Enforceability of electronic contracts in the context of COVID-19

Introduction

The outbreak of the COVID-19 has disrupted activities on a global scale and has led to extended lockdowns in many parts of the world. The travel restrictions and social distancing measures have made it difficult to execute contracts and e-contracts are emerging as a viable option. This article sets out the   enforceability of electronic contracts and validity of digital signatures under Indian laws.

Electronic contracts under law

The Information Technology Act, 2000 (“IT Act”) sets out the validity of electronic contracts. Section 4 of the IT Act states that any legal requirement, which requires information to be in typewritten form or printed, is deemed to be satisfied if it is in electronic form and accessible for future reference. Section 10A further states that a contract shall not be deemed unenforceable solely because the formation of the contract was expressed electronically or by means of an electronic record.

The provisions of the IT Act were applied by the Chennai High Court in the case of Tamil Nadu Organic v State Bank of India[1] where the outcome of an electronic auction was upheld while the court stated that contractual liabilities may arise due to electronic means and such contracts are enforceable under law provided all requisites under the Indian Contract Act, 1872 have been met.

Amendments to the Indian Evidence Act 1872 make electronic contracts admissible as a document subject to the conditions laid down under Section 65B which include proper functioning of the computer used to produce such electronic record and the information in the record being entered into the computer in the ordinary course.

Execution of electronic contracts

Even though entering into electronic contracts is valid and recognized under Indian law, parties to a contract should be attentive towards the manner of execution and validity of execution of electronic contracts. The Supreme Court case of Trimex International FZE Limited, Dubai v Vedanta Aluminium Ltd.[2] is notable; where in the absence of signed documents, a contract was held to exist where offer and acceptance were conveyed over emails between the parties. The court held that the absence of initialed formal documents would not affect the acceptance of the contract or the implementation of the same.

While contracts can be gleaned from electronic communication, parties would be advised to opt for a form of electronic signature to execute their electronic contracts. The IT Act recognizes authentication of documents by a: (i) digital signature (which, through encryption, create signatures that are unique to both the executor of the document as well as the document that is being executed by them) or (ii) an electronic signature based on Aadhar e-KYC (which is authenticated by UIDAI).

The IT Act lays down certain requirements for an electronic signature to be valid such as the verifiability of the uniqueness of the signature and detectability of changes to the signature from when affixed. Even under the Companies Act, 2013, before a Director Identification Number can be issued, a director is required to obtain a Digital Signature Certificate, which has to be used by the director to execute documents electronically.

Conclusion

There is adequate recognition by law and Courts of the validity of electronic contracts and the authentication of the same by an electronic signature. In the backdrop of COVID-19, the adoption of electronic contracts and signatures is the evident next step to conclude contracts.

Authors:
Ananya Sharma, Partner
Pranshul Joshi, Associate

Footnotes:

[1] AIR 2014 Mad 103
[2] 2010 3 SCC 1

Date: April 23, 2020