts within its purview. However, Section 10A of the IT Act, provides limited comfort of presumption for electronic contracts to be valid, if all essential elements of contracts as per the Indian Contract Act, 1872 such as proposal, communication, acceptance etc. are present. It leaves ample interpretation gaps as to whether electronic transactions concluded on email chains, exchange of documents and confirmation by the Parties on emails or other electronic platform etc. will be valid and enforceable as electronic contracts or not.

The Supreme Court in the 2010 case of Trimex International FZE Ltd. Dubai vs. Vedanta Aluminium Ltd., India.[6]  (“Trimex Case”) provided this clarity with regard to contracts concluded on emails. In the Trimex Case the Supreme Court, held that inference can be drawn from documents exchanged on telegram, emails etc. (“Tele communication”) that a valid contract subsists given that intention of the party to be bound by the terms of such Tele-communications and essential elements of a valid contract are present.

The Issue of admissibility

In 2020, the Supreme Court while interpreting section 65B (Admissibility of electronic records) of the Indian Evidence Act, 1872 (“Evidence Act”) in Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantyal and Ors.[7] (“Arjun Panditrao Case”) attempted to streamline the procedure to be followed for adducing electronic records[8] as admissible in a court of law. In the Arjun Panditrao Case, the Supreme Court has clarified that admissibility of electronic records will need to be tested in accordance with Section 65B of the Evidence Act. Further, the Apex Court also explained that the original electronic device on which such electronic record is stored will be considered as ‘primary evidence’ and the copies of such electronic record will be deemed as ‘secondary evidence’. In case such electronic record is being considered as primary evidence, then the certificate required to be produced from an officer in charge of the ‘original device’ under section 65B(4) of the Evidence Act shall not be required.

SEBI’s interpretation on e-Execution

Recently, Investment Advisor, Paytm Money Limited (“Paytm”) and Portfolio Manager, Purnartha Investment Advisers Pvt. Ltd (“Purnartha”)[9] approached the Securities and Exchange Board of India (“SEBI”), individually, seeking guidance on whether agreements under the relevant SEBI regulations, can be concluded through electronic signatures or by the client providing consent on emails. SEBI came up with two very different interpretations for concluding such investment management agreements.

In response to executing Investment Agreements between the Investment Advisor and the customer, mere electronic consent of the customer and maintaining the electronic version of the investment agreement is not sufficient for compliance under the SEBI (Investment Advisor) Regulations, 2013. On the other hand, SEBI in its informal Guidance to Purnartha, allowed affixing electronic signatures as per the IT Act, on the portfolio management agreement for compliance under applicable regulations. Going with the interpretation of SEBI, it is pertinent to note that the securities market regulator views electronic contracts concluded on emails and electronic signatures affixed on electronic contracts differently. In the strictest sense, the interpretation by SEBI to Paytm seems to be in contravention of the principles laid down by the Supreme Court under the Trimex Case.

Conclusion

The IT Act and the recent Supreme Court judgements have provided a degree of clarity on validity and admissibility of electronic contracts and their execution. Nonetheless, there still exists a lack of clear boundaries when it comes to enforceability of contracts which are concluded electronically either by affixing signatures or by providing consent through emails, as the latter may not be acceptable as discussed above. During the present times when physical execution is not possible, this becomes especially cumbersome for MSMEs[10] and startups, which rely on faster execution of contracts in order to sustain.

Authors:

Arunabh Choudhary
Partner, Juris Corp
Email: [email protected]

Tanvi Muraleedharan
Principal Associate, Juris Corp
Email: [email protected]

Supported by: Arpita Nandi (Associate, Juris Corp)

[1]  Insurance Regulatory and Development Authority of India (Issuance of E-Insurance policies) regulations, 2016, regulation 3(v).

[2] Insurance Regulatory and Development Authority of India Notification no:

IRDAI/HLT/REG/CIR/235/09/2020 and Notification no: IRDAI/HLT/REG/CIR/062/03/2021.

[3]  Preamble to the Information Technology Act, 2000.

[4] The Information Technology Act, 2000 (Act No. 21 of 2000), s. 5.

[5] The Information Technology Act, 2000 (Act No. 21 of 2000), s. 4.

[6]  Trimex International FZE Ltd. Dubai vs. Vedanta Aluminium Ltd., India. (2010)3SC C 1.

[7]  Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantyal and Ors (2020)7SCC1.

[8] The Information Technology Act, 2000 (Act No. 21 of 2000) s. 2(t) defines "electronic record" means data, record or data generated, image or sound stored, received or sent in an electronic form or micro-film or computer generated micro fiche.

[9]  Notification nos. SEBI/HO/IMD/OW/2021/10555/1 and SEBI/HO/IMD/DF1/OW/P/2021/00008743/1.

[10] Micro, Small and Medium enterprises.