28 April, 2023    

Everything you need to know about E-sign

The use of signatures has given people a clear identity and made it possible for businesses and other people to operate more quickly while keeping up with evolving technology. The importance of signatures in helping people make decisions and give consent is undeniable. In the past, each person or the designated signing had to read the document in its entirety before giving his or her consent. The organizations had to overcome enough obstacles as a result to follow the signatory's pace and work within his or her schedule. With the help of technology, e-signature was introduced, which was an absolute boon. In recent years, with growing cyberspace and digital technology, the need for a structured legal framework dealing with e-signatures has become the need of the hour.

Electronic Signature

A person's identity is electronically represented by an electronic signature or e-signature, which serves as proof of their consent and agreement. Overall, the signature represents acceptance by the signer to the written form of the same electronically. Make sure it is coming from the authorized signatory and that there have been no changes made to the document. An electronic signature is more of a consent to the delivered document than it is a declaration that its contents are true. Unlike a digital signature, it is more easily altered or incorrectly constructed. Electronic signatures make it difficult to confirm the time and location of the signing; in some cases, another person may sign the given documents without being recognized. So, there is the concern for the security and authenticity of the signature.

E sign under Information Technology Act 2000

Electronic signatures are recognized as legitimate in India under the Information Technology Act of 2000. The IT Act provides a clear framework for encouraging Indian businesses and individuals to utilize digital technologies.

As per Section 2(ta) of the IT Act, an electronic signature can only be one of two specific things:
- An electronic technique specified in the Second Schedule of the IT Act (elaborated more in Section 3A and the Second Schedule of the IT Act)
- A digital signature (elaborated more in Section 3 of the IT Act) Now let's deep-dive into the two types of signatures in the next two chapters.

In short, "electronic signature" means authentication of any electronic record by a subscriber by means of the electronic technique specified in the Second Schedule and includes digital signature;

What types of e-signs are recognized by the IT Act?
  • Electronic signatures including the eKYC service and Aadhaar
    According to the information technology act, the first sort of electronic signature is those that incorporate the Aadhaar and eKYC services. Users who have an Aadhaar could sign papers online using an e-signature service. This occurs as a result of the e-signature service's interaction with the Application Service Provider. (ASP). Users may interact with a mobile or web application, which facilitates online document signing. They could verify their identification using an eKYC service offered by the vendor of the e-signature service.
  • Electronic signatures curated with Hash functions and asymmetric cryptosystems
    According to the Information Technology Act, digital signatures produced using an asymmetric cryptosystem and a hash function are legitimate. A pair of keys, such as a private key and a public key, is present in an asymmetric cryptosystem. These keys, which produce an e-signature, are particular to each user. A trusted Certifying Authority (CA) might be able to provide users with a digital signature.
MeiTY Amends IT Act (2000), Extends Purview of E-Signatures

The IT Act (2000)'s First Schedule has been modified, according to a notification issued by the Ministry of Electronics and Information Technology (MeiTY). The notification, dated September 26, 2022, deletes a few entries from the planned list of documents that cannot be signed electronically. The aforementioned paperwork can now be electronically and digitally signed.

Changes after the Amendment

The amendment removed three types of documents from the list of documents mentioned in the First Schedule:

  • Demand Promissory Notes and Bills of exchange issued in favor of or endorsed by an entity regulated by the RBI, NHB, SEBI, IRDAI and PFRDA
  • Power-of-attorney that empower any entity regulated by the RBI, NHB, SEBI, IRDAI and PFRDA to act for, on behalf of, and in the name of the person executing them
  • Contracts for the sale or conveyance of immovable property or any interest in such property
The significance of Amendment to the First Schedule.

Prior to this amendment, key BFSI sectors like secured lending, construction/housing finance, gold loans, wealth advisory etc. could not digitize their critical processes because of the First Schedule of the IT Act. The First Schedule prevented the electronic signing of critical documents (mortgage deeds, home loan agreements, DPNs, PoAs etc) that these sectors relied on for core business processes. While processes like KYC, loan originations, repayments and collections became digital – documentation remained physical. With the passing of this Amendment and removal of these critical documents from the First Schedule, most companies, especially those in the BFSI sector, can now electronically sign them and move towards complete digitization of their paperwork processes.

The Criteria for Valid E-Signatures

The year 2008 marked the most significant turning point for India's e-signature rules. This year saw some modifications to the Information Technology Act of 2008. The change introduced the meaning of "electronic signature" to the situation.

Section 2(a) of the act states the definition of an electronic signature.

"An electronic signature is defined as the authentication of electronic records by subscribers through electronic techniques."

Schedule II of the Information Technology Act of 2000 points out the definitions of electronic techniques. According to the information technology Act, e-signatures have to satisfy different criteria for validity.

The following are the criteria that can be used:

- An individual ID should be used to link an electronic signature to the signer of the document. A digitally validated ID often serves as a unique ID.

- The data that was used to construct the e-signature should be entirely under the signatory's control. This authority should be granted to the signatory at the time of signing. Typically, e-signature service providers permit signers to digitally certify a document. This assists in meeting the criterion.

- It should be possible to tell when a document or linked electronic signature has changed. The document could be sealed with a tamper-evident seal and encrypted by the user to satisfy this criterion.

- Only if the e-signature has an audit trail it is considered valid. The steps that were taken throughout the signing procedure are documented in the audit trail.

Documents that cannot be electronically signed

The IT Act is an enabling legislation that holds the field when it comes to electronic signatures. It accords validity to electronically sign virtually ALL types of documents. However, there are narrow exceptions to this rule.

The First Schedule of the IT Act prescribes 5 types of documents to which the IT Act would not apply:

  • A negotiable instrument (other than a cheque, a Demand Promissory Note or a Bill of Exchange issued in favour of or endorsed by an entity regulated by the Reserve Bank of India, National Housing Bank, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority) as defined in section 13 of the Negotiable Instrument Act, 1881 (26 of 1881)
  • A power-of-attorney as defined in section 1A of the Powers-of-Attorney Act, 1882 (7 of 1882) but excluding those power-of attorney that empower an entity regulated by the Reserve Bank of India, National Housing Bank, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority to act for, on behalf of, and in the name of the person executing them.
  • A trust as defined in section 3 of the Indian Trusts Act, 1882 (2 of 1882)
  • A Will as defined in clause (h) of section 2 of the Indian Succession Act, 1925 (39 of 1925) including and any other testamentary disposition by whatever name called.

We at Agarwal Estates stand by honesty, integrity, and transparency. In order for you to make an informed decision, we are here to assist you in understanding all the information concerning e-signs and any issues you may have.

Disclaimer: While we use reasonable efforts to include accurate and up-to-date information, we make no warranties to the accuracy of the content, and assume no liability or responsibility for an error or omission in the content. Changes may happen in the IT Act in the future also so please consult with your legal advisor for guidance.

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