04

EXECUTION OF CONTRACTS IN LOCKDOWN SITUATION – Electronic Contracts[i]

 

In times of an emergency situation like a pandemic and the subsequent lockdown that may follow it, the execution of contracts for a commercial transaction in the traditional way of paper-based documentation may prove to be a hindrance. The Information Technology Act, 2000 (the “Principal Act”) and the Information Technology (Amendment) Act, 2008 (the “Amendment Act”) (hereinafter collectively referred to as the “Act”) provide a possible solution in such a situation.

Section 4 of the Act provides legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as “electronic commerce”, which involve the use of alternatives to paper-based methods of communication and storage of information. Section 7A and Section 10A of the Act, clarify, strengthen and reinforce the legal recognition of electronic records as envisaged in Section 4 of the Act.

Section 7A of the Act provides for audit of documents, records or information processed and maintained in the electronic form wherever there is a provision of such audit for paper-based documentation. Section 10A of the Act provides for validity and enforceability of contracts formed through electronic means and that the same shall not be deemed to be otherwise solely on the ground that electronic forms or means was used for that purpose.

However, pursuant to Section 1(4) of the Act, there are certain documents or transactions as provided in the First Schedule of the Act and reproduced hereunder, to which the Act shall not apply:

  1. A negotiable instrument (other than a cheque) as defined in section 13 of the Negotiable Instruments Act, 1881 (26 of 1881);
  2. A power-of-attorney as defined in section 1A of the Powers-of-Attorney Act, 1882 (7 of 1882);
  3. A trust as defined in section 3 of the Indian Trust Act, 1882 (2 of 1882);
  4. A will as defined in clause (h) of section 2 of the Indian Succession Act, 1925 (39 of 1925), including any other testamentary disposition by whatever name called;
  5. Any contract for the sale or conveyance of immovable property or any interest in such property.

For purposes of clarity, the Act shall not apply to instruments such as promissory note or bills of exchanges; any instrument empowering a specified person to act for and in the name of the person executing it; any instrument declaring trust by whatever name called; any instrument evidencing creation of mortgage; in addition to the exceptions aforementioned.

HURDLE – STAMP DUTY

Pursuant to the Indian Stamp Act, 1899 (the “Stamp Act”) it is mandatory for instruments to be chargeable with proper duty of the amount indicated in Schedule I of the Stamp Act for enforcing the same in accordance with the Indian law.

Section 17 of the Stamp Act requires that all instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution. This requirement under the Stamp Act stands as a clear hurdle to legally enforceable and binding e-contracting. As a way out for transactions in the National Capital Territory of Delhi, Karnataka, Himachal Pradesh and Union Territory of Ladakh, citizens can pay stamp duty online and also print e-Stamp certificates from the convenience of their home by visiting the Stock Holding Corporation of India Limited’s online portal at https://www.shcilestamp.com.

SUGGESTION FOR THE GOVT. FOR TACKLING WITH THE HURDLE

However, this facility is not available in the other states in India and we are of the view that the government may consider giving a period of 3 months (being inspired from Section 18 of the Stamp Act itself[ii]) or so for complying with the requirement to pay the applicable stamp duty, which however has not been done by any of the central or state governments in India. We hope to see some proactive action in this respect.

This brief note may kindly not be construed as legal advice and a legal practitioner should be consulted for providing and guiding the reader for a solution based on facts of the case and nature of the transaction.

 

[i] Conceived and penned by Rohit Kaushik, Associate

[ii] Section 18 stipulates that documents are to be stamped within 3 months of bringing into a state in India