DIGITAL EXECUTION OF DOCUMENTS IN A POST-LOCKDOWN

ERA –INDIAN LAW AND PRACTICE

- Pradeep Ratnam1

A. Introduction:

The Covid-induced lockdowns across India (and attendant restrictions) have

made it virtually impossible to sign documents in physical form. This article
examines whether, as an alternative, our existing ecosystem of digital
signatures and e-filings together with an enabling legal framework offer a
credible electronic alternative to physical deal executions in M&A and
financing transactions.

India’s Information Technology Act, 2000 and the Indian Evidence Act, 1872,
recognise the validity of electronic contracts. For the purposes of this note
however, the author and his research team have gone a step further. We have
attempted to investigate some of the practical aspects of digital signings – for
instance the efficacy of third party signing portals such as Leegality in terms
of cost, ease of uploading documents, version control, provision for multiple
signatories to initial pages and sign, and the acceptability of electronically
signed resolutions that are uploaded onto the MCA.

Overall, our conclusion is that most aspects of a closing checklist (including

agreements, resolutions, certificates, e-stamping, charge creation and share
transfer), can be replicated through electronic execution processes. That said,
certain documents under Indian law require the triad of physical 4th Floor, Prestige Takt
signing/notarization/ registration – for these documents, parties will need to No. 23, Kasturba Road Cross
Bangalore - 560 001
build in adequate commercial assurances and protections for the responsible T + 91 80 41757500
party to undertake once the lockdown lifts. F + 91 80 41758000

3rd floor, Piramal Tower

This article ends with some practical recommendations to ensure the Peninsula Corporate Park
contractual efficacy and admissibility of electronic contracts, and to avoid the Ganpatrao Kadam Marg
Lower Parel - Mumbai
risk of future litigations arising from electronically executed documents. T + 91 22 67492595 / 67492596
F + 91 22 67492593

46, Aradhana,
Chanakyapuri,
New Delhi-110066,
T + 91 11 4388 4311
1
Mr. Pradeep Ratnam is a senior partner with K-Law specialized in No. 12, Old No: 17,
general corporate, PE, infrastructure laws, project finance and M&A 1st Floor, 3rd Cross Street,
and can be contacted on pradeep.ratnam@klaw.in.. This article Kasturibai Nagar, Adyar
includes excellent research inputs from Swapnil Sant, Associate, K- Chennai – 600 020
Law T + 91 44 42142952

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B. Background:

The COVID-induced lockdowns across India have meant a catena of life

altering consequences ranging from the material to the mundane. For
commercial transactions in M&A and financing, the disablement of essential
public and private transactional services (notarization, stamping, offices,
printers, photocopiers, and travel to name a few) - have dealt a serious blow to
the prospect of a ‘physical signing’. Whilst government mandated ‘formal’
lockdowns have begun to ease, informal restrictions on physical movement
and infrastructure may remain. Also, unsaid, is the enduring stigma around
physical contact that may remain – including the fear of prolonged physical
proximity during a signing, the prospect of sharing stationery, stamps and
seals, of the thought of hundreds of execution pages changing hands amidst
multiple signatories. In this context, virtual and electronic executions may be
the new normal, at least for some time to come.

The law in India on electronic execution of documents (‘digital signing’) has

evolved favourably in recent years, with statutory amendments and case law
recognizing the validity of electronic contracts. In certain sectors such as
fintech and platform-based trade receivable financings, e-signings and ‘click-
wrap agreements’ are the norm. M&A and debt transactions have continued to
rely on the physical and have, traditionally speaking, been far less adaptable
to electronic executions. Necessity now, may need to be the mother of all
invention.

This note therefore analyses : (A) the law on electronic signatures in India, and
its application in a rapidly evolving landscape of service providers in
electronic execution; and (B) the different methods by which electronic
signatures can take place, and (C) whether these methods could be deployed
for a full-fledged virtual execution of deals given the physical constraints in
place today.

C. The law on Electronic Signatures:

India’s Information Technology Act, 2000 (“IT Act”) recognises duly

constituted electronic contracts as valid. Further, an amendment to the Indian
Evidence Act, 1872 (“IE Act”) provides that electronic contracts are
admissible as evidence in a court of law, subject to certain standard tests and
protocols. Furthermore, Indian case law on the subject to certain standard tests
and protocols. Furthermore, Indian case law on the subject has been liberal and
enabling. Not only are electronic contracts recognised, the Supreme Court of
India – as long back as 2010 - validated a contract where the offer and

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acceptance were unconditionally conveyed over email2. In a later case, the
Madras High Court3 accepted the validity of electronic auction of property
under SARFAESI Act, 2002, suggesting the increasing acceptability of
electronic agreements in commercial transactions under Indian law.

For an electronic document to be valid, it should be capable of electronic

storage and accessible in its original form i.e. in a format that is demonstrably
tamper-proof (e.g. watermarked and encrypted) whenever called for in a future
reference. The document should also be capable of being produced when
required electronically, without human intervention. All of these are
achievable given strides in technology (such as cloud based third party
signature applications), digital security and regulatory enablers. These make a
compelling case for incorporating and adopting electronic executions and
digital signings as the new norm.

D. Digital Signature Certificates and Electronic

Signatures – A primer:

There are two kinds of electronic signature formats that are currently available
under Indian law. These are:

(i) Digital Signature Certificate or DSCs: Under the IT Act, a party may
sign a document using a ‘digital signature’. To obtain a digital
signature, a person will need to apply one of the Certifying Authorities
(CAs) recognised by India’s Ministry of Corporate Affairs (MCA), to
issue a Digital Signature Certificate (DSC). A DSC is, essentially, a
secure digital key that certifies the unique identity of the individual
signatory who is esigning the document. The concerned document and
the digital signature on it are then encrypted together with a
watermark/tamper-proof seal. DSCs are popular in domestic
transactions in India because they are ‘explicitly’ recognised by the
MCA and thus by the Government of India giving it an appearance of
being more legitimate compared to new and emergent electronic
signing technologies.

(ii) Electronic Signatures offered by private third-party applications:

Instead of a DSC, a party signing a document may also use cloud based
third party applications (TPA) such as Adobe or DocuSign, that are
rapidly gaining popularity for their user-adaptability, security features

2
Trimex International FZE Ltd. Dubai Vs. Vedanta Aluminium Limited
3
Tamil Nadu Organic Private Limited Vs. State Bank of India AIR 2014 MAD 103

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 and seamless cross border use across countries with technology neutral
e-signature laws. TPAs have useful features such as:

a. catering to multi-party executions;

b. Enhanced security and authentication features, such as facial
recognition for instance; and
c. Watermarking, encryption and version control.

The features above go the extra mile to ensure fraud-proofing and security in
contract executions. Moreover, some TPAs offer features such as allowing a
single party to control the execution. For example, once the ‘execution version’
of a document is in agreed format, a law firm orchestrating the signing can
actually ‘control’ the electronic signing process through the TPA platform or
portal, and thus ensure that each signatory affixes her electronic signature to
the document. The ‘signed’ document is then returned to the custody of the
originator (for example, the law firm) for storage or for transmission by email
to all the parties involved. TPAs also offer features that are the electronic
equivalent to ‘initialing every page’, by allowing the digital imprint of each
signatory to appear on every page of the document being signed.

In terms of validity, enforceability and evidentiary value, Indian law does not
discriminate between DSCs and other forms of secure electronic signatures
through TPAs. The legal test is simply that of immutability – i.e. a guarantee
that the document is encrypted and tamper-proof, capable of storage and recall
in original form, and containing definitive marks of source identification such
as the IP address used, the identity of the person signing, and date and time of
e-signing. The rest is up to the commercial comfort of the parties, business
familiarity and assurance of seamlessness – especially when multiple
signatories or multiple signing locations or country jurisdictions are involved.

For the steps and procedures involved for e-signing, see Annexure 1

E. Planning a virtual execution in a deal – and what

it might take:

This section examines to what extent can electronic processes replace the
absence of physical signing. Up until the point in time that ‘Execution
Versions’ (EV) of transaction agreements and definitive documents are agreed
between the parties, the process– whether physical and virtual – will be the
same. Virtual signings differ from the point in time when ‘EVs’ and agreed
forms of agreements and resolutions are frozen, ready for signature. The table
below ‘buckets’ a typical signing checklist into three colour coded categories

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– green, yellow and red, depending on how amenable to electronic signature various documents are.
These range from:

(i) the simplest at one end of the spectrum (e.g. an authorising board resolution that, subject to the
Articles of the company, can be digitally signed by a key managerial person (KMP))

(ii) to intermediate, where there is some legal grey

(iii) to legally unenforceable in electronic form from the perspective of digital execution.

S. No. Document Ease of electronic Things to ensure, mitigants and

execution safeguards

1 Company Resolutions Simple (i) No restrictions under Articles

(Board and Shareholder) of the company on e-signature;
Ensure that person (ii) Conversely, no provision in
signing has a DSC. If Articles mandating that
not, direct her to third resolutions must only be signed
party application based in physical form
electronic signature (iii) Ensure that person e-signing is
through the process set either a KMP or specifically
out in Annexure 1. authorized
(iv) If the resolution pertains to a
foreign entity, like a foreign
investor or overseas fund
investing in an Indian
company, ensure that the laws
of the signatory’s home
country allow e-signing
(v) Take declaration from foreign
signatory to the above effect

2 Internal certificates of DSC or electronic For directors’ declarations, ensure

compliance and a signature, as above there is no prohibition under Articles
director’s declaration or
undertaking

3 DSC to be affixed on DSC to be affixed on Ensure that MCA accepts e-signed

prescribed form prescribed form resolution; hitherto they accepted
PDF versions of physically signed
copies

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S. No. Document Ease of electronic Things to ensure, mitigants and
execution safeguards

4 External certificates such DSC or
as from a statutory signature
auditor or CA
electronic (i) Ensure that parent institution
such as CA firm or auditor’s,
allow certificates to be issued
in electronic form.
(ii) Make sure that the person
affixing his electronic
signature on the certificate is
authorized to sign

5 Multiparty Agreements – Electronic signatures (i) Have a signing protocol in

such as a Facility through TPA (This is place before execution
Agreement preferable over DSC, (ii) This will ensure that all signing
because TPA allows parties have both the access,
each page to be and the ability to operate, the
‘initialled’ same TPA software (e.g.
electronically) Leegality, or DocuSign)
(iii) If one or more parties are
overseas, ensure that the
signing jurisdiction recognizes
e-signing as per its laws
(iv) If not, then foreign signatory to
sign in physical form
(v) Ensure that Agreement has a
clause for execution in
counterparts
(vi) Foreign signatory to get
agreement apostilled in her
home jurisdiction with Indian
embassy
(vii) If foreign country is in
lockdown, procure an
electronically executed
undertaking to apostillise
within period

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 S. No. Document Ease of electronic Things to ensure, mitigants and
execution safeguards

6 Agreements that are The agreement in itself (i) Undertaking from obligor to
coupled with POA from can be executed through execute a POA in a timebound
enforcement DSC or electronic manner post lockdown
signature (ii) Provide for provision in
agreement if above isn’t done
POA however is (for example, additional
required to be notarised. interest)
In the absence of a
notarized POA from the
borrower/obligor, a
hostile enforcement may
be a challenge

7 Stamp paper and stamp Electronic stamp paper4 In virtual signings, one or more
duty signatories will unfortunately be
physically located in an “expensive”
state from a stamp duty perspective.
If stamp duty rates are different
across different states, the highest
rate of stamp duty shall apply.

8 Documents that cannot Only physical signings (i) Undertaking from signatories
be signed electronically allowed to perform this in a timebound
under Indian law: manner once lockdown
restrictions are lifted
(i) Any negotiable (ii) Negotiated commercial
instrument (other protections such as
than cheque). consideration holdback. This
(ii) POA will apply, for instance in real
(iii) Document estate transactions where
involving any Trust. conveyance and registration
(iv) Wills can only happen in physical
(v) Any agreement form
involving sale or
conveyance of an

4
States like Delhi, Himachal Pradesh and Karnataka can print stamp paper for an amount up to Rs. 500 using the portal of
Stock Holding Corporation of India Limited (SHCIL). Parties in other states like Haryana and Maharashtra can use e-Gras
and e-SBTP for procuring nonjudicial stamp paper. Alternatively, there is a third-party application like e-drafter which a
party can use to procure non-judicial stamp paper

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S. No. Document Ease of electronic Things to ensure, mitigants and
execution safeguards

immovable
property or any
interest in such
property that
requires registration
under Indian law.

9 Demat Share transfer Electronic instructions to depository

instructions to share transfer

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F. Summing Up – Risks and Mitigants:

At a time when panic regulations and ordinances are the norm, our
accommodative legislative framework on electronic execution offers a beacon
of hope. Together with emerging technologies that provide fast and secure
cloud-based esigning applications, parties to M&A and financing transactions
have a genuinely credible alternative to physical signing. However, below are
some of points to keep in mind:

(i) Documents that cannot be signed electronically: Where documents are

legally required to be signed in physical form, transaction parties should
therefore consider including provisions for risk mitigation, such as
consideration holdbacks, and (in debt deals) additional interest until such
documents are satisfactorily executed and registered post lockdown.
Where feasible, parties may also consider including a specific indemnity,
hold harmless provision and a further assurances clause that will
specifically bind an obligor to undertake physical signing within a
stipulated period post lockdown.

(ii) Have an electronic signing protocol: For lawyers orchestrating an e-

signing, consider having in place a detailed e-signing protocol before
execution. This protocol should set out all the steps and requirements for
electronic signing, which parties will affirm over email. Once the e-
signing is concluded, the entity in control of all “electronic originals”
(e.g. the law firm or security trustee) will confirm electronic ‘custody’ of
executed versions. Each signatory should provide an unconditional
affirmation over email (or in a digitally signed undertaking) agreeing to
be bound by the same.

(iii) Affidavits and sworn statements: Depending on lockdown easing,

consider procuring affidavits or undertakings from the signatories,
estopping a party from disowning or challenging an electronic signature
on a later date.

(iv) Counterparts: In multiparty agreements, if some parties are able to sign

in physical form, ensure that the contract has a counterparts clause
allowing for the same.

(v) Articles: Check that the constitutional documents of the company in no

way restricts the use of electronic signatures, and signing without a

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 company seal. If required, the Articles may need to be amended first and
filed with the MCA.

(vi) M&A involving foreign parties: Where one signatory is not in India,
parties will need to check whether the foreign country follows open
technology neutral e-signature laws that are compatible with laws in
India. Certain third-party electronic portals operate across countries and
may be used to sign a common document. Alternatively, if compatible
services are not available, the parties will need to accede to a private e-
signature protocol. This will include mutual recognition of the execution
version of the document and ‘virtual exchange’ wherein parties sign
electronically in counterparts, with each party thereafter transmitting the
signed version via email to the other.

(vii) Stamp duty: E-signing by signatories spready across different states in

India could prove expensive from a stamp duty perspective. Unless the
Indian Stamp Act, 1899 is amended, digital signings will be liable for
stamp duty at the highest rate of stamp duty amongst such states.

(viii) Technology Risk: Lastly, like all conundrums facing new and emergent
technology, there are risks to esignings – including cyber-security,
hacking and fraud, and questions around the credibility and robustness
of new third party applications and the solutions that they offer. Some
applications offer a level of assurance against hacking, etc. Before using
a portal or TPA service, check the terms and conditions for the level of
protection that is offered.

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 Annexure 1

Procedure for e-signing

DSC:

A person that has a digital signature can simply affix the digital signature on
the pdf version of the document in the following manner:

(i) Open the pdf version of the document to be signed.

(ii) Click on the tool section at the top of the menu.
(iii) Click on the Certificates option, then select digital signature to be
affixed.
(iv) Drag the digital signature on the page to be signed.
(v) A pop-up will come, enter the password to authenticate the digital
signature and then the document will be digitally signed.

Third party applications (for instance, on Leegality):

(i) The originating party (OP) has to upload the final version of the
document (after it is agreed by all parties) in PDF format on to the TPA
portal.
(ii) The OP shall insert the details of the signatories, including email address.
(iii) Following this, a hyperlink will be shared with the concerned person on
her mobile/email.
(iv) The recipient will authenticate themselves by giving details of their
Aadhar and an OTP sent to the number registered with that Aadhar card.
(v) In case of multiple signatories to the document the portal automatically
compiles the document. Further, the OP can ensure through the ‘Settings’
tabs to give parties the option to replicate signature on each and every
page.
(vi) Each signature affixed on a document shall carry the date and time at
which such document was signed. In addition to this, there is an audit
trail which is shared by each portal, which provides the parties with all
the details regarding the execution like the IP Address used to sign the
document along with the device used for affixing the electronic
signature.

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