LEGISLATION GOVERNING EXECUTION OF VALID CONTRACTS

INTRODUCTION

With the advent of COVID-19, Digitization has become a norm around the world. Over a
period of 20 years, we have seen a drastic change in technology, but the legal sector is always
slow to adopt these changes. Emphasis is usually put on Traditional methods of execution of
agreements. It also raises a question about the electronic execution of contracts through E-
Contracts and their legal enforceability. It could be seen that instead of using traditional
contracts based on documented on paper by affixing the signatures of the parties to the
agreement in wet-ink, E-contracts can be executed through various modes. In the current
situation, keeping focus more specifically on commercial contracts the safest and the most
legally recognized method of entering into an electronic agreement can be made through the
use of digital signatures. The rules made under the Information Technology Act enable
obtaining of individual-specific digital signatures. With safe social distancing becoming the
norm of daily life leading to reluctance in meeting each other, the digital signature could
definitely pave the way for convenience through the usage of specialized software along with
digital signatures to sign and execute documents at the convenience of being at one's home.
Here's the legal framework of or country on legislation governing the execution of valid
contracts

INDIAN CONTRACT ACT 1872

Electronic contracts or e-contracts could be termed as such agreements that are executed
through an electronic form usually by a software system as opposed to the traditional
contracts with paper & ink. The test and validity of an e-contract in India still encompass the
pre-requisites of a contract as enumerated in the Indian Contract Act, 1872.

Section 10 of the Contract Act describes the essential elements of a valid contract i.e.
competent parties with free consent for lawful consideration with a lawful object. With a
substantial increase in the online transaction, there is substantial increase in digitally executed
contracts. So as mentioned above Section 10 of Indian Contract Act 1872 states what
constitutes a valid contract. In case of Tamil Nadu Organic Private Ltd v. State Bank of
India1 which dealt with validity of e-auction sale process under the SARFAESI Act, It was
held that

“Contractual liabilities could arise by way of electronic means and that such contracts
could be enforced through law.”

INFORMATION TECHNOLOGY ACT 2000

Section 4 of the IT Act recognizes electronic contracts. It also states that if any law mandates
information in writing or in the typewritten or printed form, then, such requirement shall be
deemed to have been satisfied if such information or matter is rendered or made available in
an electronic form and accessible so as to be usable for a subsequent reference. An electronic
form means any information generated, sent, received or stored in

 Media,
 Magnetic, optical, computer memory
 Microfilm
 Computer-generated micro fiche or similar device

an electronic record is defined as

 Data
 Record
 Data generated, image, sound stored, received or sent in an electronic form
 Microfilm or computer-generated microfiche.

Indian Evidence Act, 1860, considered the electronic records and recognized them as
documentary evidence, and after an analysis of Section 4 of the IT Act and its constituent
definitions of the electronic data and records, it could be said that such records are treated on
par with the physical records.

Section 10A of the Information Technology Act gives special recognition to e-contracts. All
communications electronically made leading to the formation of a contract gains special
recognition under the Information Technology Act. Under the terms of Section 10A of IT
Act, proposals, acceptance of proposals, the revocation of proposals and acceptances can be
made through an electronic means.

1
AIR 2014 Mad 103
Case Law: -

Trimex International FZE Ltd. Dubai Vs. Vedanta Aluminium Ltd., India 2

Holding:- Supreme court Recognized offer and acceptance through e-mails as a valid
contract in the absence of a formal contract. It held that even without there being the
execution of a formal contract, electronic communications is satisfying the requirements of
the Indian Contract Act, constitute a legally enforceable agreement.

Rationale: -

"Once the contract is concluded orally or in writing, the mere fact that a formal
contract has to be prepared and initialled by the parties would not affect either the
acceptance of the contract so entered into or implementation thereof, even if the
formal contract has never been initiated"

It could be stated that IT acts gives recognition to reviewing documents and digital
authentication of documents through Digital Signature i.e., creation of signature through
encryption unique to both executors of the document as well as the document being executed.
Section 5 of the IT Act provides legal recognition to electronic signature. Authentication of
documents under the IT Act can be done by using electronic signatures, which includes
digital signatures as specified under Section 3 of the IT Act or electronic signatures as
prescribed under Section 3A of the IT Act.

Section 3A has prescribed Aadhaar based e-authentication of documents. Documents

authenticated by electronic signatures as per the procedure laid down under the IT Act are
secure electronic records under Section 14 and 15 of the IT Act, i.e., they are deemed to be
executed by the concerned party unless the contrary is proved. However, the contracting
parties must be mindful of the requirements for electronic signatures as provided under the IT
Act. IT Act, however, also lays down certain requirements for an electronic signature to be
valid such as verifiability of the uniqueness of signature as well as detectability of changes to
the signature from when affixed. Even the Companies Act 2013, before obtaining & issuing
Director Identification Number, requires the director to obtain a digital signature certificate
through which document could be executed electronically.

INDIAN EVIDENCE ACT 1872

2
2010 3 SCC 1
Section 65B of the Indian Evidence Act, 1872, stipulates the evidentiary value of e-contracts.
Sub-section 1 of the said section states that any information contained in an electronic record
which is printed on a paper, stored, recorded or copied in optical or magnetic media produced
by a computer shall be deemed to be a document and shall be admissible in any proceedings
subject to the conditions mentioned in the said section

INDIAN STAMPS ACT 1872

The next question would be how to execute contracts electronically and, at the same time,
meet the requirements of the Indian Stamp Act, 1872. It is a point for consideration regarding
payment of stamp duty as required under law, and steps in this regard are now actively taken
by several state governments by way of opening online portals for payment of stamp duty. In
the event such steps come to fruition then the entire process of signing and executing an
electronic contract can be achieved adhering completely to the norms prevalent during this
crisis

Steps for executing contracts electronically involving ‘Moveable Properties’3 (Moveable

Property includes monies, intellectual property, machinery, work agreement, employment
agreement/contract, stocks, and everything which can be moved except for immovable
property like house, office, structure, etc.).

o Step-1: Parties to the contract finalize the terms via e-mail with or without a
digital signature.

o Step-2: Printout by either party of the final terms and pay stamp duty online
by using the facility of E-SBTR(Online Stamping Facility provided by
Nationalized Banks), parties to pay the stamp duty online and take the print of
the receipt generated to the nearest SBI Bank(or any bank providing this
facility) branch. The SBI Bank branch shall stamp the receipt.

o Step-3: The Party paying the stamp duty shall scan the stamped receipt of the
stamp duty and share it with the other party. This way, one of the parties has
the original agreement, and the other party has its duplicate. Each of the
Parties holding the original and the duplicate agreement have equal rights
under the Evidence Act to enforce the agreement.

3
There is different legislation governing immovable properties which is mentioned further in document
However, caution has to be exercised, and it is pertinent to note that the Information
Technology Act exempts certain contracts from being executed electronically, and those that
are permitted also need to be signed and executed after exercising legal, due diligence.

DOCUMENTS WHICH COULD NOT BE AUTHENTICATED ELECTRONICALLY

Sub-section (4) of Section 1 of the IT Act states that nothing in the IT Act is applicable to
documents specified under Schedule-I. The documents specified under Schedule-I are as
follows:

 A negotiable instrument (other than a cheque) a defined in Section 13 of the

Negotiable Instruments Act, 1881

 A power of attorney as defined in Section 1A of the Power of Attorney Act, 1882

 A trust deed as defined under Section 3 of the Indian Trusts Act, 1882

 A Will as defined under the Indian Succession Act, 1925 and includes any other
testamentary deposition

 Any contract for the sale or conveyance of immovable property or any interest in such
property

Therefore, the above documents though executed electronically as per the procedure laid
down under the IT Act, cannot be considered as validly executed under the provisions of the
IT Act. Also in Tamil Nadu Organic  case, the Court held that prohibition under Section 1(4),
read with item 5 of the First Schedule of the IT Act, would not apply to the e-auction sale
process followed by the respondent banks therein, as the conclusion of the contracts, in
respect of the properties brought for sale and the conveyance of the interests therein are done
manually.

CONCLUSION

With the ongoing pandemic, our country will be witnessing a surge in the execution of
contracts through electronic means. So, it could be concluded that electronic contracts are a
valid means of executing legal obligations under the laws of India. In these times of global
pandemic, it is evident that the execution of agreements in online means is now inevitable.
Due consideration should be paid to the ease of execution coupled with the enforceability.
However, parties should still be mindful of additional implications of these agreements, like
stamp duty payment, etc. Further, Notarization of e-contracts also presents another problem
since e-notarization has not been recognized in India. Therefore, e-contracts & its
constituents need a development in framework from the appropriate authorities