In our last post we learnt about the different modes of paying stamp duty in India. But are all these modes of digitally stamping electronic documents legally recognised in India? YES. Let’s see how.
Digital Stamping - points to keep in mind
Before we start exploring the legality of digital stamping in India, it is important to reiterate certain key points that we discussed in our last post (How to pay stamp duty online):
1. Stamp duty must be paid even when you are executing the digital version of an instrument. This has been expressly clarified by certain states such as Maharashtra, Karnataka, Gujarat, Kerala, Rajasthan etc.
Even in cases where states have not provided this express clarification, stamp duty must be paid for electronic documents. This is because Stamp Acts in India impose a legal obligation to pay stamp duty on instruments. We saw that the definition of an instrument is wide enough to cover any form of agreement, conveyance or deed - both physical and electronic.
2. Even for digital stamping, the digitally rendered stamp paper needs to be defaced, in order to tie it to the instrument being executed. The 2 common methods of defacement are:
(i) you either print a part of the instrument on the stamp paper; or
(ii) write a legend on the stamp paper which describes the instrument for which the stamp paper is being used.
Any type of digital stamping, for it to be legally valid, must allow for defacement of the stamp paper.
Legality of Digital Stamping
We have established two things so far. Firstly, electronically executed documents also need to be stamped. Secondly, they need to be defaced.
Now let’s look at the three types of digital stamping we read about earlier, and the legal rules and regulations that make them a valid mode of paying stamp duty in India.
1. E-stamping in Haryana
We saw that e-stamping in Haryana is different from ‘e-stamping’ in all other states, since the stamp duty certificate here is rendered digitally, and can be easily affixed to any electronic document.
This mode of digital stamping derives its legal validity from the Haryana Stamp (Payment of Duties by Means of Online E-Stamping) Rules, 2017. These Rules have been formulated under Section 10 of the Indian Stamp Act, 1899 (as amended for Haryana), which gives the state government the power to enact rules to determine how stamp duty is to be paid.
2. NeSL (National e-Governance Services Limited)
NeSL is India’s first and only Information Utility under the Insolvency and Bankruptcy Code, 2016, and acts as a repository of legal evidence pertaining to any debt/claim submitted by a financial or operational creditor.
In addition to its functions as an Information Utility, NeSL also set up its DDE (Digital Document Execution) Platform to provide the following services:
NeSL’s DDE platform seeks to address and eliminate the problems associated with paper based stamp duty payment and paper based execution of loan documentation. In this post we will only focus on the digital stamping aspect of the DDE platform. NeSL has integrated with the Stockholding Corporation of India (SHCIL) or Government Receipt Accounting System (GRAS) of 20 states and union territories in India to provide real-time generation of stamp duty certificates digitally.
The Ministry of Finance, through a notification dated June 30, 2020 directed all states and union territories to permit digital stamping on the NeSL platform as a legally valid mode of payment of stamp duty.
In furtherance of its objective to further increase adoption of the DDE platform, the Ministry of Finance issued a notification dated August 11, 2020 to the MDs and CEOs of all scheduled commercial banks in India, urging the banks to “complete the technical integration urgently” with NeSL’s DDE platform.
Subsequently, states and union territories across the country have issued notifications, legally recognising digital stamping through NeSL’s DDE platform as a valid mode of payment of stamp duty. A list of all such notifications can be accessed here.
In the last post we noted that Leegality’s BharatStamp is a completely legal and secure process. Are you wondering how? Let’s take a quick look at how BharatStamp works again.
i) Based on your contracting needs, you specify the state and the denominations of the stamp papers you require.
ii) Based on your request Leegality procures the stamp papers from authorised vendors across the country.
iii) A unique ID is generated and is used to deface the stamp paper. The following legend, containing the unique ID, is printed on the stamp paper:
“This Stamp Paper forms an integral part of the agreement bearing unique ID no. <insert ID no.> executed between <insert first party name> and <insert second party name>”
This unique ID is later on digitally imprinted on the electronic document to which you want to affix the stamp paper. This ties the stamp paper exactly with your electronic document.
iv) This defaced stamp paper is then scanned and such digitally rendered copy can be affixed to any electronic document you want.
v) Leegality then sends the physical original copies of the defaced stamp papers to your organisation for future reference.
This meticulous process ensures that all legal requirements are met and your contracting process remains secure. BharatStamp remains IT Act compliant by fulfilling the requirements of Section 4 of the IT Act.
Section 4 states that an electronic copy of a physical document will have the same equivalence as the physical original, as long as the physical copy is still accessible for subsequent reference.
Leegality’s BharatStamp ensures compliance with these requirements by:
- Purchasing stamps ONLY from government authorised vendors
- Ensuring defacement happens on the physical copy of the stamp paper BEFORE it is scanned and made it available for you to use digitally
- Affixing ONLY the digitally rendered copy of the physical, defaced stamp paper
- Sending the physical original copies of the defaced stamp paper to your organisation for future reference.
For a digital stamping process to be legally compliant, it is necessary to follow the aforementioned steps in this exact order.
The order in which these activities need to be carried out is important to ensure that the scanned and digitised stamp paper that is used is ALWAYS and COMPLETELY identical to the original physical stamp paper.
In case a service provider:
(1) First scans the physical stamp paper to imprint a legend digitally on the digitised stamp paper
(2) Prints the legend on the physical stamp paper
it would NOT be a legally compliant process, opening you and your organisation to compliance hassles later on.
The problem with this inverted process is that there WILL be certain cases where the original physical copy gets spoiled before the legend can be printed on it. This could be due to general wear and tear, theft/loss or due to printer jams. Therefore, you will be left in a situation where you have used the digitised stamp paper and gotten your electronic document eSigned by other parties, but the physical copy cannot be made available to you for the reasons we just mentioned.
This would be a violation of Section 4 of the IT Act as you do not have the physical original available with you “for subsequent reference”. So the mantra to keep in mind is that the digitised defaced stamp paper should ONLY be consumed AFTER the corresponding physical copy of the stamp paper has also been defaced.
Another necessary caveat to ensure a legally compliant digital stamping process is that your digital stamping service provider should provide you with digitised versions of actual stamp papers (either impressed stamps, or franked stamp papers or e-stamp certificates) and not stamp duty payment receipts.
This is because stamp duty payment receipts do not fall under the definition of “stamps” or “stamp paper” under central and state stamping laws. Usage of these receipts in lieu of actual stamp papers can expose you to regulatory action later on.
With fully legal digital stamping methods available now, say goodbye to haggling with stamp vendors, spending time on expense management and the risks associated with physical paper.