- With increasing adoption of Document Infrastructure across the country, lawyers are getting more and more queries about the use of electronic signatures.
- We've spoken at length about the legal validity and enforceability of electronic signatures. This article is a primer on how to condense that information into useful and actionable legal advice about the use of electronic signatures.
Let’s start with what this article is about exactly.
With increasing adoption of Document Infrastructure across the country, lawyers are getting more and more queries about the use of electronic signatures. In previous articles we have talked about the legal validity and enforceability of electronic signatures. This article is a primer on how to condense that information into giving useful and actionable legal advice about the use of electronic signatures.
Before we begin, let’s recap 2 important concepts related to electronic signatures - legal validity and ease of enforcement.
Validity is a question of whether a particular electronic signing method can, under law, be used for a particular document. The question of validity is a binary question. A particular signing type is either valid or invalid for a particular type of document. Think of it like a switch.
Based on our analysis of the legal validity of different signing types, we created a matrix of validity to show which signing type can be legally used for which type of document.
As the matrix shows, for more than 90% of documents multiple eSigning types are legally valid. So how do you finally choose which eSign type to go ahead with?
Validity is not the only criteria to evaluate a signature type. The journey of a legal document like a contract does not simply end at the time of execution. There are 3 post execution scenarios that you as a lawyer need to account for:
(1) When a default is committed, the aggrieved party can use the signed legal document as evidence to enforce its claims against the party in breach before a judicial authority.
(2) In case of any audits by regulators such as RBI or SEBI, signed legal documents are essential to prove to the regulators that the business processes are complying with legal requirements.
(3) Often, companies have their own internal policies that determine the level of consent/ acceptance - and the manner in which it needs to be obtained for a legal document.
That’s where the concept of enforceability of such means comes in.
Ease of enforcement, or enforceability, is a question of how easy or difficult it is to prove a document in Court or before a regulator that has been executed using a particular signing method.
Unlike validity - which is a simple yes/no matrix - the question of enforcement needs to be visualized as a spectrum - a Spectrum of Enforcement. We have plotted the ease of enforcement of different signing types based on their ability to meet the end goals of a signature.
4-step cheat sheet to give legal advice on eSigns
Step 1: Assess if there are any legal requirements prescribing “signing” as mandatory for the document in question. Also assess whether the documents fall under Schedule I of the IT Act.
Step 2: Refer to the Matrix of Validity to see which electronic signing types you can potentially use.
Step 3: : See if the electronic signing type is mapped on the Spectrum of Enforcement. If not, do your own mapping based on how well it performs the 3 functions of a signature.
Step 4: Based on your operational, compliance and enforcement priorities – you will need to take the final call.
Let’s take a real life example to understand this 4-step process better.
Suppose a Micro Finance Institution comes to you asking whether they can use eSigns (if yes, which eSign type they should use) to digitse their loan agreements.
Step 1: Is there any law, rule or regulation that mandates their loan agreements to be ‘signed’? Does it fall under Schedule I of the IT Act? The answer to both those questions is NO.
Step 2: Therefore, in the matrix of validity this loan agreement falls into the third category of documents. And as the matrix suggests, it can be eSigned using electronic signatures such as Aadhaar eSign or using other electronic methods such as virtual signatures.
Step 3: In Step 2 we saw that you can use all types of electronic execution. An Aadhaar eSign would make enforcement very easy. But for the MFI, the main priority is recording and capturing consent in a verifiable trackable way that would be palatable to the regulator. Enforcement in court would not be a priority due to the low ticket size.
Step 4: Operationally, some of the MFI’s client base may not possess an Aadhaar linked device to do an Aadhaar eSign. In this case Secure Virtual Signatures (bolstered with face and GPS capture and a neutral electronic signature) would be a good suggestion as it would be (1) legally valid (2) easy to enforce and (3) operationally viable.
So the next time someone comes to you with a query on the use of electronic signatures, you know what to do.