Digital Signatures: Impact on The Indian Contract Laws

Digital Signatures: Impact on The Indian Contract Laws

Name of Author- Vishakha Yadav, DES’s Shri Navalmal Firodia Law College

Edited by – Sulesh Choudhary

INTRODUCTION

“We want a Digital India, not just the one we are living in” — The Indian Express[1]

India’s digitalization has taken a huge turn as quoted by Shri Narendra Modi at the G20 Summit’s Economy Minister’s meeting, “India’s digital transformation is powered by its unshakeable belief in innovation and its commitment to speedy implementation.” By this ‘innovation’ and ‘speedy implementation’ he referred to the innovation of India’s digital well-being such as e-commerce, algorithm economy, gig economies, digital signatures etc.

Digital signatures are used for the message authentication and message integrity of the sender. They are used to prevent the repudiation of the sender’s data.  Although it cannot be used for the maintenance of privacy, it is also the digital equivalent of a handwritten signature or stamped seal. It offers far more implicit security. Under the It Act, of 2000, digital signatures issued by certifying authority are legally binding & are of the same validity as physical signatures in electronic transactions.

Keywords: Digital signatures, IT Act,2000, Electronic Transactions, e-governance, encryption, CA (Certifying Authority), Authentication, Indian Contract Act,1948

MEANING AND DEFINITIONS:

Digital Signature:

According to section 2(p) of the Information Technology Act, 2000[2], digital signature refers to the validation of any electronic evidence by a user using an electronic method or process mentioned in Sec 3 of this Act.

  • Contract:

As per the provisions of Section 2(h) of the Indian Contract Act, of 1872, an agreement that is legally enforceable by law is known as a contract.[3]

  • E-Contracts:

Any of the law provisions do not contain the exact meaning of e-contracts, but e-contracts are contracts where the consent of both parties is taken digitally by signing the e-certificate.

  • Certifying Authority:

According to the provisions of section 2(g) of the Information Technology Act, 2000, a certifying officer refers to a person who has been given the authority to issue digital certificates i.e. digital signature through license under Sec 24 of this Act.

HISTORICAL BACKGROUND / EVOLUTION

Traditional methods, before the digital signature, were physical signature-based, seal-based, or some other manual authentication processes that were risky and error-prone. Physical signatures on paper documents were usually used in legal and business contexts for confirming agreements or authorizations. The scene before digital signatures implied the use of document printing, signing them physically in the presence of physical evidence and then sending the documents back through fax machines. The process, however, was not feasible for electronic transactions or communications. This became quite common with the emergence of advanced technology and the use of the internet and digitalization. Then gradually scanned signatures were introduced with digitalization.

 Essentially, the scanned signature is the digitalized image of a handwritten signature. In legal cases, they may not hold up very strong evidence of consent or agreement compared to digital signatures that make use of high-end cryptography and keys for authenticity and integrity. By themselves, they did not have any implicit security or verification feature. Since there was no cryptographic mechanism built into the signature to guarantee authenticity or integrity, it was pretty easy to copy or forge a scanned signature.

Only after this, digital signatures were introduced with the emergence of the IT Act 2000 and the increased digital revolution, after which digital signatures are explicitly used in every field of electronic record.

EFFECT RELATION: IMPACT OF DIGITAL SIGNATURE IN LEGAL DOMAIN AND CONTRACT LAW:

Indian Evidence Act, 1872:

Section 65B of the Indian Evidence Act, 1872[4] states that any information produced in electronic form can be used as evidence in the courts if the prescribed conditions that are enumerated in this section are correctly executed. It says that any information which has been stored, copied or recorded as an electronic output is also deemed to be a document after its verified and signed certificate has been produced. After which it can be presented in the courts as evidence.

AMENDMENT TO INDIAN CONTRACT ACT,1872:

Even though the Indian Contract Act, of 1872 does not have anything specific to say regarding digital signatures. However, it has been applied and interpreted contextually that courts have recognized the validity of digital signatures and digital contracts with the condition that they meet the requirements enumerated in the IT Act,2000 and the rules provided thereunder.

LEGAL PROVISIONS RELATED TO DIGITAL SIGNATURE AND LAW OF CONTRACT:

The Information Technology Act, of 2008 [5]recognized the meaning of

“e-commerce,”[6] which in legal context means the transactions that are carried out in electronic format, electronic exchange of data, and electronic communication. E-commerce uses substitutes for paper-based physical records for document filing, storage and communication.

Sec 3 of IT Act,2008[7] states about authentication of electronic records:

  • As per the provisions of this section i.e. Sec 3 of the IT Act, any contractual partner to a contract may validate any electronic contract by affixing his/her digital signature on the record.
  • The reliability of an electronic format will be affected by the usage of an asymmetric crypto system and hash function which converts the previous record signed electronically into another electronic record.

Also, Sec 5 of the same Act provides legal recognition of electronic signatures:

(1) “Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is authenticated using an electronic signature affixed in such manner as may be prescribed by the Central Government.”

What does Contract Law say about contracts signed digitally:

Section 10 A, of the Indian Contract Act, of 1872 talks about the validity of e-contracts as: When any contract is formed, communications for proposals, its acceptance, or revocation whatever the case may be are expressed electronically or by any means of electronic record such as computer, shall be enforceable. They cannot be unenforceable on the ground that they are expressed electronically.

TYPES OF DIGITAL SIGNATURES:

There are mainly three types of digital signatures:

  • Simple digital signature:

A simple digital signature is the primary type of digital signature. It is very less secure and vulnerable as it is non-encrypted and thus non-traceable of the signer. It is also vulnerable to fraud.

  • Basic digital signature:

In this type of Digital Signature, the identity of the sender is not verified. Therefore, this type of signature is similar to a simple signature. The content of the document can be modified even after signing.

  • Advanced and qualified digital signature:

Advanced and Qualified digital signature is the most secure type of digital signature and widely used. Public Key Infrastructure is used by this type of signature. The cryptographic mechanism ensures safe and secure delivery and that data is kept private between the sender and receiver. Also, the content cannot be modified at a later stage, and neither can the sender deny signing the document.

TYPES OF E-CONTRACTS:

Shrink Wrap Agreements:

In the shrink wrap type of agreement, the terms for the agreement come wrapped along with the product which is available to the user after the purchase of the product.

E.g. Purchase of Anti-virus

Click Wrap Agreements:

This type of agreement requires the user to accept the proposal by clicking on the “I agree” option in the user agreement.

E.g. creation of email ID

Browse Wrap Agreements:

The browse-wrap type of agreement is entered into by the user due to the repeated use of a website. By the usage website, the user is said to have accepted the conditions of use.

E.g. Sales and Purchases on online platforms

Scroll Wrap Agreements:

These are the agreements where the user has to accept all the terms and conditions of the documents and give their implied consent.

E.g. a few mobile applications require the user to scroll down acceptance

Sign-in Wrap Agreements:

In these agreements, it is required by the user to agree on the terms and conditions of the agreement by signing in to a particular website or mobile application.

POSITIVE EFFECTS OF DIGITAL SIGNATURE ON CONTRACT LAW:

  • Verification of identity and authentication: Digital signatures confirm parties to a contract and therefore carry out authentication that brings about reliability and integrity in e-commerce. This step increases the value of the electronic contracts as evidence in courts of law, taking away potential disputes regarding the validity of signatures.
  • Non-Repudiation: It simply means that a signer at a later stage cannot deny having signed the contract. A cryptographic mechanism used in digital signature provides evidence of the signer’s intent at the time of signing, therefore, difficult for him to repudiate the signature or contract.
  • Operational Efficiency and Cost Saving: Digital signatures eliminate the necessity to print, sign, and mail a physical document. Business parties can electronically sign contracts from anywhere across the globe with an internet connection, hence reducing delays and administrative overhead related to traditional paper-bound signatures.
  • Secure Handling: A digital signature provides better security compared to traditional handwritten signatures. They aid in protection against unauthorized access in the electronic format, illegal and unauthorized interference, and forgery, thus in the overall maintenance of security and confidentiality in any electronic transaction and agreement.
  • Facilitation of e-governance and Digital Services: Digital signatures ease the use and approval of e-governance initiatives and Digital Services by government institutions and departments in India. They provide secure and efficient electronic filing of documents applications and forms reducing paperwork, administrative burdens and processing times.

Negative effects of Digital Signature on Contract Law:

  • Technology dependence: Digital signatures rely much on technology infrastructures and systems to function and remain secure. Technical failures, system vulnerability, or even cyber-attacks weaken the general reliance and reliability of digital signatures. This gives rise to many concerns regarding the integrity and the enforceability of electronically signed contracts.
  • Access and Inclusion: Wide-scale use of digital signatures might inadvertently prevent people or a community from having limited access to technology or digital literacy from participating in any electronic transactions. There is a possibility that a sharper buttressing of the digital divide can at least bealach socioeconomic inequalities and create problems about the fair application of contracts made between different segments of society.
  • Legal uncertainty and compliance burden: Even after the legal recognition under Indian law, there could still be some amount of uncertainty and inconsistency within their interpretation and implementation by the courts and the regulating authorities. Digital signatures may face compliance burdens in ensuring adherence to evolving legal and regulatory requirements governing digital signatures, including standards for authentication, encryption and key management.
  • Fraud and misinterpretation risks: Digital signatures are prone to the risk connected with cyber-attacks, impersonation, identity theft etc. This may impair the integrity of digital signatures and engender a lack of trust in electronically signed documents.

IMPORTANT GUIDELINES, REGULATIONS AND NOTIFICATIONS

Section 2(1)(p) of the Information Technology Act, 2000[8] contains the provisions for the use of digital signatures signed on electronic contracts. Nowadays, this type of signature is widely used by lawyers and professionals to save from time-consuming physical contract-making.

Information Technology (Certifying Authorities) Rules, 2000:

The IT Rules, 2000 issued under the IT Act, 2000 enumerate the prescribed standards and procedures for issuing and rescinding as well as management of digital certificates. This makes sure that digital signatures are reliable enough during the electronic course of action.

RELATED CASE LAWS

Bhagwati Sharan Tiwary vs M/O Civil Aviation and Tourism

In the case of Bhagwati Sharan Tiwary vs M/O Civil Aviation and Tourism[9] it was held that according to Section 65 (b) of the Indian Evidence Act,1872 evidence should be signed electronically and therefore, the certificate cannot be considered as evidence. However, the Tribunal failed to detect so and considered the certificate as the evidence.

CONCLUSION & COMMENTS

Digital signatures are in a way modern forms of non-amendable signatories. Previously contract execution used to take a lot of time due to the time involved in transit. When in situations where the other party belonged to the other country or territory it was very difficult to execute such contracts that required emergencies. Now that digital signatures have come into the picture, the palpable documents have now become secure. The digital contracts are now signed at the comfort of our homes. Even after the signing of the contract, they can be easily traced for changes if any third party tries to mishap with the executed contract. They cannot be destroyed, unlike physical contracts.

REFERENCES

Books / Commentaries / Journals Referred

  • Bare Act of the Indian Contract Act,1872
  • ICSI CS Executive Module for Jurisprudence, Interpretation and General Laws

Online Articles / Sources Referred

Cases Referred 

  • Bhagwati Sharan Tiwary Vs M/O Civil Aviation and Tourism

Statutes Referred

  • Information Technology Act,2000
  • Indian Contract Act,1872
  • Indian Evidence Act,1872

ENDNOTES

[1](“We Want a Digital India. Just Not the One We Are Living In”)

[2](Information Technology Act, 2000)

[3] (Indian Contract Act, 1872)

[4](“Know All About Section 65B Evidence Act”)

[5](Information Technology Act, 2000)

[6](Information Technology Act, 2000)  

[7](Information Technology Act, 2000) 

[8](Information Technology Act, 2000)  

[9](Bhagwati Sharan Tiwary vs M/O Civil Aviation and Tourism)