The Ministry of Electronics and Information Technology recently amended the First Schedule of the Information Technology Act, 2000 (‘First Schedule Amendment‘)
The First Schedule Amendment paves the way for digitisation of DPNs, Powers-of-Attorney and Immovable Property Contracts - a major shot in the arm for key BFSI industries.
This is probably the most consequential IT Act Amendment since the introduction of Aadhaar eSign in 2015.
In this article, we will answer some of the frequently asked questions regarding the amendment, and explore what all opportunities it has unlocked for businesses across the country.
Is this amendment relevant to me?
If your organisation:
- Is 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
- Handles/deals in contracts related to immovable property
Then this amendment is very relevant for you.
What is the First Schedule of the IT Act?
The First Schedule of the IT Act is a list of different types of documents and transactions.
According to Section 1(4) of the IT Act, “Nothing in this Act shall apply to documents or transactions specified in the First Schedule”.
This meant different means of electronic execution (like electronic signatures, virtual signatures, clickwrap etc), which gain their legal validity from the IT Act, cannot be used to execute documents that are expressly excluded from the application of the IT Act under the First Schedule.
This seemingly innocuous legal provision prevented critical paperwork in key BFSI verticals from being digitised.
What exact change has been introduced by the First Schedule Amendment?
The following table illustrates the changes made by the First Schedule Amendment:
The amendment has removed the following documents from the First Schedule of the IT Act::
- Cheques, DPNs (Demand Promissory Notes) and Bills 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
- 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
- Contracts for the sale or conveyance of immovable property or any interest in such property
By doing so, the amendment has now allowed these documents to be digitally signed and stamped.
Practically, powers of attorney, DPNs and Bills of Exchange in the ENTIRE BFSI INDUSTRY can now be digitised.
Immovable property contracts ACROSS industries and sectors can also now be digitised.
Why is the First Schedule Amendment so significant?
While key processes like origination, KYC, payments and collections have digitised rapidly in the last decade - paperwork remained physical for verticals in BFSI that deal with documents listed in the First Schedule of the IT Act.
That is why the First Schedule Amendment is so pathbreaking. For the first time - BFSI verticals like secured lending, construction/housing finance, gold loans, wealth advisory etc. can digitize 100% of their paperwork and offer 100% digital products.
But doesn’t a Power of Attorney need to be notarised? How will that happen in a digital journey?
Under law, there is actually no requirement for a Power of Attorney to be notarised.
The reason why notarisation of PoAs has become common practice is because of the favourable presumption granted to notarised PoAs under Section 85 of the Indian Evidence Act, 1872.
Basically what Section 85 says is - if a power of attorney is signed AND notarised - then there exists a presumption in favour of its valid execution.
So let’s say C gives a PoA to D - both of them sign it AND get it notarized. Now, let’s say C and D have a legal dispute - where C’s case relies upon the validity of the PoA.
Here, Section 85 will help C.
If D wants to dispute the validity of the PoA - then the burden of proof will be on D to prove this assertion. C will automatically enjoy the presumption under Section 85 - that the PoA was validly executed.
Basically, PoAs are notarized because it is legally beneficial to do so and NOT because it is legally mandatory.
With electronic signatures - you cannot notarize documents. However this does not matter because electronic signatures confer GREATER legal benefits on PoAs than notarization.
eSign is, therefore, a fantastic replacement for the notarial process itself.
This is possible via 3 key provisions of the Evidence Act - Section 85A, 85B (2) and 67A.
Section 85A grants a presumption of finality of execution on electronic agreements.
Basically, if an electronic agreement contains the electronic signature of parties signing, then it is presumed that the agreement was concluded or, in other words, finally executed via the eSign of the parties.
Any party alleging that the PoA was NOT finally executed via the eSign would need to discharge a high burden of proof to successfully argue such an assertion.
This is very similar to Section 85 - which establishes a presumption of valid execution for notarized PoAs.
Section 85B(2) grants a double presumption in favour of the identity of the signer and intent of the signer who eSigns a document.
Essentially, if a PoA is eSigned via secure electronic signature (Aadhaar eSign, DSC Token, Doc Signer, PAN eSign, Cloud DSC), then it is presumed that a) the possessor of the signature actually did sign the document AND that b) the signer INTENDED to sign the PoA.
So in our scenario above. C grants PoA in favour of D. D takes C to court later in a dispute. In this dispute, D’s authority to act under the PoA granted by C is central to their claim.
To defeat D’s claim - C claims that the signature is not his AND that he never intended to sign this PoA produced in Court.
Here, Section 85B(2) will protect D. C would need to discharge the burden of proof showing that the eSign wasn’t his AND that he did not intend to sign. This is extremely tough to do when a document has actually been eSigned.
Section 67A grants the legal presumption of signer identity to PoAs signed with a secure eSign.
Section 67A states that if a signer uses an electronic signature to sign a PoA then they would need to prove that the signature was indeed of the owner of the electronic signature.
However, on the flip side, Section 67A makes it clear that this requirement DOES NOT EXIST for PoAs signed with a “secure electronic signature” - virtually carving out a presumption of identity.
Do note: Under the Powers of Attorney Act, all PoAs must be signed. Therefore - as per Section 5 of the IT Act - PoAs can be electronically executed ONLY via “electronic signatures” under the IT Act - Aadhaar eSign, PAN eSign, DSC Token eSign and Doc Signer. Coincidentally, all these “electronic signatures” notified via the IT Act also happen to be “secure electronic signatures”. They would all, therefore, enjoy the presumptions of validity mentioned above - and would be suitable replacements for the notarial process for PoAs.
But wait, beyond the above three, there’s a few other provisions under the Evidence Act that also bolster eSigned PoAs in a Court of Law:
- Section 85B(1) - It is presumed that a document signed with a secure electronic signature has not been altered
- Section 85C - It is presumed that the details mentioned in the Electronic Signature Certificate, such as name of the signer, email ID and time of signing will be presumed to be true. This helps in establishing the identity of the person who signed the document.
To sum it up, don’t worry about getting physical PoAs notarised. Electronic signatures under the IT Act are a worthy replacement.
My organisation provides housing finance. Don’t I have to get property documents registered physically?
Home loan documentation is quite bulky and involves a number of documents:
- Application form
- Sanction letter
- Home loan agreement
- Memorandum of Deposit of Title Deeds
- Power of Attorney
- Various declarations
All these documents need to be signed. All of them can be signed digitally.
Some of these documents need to be stamped. They can be stamped digitally.
Some of these documents can be registered. Can they be registered digitally?
At this stage a part of you might be concerned that while documents can be digitally signed and stamped, they will have to be registered physically. Here’s our 2 part response to this concern:
- Digital registration is not fully operational, but Maharashtra is leading the way
As things stand, not all States have systems to allow for digital registration.
However, Maharashtra has provided for digital registration of documents via State amendments to Section 34 of the Registration Act.
This happens via the Department of Revenue and Stamps, Government of Maharashtra’s portal.
However, the modalities of how this will work for mortgage deeds and sale deeds are still being worked out.
Due to the First Schedule Amendment, it is also expected that the rules and regulations regarding registration will also be changed in other states to allow for registering documents online.
- Even if documents can’t be registered digitally, digital execution can still help you
A typical home loan journey can be broken down into 6 broad steps:
- Customer fills out the application form
- Underwriting is done to assess creditworthiness
- Sanction letter is issued and then signed by the customer
- Entire home loan documentation kit is sent to and signed by the customer
- Loan amount is disbursed
- Property documents are registered
So even if Step 6 remains physical - you can digitize Steps 1 to 5 RIGHT AWAY thanks to the First Schedule Amendment.
By digitizing even 90% of the process, you stand to gain exponentially:
- Customers can complete everything from the comfort of their own home - at their own convenience. They only need to step out on the day of registration
- Your operations and disbursal teams have to deal with 90% less paperwork on a daily basis - allowing them to focus on tasks like origination and customer service
- The overall TAT of the process is slashed drastically.
The core legal and technical FAQs end here. The last question is promotional and might only be useful for companies looking for a solution that helps them digitize in the aftermath of the amendment.
Can Leegality help me take advantage of the First Schedule Amendment?
Leegality Document Infrastructure helps Indian organisations digitise paperwork processes in a fast, easy and compliant way.
As of today, Leegality Document Infrastructure is live across 700+ document workflows across 200+ top BFSI organisations (Federal Bank, Bank of Baroda, HDB Financial, HDFC, Tata Capital, South Indian Bank etc.)
Top housing finance majors like HDFC, Tata Capital Housing Finance, South Indian Bank, Shriram Housing and IIFL Home Finance among others have already digitised key paperwork processes like sanction letter, top up loan, declarations etc. via Leegality.
They are seeing fantastic business outcomes as a result.
You can use our platform to GO LIVE with digital flows for the documents now digitizable via the First Schedule Amendment in a matter of days.
Are you interested in seeing how it works? Book a call with us:
- We’ll discuss your use case in detail
- Show you a product demo mapped to your use case
- Give you a FREE testing account
- Prepare an action plan to help you go live fast