Electronic contracts (E-Contracts) are quickly replacing traditional paper-based contracting methods. Businesses are adopting E-Contracts due to the massive benefits they afford, so if you’re thinking about digitizing your contracts and business documentation in general, now is a good time to do so.
But before doing so, here are 10 things you should know about E-Contracts, their validity, and how they can help your business.
1. What is an E-Contract?
Simply put, E-contracts are electronic or digital versions of regular paper-based contracts.
According to the Indian Contract Act of 1872, the following conditions must be met for an agreement to be considered a valid contract:
1. Offer and acceptance
2. Free consent
4. Lawful consideration
Therefore, if an agreement is made between freely consenting parties with lawful consideration and the capacity to enter into a contract that concerns a lawful object, and this agreement is accepted in a legally binding way; then the agreement is a contract.
This holds for E-contracts too; but one of the other main distinguishing aspects of E-Contracts is that the contract is accepted by means of electronic signature or other electronic modes of acceptance.
2. Are E-Contracts legally valid?
In order to adequately answer this question, we must first note that contracts are simply enforceable agreements, and therefore, for an agreement to be enforceable in court, it must be turned into a contract.
We must now turn to Indian contract laws to examine when an agreement is deemed to be a contract.
According to Section 10 of the Indian Contract Act – “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”
Additionally, Section 10(A) of the IT Act (2000) states – “Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”
Essentially, this means that E-Contracts are legally valid as long as they conform to the conditions for an agreement to be considered a contract, i.e –
1.Offer and acceptance
4. Lawful consideration
We must also note that E-Contracts are not unenforceable simply because they’re digital in nature. Therefore, E-Contracts are largely legally valid and can be enforced in a court of law.
However this does have some caveats when it comes to the case of click-wrap contracts.
3. What are the different types of E-Contracts?
E-Contracts come in a variety of flavours. Here are the most commonly used E-Contracts.
1. Shrink wrap contracts: Typically used for licensing agreements for software. The name comes from the shrink wrap packaging used for CD-ROMs and the user agrees to the contract either once the packaging is torn away or before installing the software.
2. Click wrap contracts: These are contracts you see before using a web-based service or software, and consist of the user clicking a box indicating that the terms and conditions have been agreed to.
3. Browse wrap contracts: These are contracts that users agree to simply by continuing to use a service or browse a web-page.
4. Emails: Emails have been ruled to constitute legally binding contracts in several cases. Emails can also be turned legally binding by signing them with digital or electronic signatures.
5. Electronic Evidence: Forms of electronic evidence creation such as electronic signatures are recognized by the IT Act (2000), which contains provisions ensuring the legal validity of E-Contracts signed using electronic signatures. Therefore, any agreement conforming to the criteria laid out in the Indian Contract Act, that has also been electronically signed, constitutes a legally binding contract. Other forms of electronic evidence creation such as virtual paper trails, documentation of compliance with regulatory requirements, and SignDesk’s all-new video signatures can also be used to legalize agreements.
4. How can you create an E-Contract?
Creating an E-Contract couldn’t be simpler thanks to digital contracting software and online document signing services.
SignDesk’s electronic contracting services allow users to simply upload a copy of their agreements to an intuitive dashboard or choose from a wide range of legally valid document templates to create an agreement.
Users can then invite single or multiple signers to electronically sign the agreement either via Aadhaar eSign or digital signatures; a sequential or parallel signing order can also be imposed to facilitate quick document execution.
Additionally, stamp duty can be paid in real-time to legalize documents using SignDesk’s award-winning and nation-wide digital stamping solution.
5. What are the pros and cons of E-Contracts?
E-Contracts & digital contracting software provide businesses and individuals with a slew of benefits, including –
1. Massively reduced documentation costs: Digital contracting software has been shown to reduce documentation costs by 90%, by automating and digitizing the document creation & execution process. Online signature services provide legally valid templates and legally valid electronic or digital signatures to reduce the time taken for document execution to minutes.
2. Significantly lower turnaround time on document execution: Electronic signature software completely digitizes document execution workflows by allowing documents to be signed online. Research indicates that electronic signatures reduce turnaround times by 80% and ensures that contracts are executed faster.
3. Increased worker efficiency: Automating contract workflows allows documentation to proceed smoothly with zero pain points. Additionally, electronic contract signatures allow documents to be signed from anywhere and at any time.
4. Fewer errors in documentation: By digitizing contracting workflows, electronic contracting & online contract signing software completely removes any chance of manual error and increases productivity by 20%, according to reports.
5. Zero paperwork & manual documentation: Studies indicate that approximately 90% of business information exists on paper and that upwards of $14,000 of productivity is lost due to manual documentation methods. Electronic contracting software removes paperwork from the equation by automating contracts and business documentation in general.
One of the few cons of E-Contracts is that the legality of certain E-Contracts such as click wrap agreements, has sometimes been called into question, read more here.
6. How can you sign an E-Contract?
Since E-Contracts are digital, they are signed electronically using digital or electronic signatures.
SignDesk’s eSign suite offers facilities for secure Aadhaar eSign, video-based signatures & signatures utilizing eMudra, as well as legally valid document templates for quick contract creation & options to add multiple signers; all of which have helped reduce turnaround time on business document execution from days to within 10 minutes & boost significantly boost productivity.
SignDesk is also a CCA-licensed provider of Digital Signature Certificates (DSC) which are critical for the creation of legally valid electronic signatures & for verification.
7. Are electronic signatures upheld in courts of law?
Yes, Electronic signatures serve as proof of signature to electronic agreements under the Indian Evidence (Amendment) Act, 1882.
Digital Signature Certificates (DSC), which are generated once a document is electronically signed, are also legally valid as per the IT Act(2000).
Read more about the legal validity of electronic signatures here.
8. Is there a legal recourse if an E-Contract is broken?
Yes, all E-Contracts that abide by the Indian Contract Act and have been electronically signed constitute legally binding contracts and therefore there is legal recourse if these e-contracts are broken.
9. Should businesses employ E-Contracts on a large-scale?
Yes. Digital documentation solutions save businesses upto 120 hours per employee and have been shown to reduce documentation costs by 90%. E-Contracts in particular expedite the usually drawn-out contract workflow that most businesses still employ. Additionally, digital or electronic signatures and other digital document execution methods allow businesses to get contracts signed up to 99% faster than with ink and paper.
10. Are E-Contracts secure?
Yes. E-Contracts are executed using electronic signatures, which are reliable and secure due to hash functions, which ensure uniqueness of electronic signatures, and DSCs, which ensure that signatures can be verified.
DSCs can only be issued by a licensed Certifying Authority (CA).