E-Signatures And E-Contracts For Cross Boundary Transactions – Are They Legally Valid?

E-Contracts for Cross-Boundary Transactions - Are They Legally Valid?

Cross-border authentication and mutual recognition of electronic signatures and documents should be included in any economic activity between the two countries.

In both developed and developing countries, online transactions are becoming more popular. People frequently purchase things, execute contracts, and exchange documents linked to commercial transactions in a digital environment.

Participating in cross-border transactions raises the question of the validity of electronic signatures in business procedures and contract agreements in a digital environment across borders.

This article explores the legal implications of using electronic contracts for cross-boundary transactions. 

Legal Validity of E-Signatures – Overview

Despite the numerous advantages of eSign, different countries have varying regulations regarding digital signatures and eSign.

As a result, before executing a document and signing it electronically, one should confirm the authenticity of electronic signatures in the country in question.

Due to the growing popularity of eSignatures the world over, including the explosion of Aadhaar-based eSignatures in India, the validity of eSignatures is a prescient issue.

Let’s take a deeper look at eSign (electronic signatures), their validity, the papers on which they are invalid, and when they are canceled, as well as other significant aspects with regard to Indian & international eSign regulations.

E-Contract Validity In India

Electronic contracts are legitimate and enforceable in India under the terms of the Information Technology Act of 2000, notably Section 10-A.

Compliance with the relevant prerequisites set forth in the Indian Contract Act of 1872 is the only requirement for validating an electronic contract.

In addition, under the terms of the Indian Evidence Act, 1872, Indian courts take electronic contracts as admissible evidence of contractual consent.

The provisions of the Information Technology Act of 2000 (IT Act), specifically section 10-A of the IT Act, grant legal legitimacy to an electronic (E-Contract).

Section 10-A: Validity of contracts formed through electronic means. –

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.”

Learn all about the legal validity of eSignatures in-depth here

E-Sign Regulations In The USA

In the United States, there are two main regulations that govern the usage of electronic contracts for E-commerce and digital transactions:

  • The Electronic Signatures in Global and National Commerce Act (ESIGN):

The Electronic Signatures in Global and National Commerce Act (ESIGN) was signed into law by the United States Congress in June 2000. The Act’s main focus was on the interstate and international digital signatures and electronic records.

By securing the legitimacy and legal impact of contracts entered into electronically, the US Federal ESIGN statute grants electronic signatures the same legal power as normally written signatures.

  • The Uniform Electronic Transactions Act (UETA):

The Uniform Electronic Transactions Act (UETA) is a federal law that regulates electronic transactions (UETA)

The National Conference of Commissioners on Uniform State Laws created the Uniform Electronic Transactions Act (UETA) to provide a legal framework for the use of electronic signatures and records in government and business transactions.

Electronic records and signatures are now as lawful as paper and manually signed signatures thanks to UETA.

UETA was proposed by the National Conference of Commissioners on Uniform State Laws in 1999, and most states approved it. The United States Electronic Transactions Act (UETA) was the first attempt to provide state legislation for electronic transactions.

International Laws For Electronic Authentication

Three key international documents dealing with digital signatures exist.

  • UNCITRAL Model Law on Electronic Commerce (1996)

The Model Law is designed to make it easier to use modern communication and information storage technologies. It is based on the creation of a functional equivalent for paper-based concepts like “writing” and “signature” in electronic media.

The Model Law plays an important role in promoting the use of paperless communication by defining standards by which the legal value of electronic messages can be assessed. In certain sections of the Model Law, there are also rules for electronic commerce.

  • UNCITRAL Model Law on Electronic Signatures (2001)

This Model Law aims to increase the legal certainty around the use of electronic signatures.

It defines technical reliability standards for the equivalence of electronic and hand-written signatures, based on the flexible norm provided in article 7 of the UNCITRAL Model Law on Electronic Commerce.

The Model Law takes a technology-neutral approach, avoiding any preference for a particular technological product. The Model Law also outlines basic standards of conduct that can be used as a reference for determining the signatory’s, relying on party’s, and trusted third parties intervening in the signature process’s probable responsibilities and liabilities.

  • Increasing trust in electronic trade (2007)

UNCITRAL requested that the Secretariat develop a sample portion of the comprehensive reference document dealing especially with concerns connected to authentication and cross-border recognition of electronic signatures at its fortieth session in 2007.

This paper analyses the key legal difficulties resulting from the use of electronic signatures and authentication methods in international contracts. It is not a convention or a model of law. (1) In this era, it was a really worthwhile and practical effort.

Legal Issues of Electronic Signatures

There are numerous roadblocks to the globalization of digital signatures and their usage in international transactions, including political and legal technological difficulties.

  • Authentication

Authentication appears to be one of the most important issues in electronic communications, and it refers to ensuring that a message came from the person who ostensibly sent it.

In some cases, the term “electronic authentication” is used to refer to methods that may include various elements, such as identification of individuals, confirmation of a person’s authority or prerogatives, or assurance of the reliability of the information, depending on the context in which they are used.

In some circumstances, the focus is solely on identity, but it can also include authority or a combination of any or all of these factors.

In fact, authentication gives the recipient of digital message confidence in both the sender’s identity and the message’s integrity.

  • Third-Party Service Providers

The party who digitally signs a message, the party who receives the message, and the party who authenticates the message are the three key parties engaged in a digital transaction.

To authenticate the certificate, the key used to sign the contents is required. This key is issued by a reputable certificate authority and is uniquely connected to the person performing the signing process.

Establishing a code of behavior in which the CA verifies the signature’s reliability using widely available tools may be considered as critical to the development of any public key infrastructure system.

When creating legal standards around electronic authentication, consistency of results across jurisdictions and collaborative operability should be taken into account. These legislative standards are required in order to expand the use of electronic transactions.

Furthermore, they are required to create a predictable legal environment in order to encourage various entities to use electronic authentication methods for their electronic transactions.

Challenges In Using Electronic Contracts For Cross-Border Transactions

There are three interconnected barriers that could prevent electronic signatures from being used in international business.

Different jurisdictions have differing legal and technological requirements. Many cross-border transactions may be challenging to employ electronic signatures because the legal systems of both parties may not have matching standards or one of the parties may not have the bare basic legal framework.

Various legal systems may also have resulted in legislative bodies passing incompatible electronic authentication laws and even ratifying laws prohibiting the recognition of some cross-border electronic transactions.

  • Legal Anomalies

Around the world, numerous legal systems exist, and each jurisdiction has its own standards for electronic record recognition. The main source of challenges in the cross-border adoption of electronic signature and authentication technologies is legal issues.

The first issue is that electronic records and electronic signatures should be recognised as lawful in all countries.

Electronic signature methods cannot be used in many cross-border transactions if they do not meet the requirements of various governments. This makes it impossible for CAs to verify electronic signatures issued in other jurisdictions.

  • Technical Challenges

Technical challenges refer to issues with software, networks, PKI, and other technical issues that affect the use of digital signatures across borders. There should be sufficient infrastructure to meet all secure digital signature needs.

Compatible software and hardware, as well as unique standards for using digital signatures, are among these prerequisites. When it comes to international transactions, we must consider a secure network, a safe data storage method, and finally, we must adhere to globally accepted standards.

  • Non-uniform Authentication

One of the most difficult aspects of employing internationally digital signatures is recognising and validating identities across borders. The crucial question is how a distinct identity can be generated and verified. It stands to reason that any identity generated across a boundary should be verified using a universal standard.

Each country’s mechanism for identifying its citizens and residents is unique. Each person can be identified by her natural parents’ identities, as well as her name and, most likely, a unique number known (social security or Aadhaar or any other identification number). The validity of E-contracts generally relies on the authentication system in a particular country and how compatible regulations are.

Establishing Territorial Jurisdiction For E-Contracts

Given the nature of e-contracts, a common question is which court would have geographical jurisdiction to hear e-contract disputes. The Code of Civil Procedure, 1908 (“CPC”) establishes jurisdiction in Indian civil courts based on two main principles:

  •  The defendant’s address
  •  The location where the action (i.e contract execution) takes place

While the parties retain their right to choose which courts will hear their disputes, they can only do so if the courts are not prevented from doing so, i.e., they cannot bestow jurisdiction on a court that does not have jurisdiction to hear their case.

However, because e-contracts are not signed/executed physically and are concluded in a virtual domain, applying the jurisdictional standards that apply to physical contracts to such transactions may be difficult.

How Indian Courts Determine Cross-Boundary Disputes

As mentioned previously, the Code of Civil Procedure, 1908 (“CPC”) specifies how civil courts in India determine their jurisdiction, based on two key principles:

(i) The defendant’s domicile; and

(ii) The point at which the cause of action manifests itself.

While the parties retain their freedom to choose which courts will adjudicate their issues, they can only choose courts that are not precluded from exercising jurisdiction, i.e., parties cannot approach a court that does not have jurisdiction to hear their case.

Contracts usually contain a specific provision regarding the place of execution, and the courts of such a place would have territorial jurisdiction to consider and try disputes arising out of such contracts if they were drafted in line with the CPC.

The IT Act does, however, address the jurisdictional difficulties of e-contracts to some extent. The provisions relating to the time and place of dispatch and reception of an electronic record are governed by Section 13 of the IT Act, which also handles the problem of presumed jurisdiction in electronic contracts.

To better understand how the act works, consider the case of PR Transport Agency vs. Union of India, in which the Allahabad High Court had to determine on the question of jurisdiction after the respondent submitted the letter of acceptance to the petitioner’s e-mail address via e-mail. The respondent then sent another email canceling the e-auction in the petitioner’s favor “due to some technical and unavoidable reasons.”

When the petitioner disputed the communication in the Allahabad High Court, the respondent objected to the Court’s “territorial jurisdiction,” claiming that no portion of the cause of action arose in Uttar Pradesh (UP), and hence the Allahabad High Court (UP) lacked jurisdiction to hear the case. In this case, the petitioner’s primary place of business was in the district of Chandauli (UP), and his secondary place of business was Varanasi, which is also in the state of UP.

The petitioner’s acceptance of the tender by email would be presumed to have been received by the petitioner in Varanasi/Chandauli, which are the only two places where the petitioner has his places of business, according to section 13(3) of the IT Act. Because both of these locations were within the Allahabad High Court’s territorial jurisdiction, the Court assumed jurisdiction to hear the case.

That said, in the absence of geographical or national boundaries for the execution and implementation of such contracts, determining territorial jurisdiction for e-contracts becomes more difficult.

While the IT Act and judicial interpretations of contracts in general have clarified the jurisdictional aspect of e-contracts to some extent, in light of the foregoing discussions, it is generally advisable to clearly specify both jurisdictional and governing law provisions in e-contracts in order to avoid future conflicts on jurisdictional or choice of law issues.

The common legislative and judicial intent appears to be clear: any legally valid acts that are ordinarily performed would continue to be valid even if performed electronically or digitally, as long as such electronic/digital performance includes all of the attributes of a legally valid contract, as prescribed by the applicable laws.

Additionally, there are various safeguards lawyers could take in preparing transaction documents until legal clarity and uniformity are achieved with regard to electronic contracts from a global perspective –

  • If the parties want their disagreements resolved in court, they should choose England, Hong Kong, or Singapore as the forum, because India respects the judgments of those countries.
  • If the parties want their disagreements to be resolved by arbitration, they should choose a nation that has been “notified” by the Indian government, such as the United Kingdom, the United States, or Singapore. The arbitration agreement should avoid identifying non-notified countries like Dubai and Hong Kong, notwithstanding their popularity as centers for dispute resolution, until India expands its list of notified territories.
  • When possible, parties should specify that arbitration will take place before internationally recognized bodies rather than ad hoc arbitration panels, such as the International Court of Arbitration of the ICC, the London Court of International Arbitration, or the Singapore International Arbitration Center, because Indian courts are more likely to uphold awards made by established and reputable arbitration authorities.

Document Workflow Digitization In Commercial Operations

Document exchange in commercial transactions occurs in the public sector for tax and customs information and in the private sector for business transactions. Personal data, bank information, contracts, invoices, delivery notes, and statements, among other papers, are frequently shared. Their document flow is more digitally automated, which improves the efficiency of the entire process.

Of course, the use of electronic signatures should be considered when exchanging documents in digital formats, such as offers, contracts, invoices, or any other documents linked to commercial operations. Authenticity, traceability, integrity, and an indication of readiness to accept or approve the substance of the paperwork are all required in most circumstances.

Usage of Electronic Signatures

eSignatures can be utilized to execute and create evidence of consent to a number of documents, including the following.

  • Resolutions by the board of directors and members

Written resolutions are permitted for both director and member resolutions of companies in different countries. They must be approved in writing or via telex, telegram, cable, or other forms of written communication.

Resolutions can be made up of a number of papers, including written electronic communications in the same format, all of which must be signed or agreed to by one or more directors or members.

  • Supply and Procurement

According to Aberdeen Strategy and Research, 73 percent of “best-in-class” respondents and 34% of all other respondents used electronic signature processes in supply chain and procurement in 2016, resulting in increased speed and efficiency in critical procurement tasks. Electronic signatures were used by a smaller percentage of their survey respondents in accounts payable and account receivable processes, with 53 percent of “best-in-class” respondents in each case.

  • Onboarding new employees

When it comes to recruiting a new employee, there is a lot of paperwork to deal with. The list goes on and on: employment offer letters, background check consent, performance appraisal letters, contact forms, employee handbooks, and so on. Electronic signatures can be used to complete all of these forms quickly and securely.

SignDesk – Total Document Workflow Automation 

Leveraging an eSign workflow enables businesses to make client, employee, and vendor onboarding more efficient. An eSign & document creation solution helps sales, legal, HR & operations teams digitize frequently used documents such as employee forms, corporate contracts, distributor agreements, vendor contracts, and service agreements. 

SignDesk’s award-winning eSign solution offers a wide range of signatures including OTP-based eSign, digital signatures, Aadhaar eSignatures, and PAN signatures for businesses to automate key contract workflows. 

Document creation is digitized using custom templates, customizable workflows ensure quick approvals, and bulk eSignatures help businesses scale up operations at half the cost. 

Businesses can integrate with SignDesk’s eSign solution seamlessly using APIs, mobile SDK, or simply through a web portal. 

Curious to learn more about how eSignatures can double your business efficiency? Book a free demo now!

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