How to Ensure Business Continuity with Digital Signatures in the Midst of the Coronavirus Crisis
PRIME INFOTECH 10th April 2020 76Category: Technology.(0)

Despite the many measures now in place to contain the spread of the COVID-19 pandemic, it will take a long time before life as we know it will get back to ‘normal’. During this time of social isolation and national lockdowns, it is very important for businesses to develop long-term strategies to ensure uninterrupted business continuity (or at least minimal downtime) until they can pick up where they left off. One such strategy is to take recourse to the provisions of the Information Technology Act, 2000 (“IT Act”) for the electronic conclusion of contracts. Thus, eliminating paper-based contracts in favour of e-contracts can be a useful component of a company’s Business Continuity strategy.

Section 4 of the IT Act refers to the legal recognition of electronic records. According to this statute, any information that may be provided in writing or in the typewritten or printed form can be rendered or made available in an electronic form, and be made accessible for subsequent reference. Further, Section 5 of the same Act provides that where there is a requirement for affixing signatures on a document, the requirement may be satisfied by an electronic signature. Finally, Section 10A of the Act states that where a contract is executed electronically, it will not be void solely on the ground that it was executed electronically.

Almost all kinds of contracts and documents may be executed electronically by using electronic signatures. The only classes of documents that are exempted from electronic execution (and therefore have to be executed physically) are:

  • Negotiable instruments (not counting bank cheques)
  • Power-of-attorney
  • Trusts
  • Wills (including any other testamentary disposition)
  • Any contract for the sale or conveyance of immovable property
  • Documents notified by the Central Government

Electronic Signatures and Business Continuity

Section 2(1) of the IT Act defines an electronic signature (and such definition includes a digital signature) as the “authentication of any electronic record by a subscriber by means of an electronic method or procedure”.

Most registered Indian businesses will already have digital signatures for their key officers, as many filings – including those with the Income Tax Department and the Ministry of Corporate Affairs (MCA) – already require digital signatures. This is a step in the right direction to ensure business continuity during crises like the COVID-19 pandemic.

Further, Schedule 2 to the IT Act also lists Aadhaar E-KYC as a legally valid method for authenticating electronic documents i.e. an electronic signature. Some vendors allow end users to generate a one-time paperless digital signature using Aadhaar OTP verification. This option may be used by parties who have Aadhaar credentials but lack a digital signature certificate.

Electronic Payment of Stamp Duty

One of the formal requirements to ensure that contracts are enforceable – and thus ensure business continuity – without incurring penalties or facing costly delays, is by paying appropriate stamp duty. The amount of the duty depends on the nature and purpose of the document and the state in which transactions take place.

In India, laws around stamp duty vary from state to state.

For example, the Maharashtra Stamp Act, 1999 states that electronic records and documents are liable to stamp duty, which may be paid online to a participating bank. The receipt may then be presented at the bank to obtain an Electronic Secure Bank and Treasury Receipt (e-SBTR), which may be affixed on the first page of the document’s printout. Parties are required to present their receipts and collect their e-SBTRs within six months of making payment.

In Delhi, stamp paper of value up to Rs. 500 can be purchased online and printed from anywhere. Stamp paper of higher amounts can also be purchased online and different avenues explored for collecting or delivering the physical stamp paper. Due to the COVID-19 pandemic however, the physical collection/delivery of the stamp paper may be a little delayed, although document execution should not be affected as long as payment is made on time.

Stamp duty may also be paid online in Telangana. In this state, after the payment is made, a challan is generated on the website which should then be taken for franking/defacing in triplicate. Due to the pandemic, it is very difficult to get such documents physically franked. However, once duty has been paid, it is sufficient to ensure the transaction’s validity.

In Karnataka, Andhra Pradesh and Tamil Nadu (plus some other states), presently there is no feasible way to make Stamp Duty payments online. In these states, payments can only be made after filling up the right physical forms at the offices of designated e-Stamp vendors.

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