Impact of New Technologies and Mode of Proof, Evidence & Contracts.

 

 

 

 

 

 

40^TH YEAR COMMEMORATIVE CONFERENCE OF THE

 

BAR ASSOCIATION OF INDIA

 

 

 

 

 

 

By

 

P.H. PAREKH & Co. *

 

The positive impact of Information Technology on the economy hardly needs to be stated. Technologies have streamlined processes, improved communications and have been instrumental in dis-intermediating intermediaries in the chain of trade. For instance with the use of dematerialised shares an entire industry which processed transfers of shares and debentures has been rendered dysfunctional. Shares and debentures today are traded instantaneously, without the use of physical papers and with practically no risk of loss of theft and with practically no intermediary except a depository.

 

However, as a lawyer, the use of old laws in the changing face of technology sometimes produces amusing results and often disastrous implications. For instance our Contract Act,1872 (“ICA”) does not even envisage a telex or a telephone as means of communication. Court made law has often stepped in to avert obvious absurdities as would result from applying the law to a new scenario. For instance, the application of the post box rule to telephonic contracts raised such an absurdity that the courts stepped in to make the post box rule inapplicable to phone based contracts[1]. The use of telephones in the first half of the century did not spur the legislature to enact amendments to various statutes, but the use of more contemporary technology has resulted in the passing of the Information Technology Act, 2000 (“the Act”, “IT Act” or “ITA”) which inter alia deals with various new modes of proof, evidence and contracts. The Act has thus timely reduced the large gap between reality and the law.

 

Scope of the Information Technology Act, 2000

Under Article 246 of the Constitution, Indian laws may have extra-territorial effect.  The Act extends itself to offences committed outside India and by virtue of Article 246 would withstand a challenge of unconstitutionality. Thus Indian courts, constitutionally, have the power to enforce the application of the Act even if the party committing an offence resides outside India, or if the offence is committed outside the territorial limits of India.

 

Impact of the Information Technology Act 2000 on extant statutes

The Information Technology Act, 2000 (“IT Act”) specifically affects the Evidence Act, 1872, The Contract Act, Bankers Book Evidence Act, 1891, Indian Penal Code, and the Reserve Bank of India Act, 1934.  Besides, the new Act deals with issues of evidence and proof outside these Acts. The exceptions to this general pervasiveness of the Act are

·     negotiable instruments

·     powers of attorney

·     trusts under the Indian Trust Act, 1882

·     testamentary documents

·     contracts of conveyance of immovable property.

 

Definition of word ‘written’

Under the new Act, wherever a document needs to be in writing, such requirement would be satisfied if an electronic record is accessible for future reference[2]. The new law also says that an electronic record can be authenticated by the use of a digital signature[3].

 

Signature

Under the Act, the requirement that a document be signed by a person would be satisfied if the document is authenticated by a digital signature[4].

 

 

ISSUES UNDER THE INDIAN CONTRACT ACT, 1872

When a contract is made in an electronic format, the series of communications made till the stage at which the contract is concluded would need to be reviewed as compared to the previous law of physical documents.

       

Under the Indian Contract Act:

 

4.         The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

 

                    The communication of an acceptance is complete,-

 

As against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor;

 

As against the acceptor, when it comes to the knowledge of the proposer.

 

        The communication of a revocation is complete,-

as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;

 

as against the person to whom it is made, when it comes to his knowledge.

 

Illustrations

(a)   A proposes, by letter, to sell a house to B at a certain price.  The communication of the proposal is complete when B receives the letter.

 

(b)   B accepts A’s proposal by a letter sent by post.

The communication of the acceptance is complete-

                    as against A, when the letter is posted;

        as against B, when the letter is received by A.

 

(c )  A revokes his proposal by telegram.

The revocation is complete as against A, when the telegram is despatched.

 

It is complete as against B when B receives it.

 

B revokes his acceptance by telegram.  B’s revocation is complete as against B when the telegram is despatched, and as against A when it reaches him.

 

When is the offer made?

 

ICA            Under the Indian Contract an offer is made “when it comes to the knowledge of the person to whom it is made”.

 

ITA Under the IT Act, an offer made using electronic means is made when (a) the electronic record enters the addressee’s information system (if he has a designated computer resource) or (b) if not sent to a designated information system (if he has a designated computer resource) then when the addressee receives it or (c) if the addressee has not designated a computer resource then when the record enters the recipient’s computer resource.

 

When is acceptance complete

The Post Box Rule

ICA            Under Indian Contract, an acceptance is complete (as against the proposer) when it is put in a course of transmission to him so as to be out of the power of the acceptor. It is complete (as against the acceptor) when it comes to the knowledge of the proposer.

 

Operation of the Rule:

 

1)        a postal acceptance prevails over a withdrawal of an offer which was posted before the acceptance but which had not reached the offeree when the acceptance was posted;

 

2)        a postal acceptance take effect even though it never reaches the offeror because it is lost through an accident in the post , and

 

3)        the same rule applies where an acceptance is merely delayed through an accident in the post.

 

 

To bring about a concluded contract the acceptance must be communicated in some perceptible form which may be by speech, writing or other acts both offer and acceptance must be unqualified and unconditional. The case of an acceptance being “put in a course of transmission to” the proposer, but failing to reach him, is not expressly dealt with. Where the agreement is to consist in mutual promises, a binding contract appears to be formed by a letter of acceptance despatched in the usual way, even if it does not arrive at all, unless the proposal was expressly made conditional on the actual receipt of an acceptance within a prescribed time, or in due course. When the proposal and acceptance are made by letters, the contract is made at the time when and the place where the letter of acceptance is posted.

 

        A letter of acceptance misdirected by the acceptor’s fault cannot be deemed to have been effectually put in a course of transmission to the proposer, this case was properly distinguished by the Allahabad High Court from that of an insufficient address furnished by the proposer himself.  There the proposer’s own want of care obviously cannot extenuate, but will if possible aggravate, the risk imposed on him but the general rule of law.

 

Exception to the post box rule

ICA                        Exclusion of Postal Rule. -  Postal rule can be excluded by the terms of the offer, and whether it is excluded or not the question is one of construction.  If it is expressly agreed that the acceptance to be binding must not only be in writing but had to reach the offeror the mere posting not being enough, there will be no contract till the condition is fulfilled.

 

In Entores, Ltd. v. Miles Far East Corporation[5], it was held that the post box rule does not apply to acceptances made by some instantaneous mode of communication. In Entores case it was held in the case of oral communication or by telex or telephone an acceptance is communicated when it is actually received by the offeror. The rule is sound and practical because the oral acceptance may be drowned by the noise of a flying aircraft, or the telephone goes dead or feeble and indistinct that it is not heard. There is consequently no contract. In that case  the offer was made in Amsterdam and notification of the acceptance was received in London, the contract resulting thereupon was held to be made in London. The rule in Entores case has been accepted in India in a majority judgement of the Supreme Court[6].

 

The draftsman of Contract Act did not envisage use of the telephone as a means of personal conversation between parties separated in space and could not have intended to make any rule in that behalf. A fortiori it will apply to modern telecommunication means still less. In a contract concluded on the telephone or by telex, the parties will be taken to be in the presence of each other and the place of acceptance will be the place where the acceptance is received or where the offeror was[7]. The rule of instantaneous communications between the parties is different from the rule about the post.  In the case of communications by post an acceptance is complete as soon as it is put in the post box and that is the place where the contract is made.  In the case of instantaneous communications, the contract is only complete when the acceptance is received by the offeror and the contract is made when the acceptance is received.

 

Telex - time of receipt of message. >-  A message sent by telex is taken to have been received by the addressee when the message is received by the telex machine and not when the addressee’s attention is drawn to it. He cannot rely on his own or his servants failure to take cognizance of the message in the normal business-like manner.

 

Telegrams. -  The rule in regard to telegrams is the same as in the case of letters by post, i.e. the acceptance is complete when the letter is put in the post or the telegram is handed for dispatch to the telegraph office.

 

ITA The Act only prescribes the time when a document is deemed to be dispatched or received. It does not specifically deal with when exactly the acceptance is complete. The question which would therefore arise would be, is the use of e-mails instantaneous communication similar to the use of telephones or is it more akin to the use of regular mail[8]. E-mails usually reach practically instantaneously. However, it is not unusual that an e-mail takes hours to reach the addressee. This poses a peculiar problem, since ‘modern’ technology till today was either instantaneous or not, not sometimes one and sometimes the other. The post box rule was essentially inserted in the Contract Act as a reflection of the common law rule of convenience that it was easier to prove a letter has been posted and practically impossible to prove that a letter was receive. With the internet regime, it is possible to track the route and time of an e-mail message, therefore there is no necessity for the rule of convenience to be applied in an e-mail communication. We are of the opinion that since e-mails are in most cases instantaneous communications and it is possible to request an automatic acknowledgement that the mail is received by the recipient, the law laid down for immediate communication should lead. Therefore, the acceptance would be complete when, and at the place where, the receiver receives the message. Chitty’s on Contracts[9] asserts that “the effects of unsuccessful attempts to communicated should depend on whether the sender of the message knows (or has the means of knowing) at once of any failure in communication.

 

        The other issue which arises is, can an acceptance be complete even though a message never reaches the offeror. There can be three answers to the question. We deal with them separately. First, when the system (of the sender, the receiver or a third party agency like VSNL) fails to deliver the e-mail to the recipient. In such a case, in our opinion above, no contract would have been complete. This view would be reinforced if the acceptor uses an acknowledgment request available with most e-mail programs[10]. Second, an e-mail address is not delivered because the acceptor typed in the wrong address. The law is well established on the point, and the acceptor cannot rely on his own mistake to allege a completed contract. However, the third scenario poses a problem, and that is where the offerer himself provides a wrong e-mail address to the acceptor. Under the law as pronounced for postal communications, when the offerer himself provides a wrong address, the acceptor’s communication will bind the offerer. The law should be a little different for e-mails. Where the acceptor is under notice that the e-mail did not reach the intended recepient, he should not be permitted to bind the offeror. For instance where the acceptor sends an e-mail to the wrong address provided by the offeror and the e-mail bounces back or if the person to whom receives it writes saying that the mail was wrongly sent to him, then the acceptor should not be able to bind the offeror to the contract.

 

Also at issue would be whether actual receipt is determinative or not. As in the example of a telex, a message is taken to have been received by the addressee when the message is received by the telex machine and not when the addressee’s attention is drawn to it. However the issue is settled by the express words of the IT Act which prescribes the time when a message is deemed to have been received[11].

 

Revocation of Offer

The Indian Contract Act provides:

 

5.         A proposal may be revoked at any time before the communication of its  acceptance  is  complete  as against the proposer, but not afterwards.

 

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

 

                                    Illustrations

A proposes , by a letter sent by post to sell his house  to B.

B accepts the proposal by a letter sent by post.

A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance , but not afterwards.

B may revoke  his acceptance at any time before or at the moment when the letter communicating it reaches A but not afterwards.

 

 

ICA            An unconditional offer remains capable of acceptance until the acceptor is made aware of its withdrawal. Where the parties must, from the context, have reasonably assumed that the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted, and thus the revocation of an offer must be made before the acceptance is posted.

 

ITA Since we treat an electronic communication at par with instantaneous communications, the offeror may withdraw his offer any time before he receives the acceptance.

 

Where is the contract concluded?

ICA            Under the Indian Contract Act, a contract is concluded where the acceptance letter is posted by the acceptor in case of a postal acceptance. In case of an instantaneous means of communication like the telephone or telex, the contract is concluded at the place where the offeror is[12].

 

ITA Under the IT Act, and in view of our view above, the contract by exchange of e-mails is concluded where received. An electronic record is deemed received at the place where the addressee has his place of business[13]. If the addressee has more than one place of business the principal place of business shall be the place of business. If the address does not have a place of business, his usual place of residence shall be deemed to be the place of business. And the “usual place of residence” in relation to a body corporate, means the place where it is registered.

 

 

When is the contract in writing requirement satisfied in an electronic record?

Under the General Clauses Act, 1897 “writing” includes references to printing, lithography, photography and other modes of representing or reproducing words in a visible form.  Since any visible form would satisfy the requirements of the Act, technical requirements of the Act are met by an electronic record.  However, to avoid any confusion, the new Act specifically states that a requirement of being in writing is met by a data message if “such information or matter is accessible so as to be usable for a subsequent reference”[14].

 

The law also creates a presumption that an electronic contract with digital signatures of the parties had properly affixed digital signatures.

 

Presumptions as to Electronic Contracts

85A     The Court shall presume that every electronic record purporting to be an agreement containing the digital signatures of the parties was so concluded  by affixing the digital signature of the parties.

 

 

INDIAN EVIDENCE ACT ISSUES.

A “document” is defined in the General Clauses Act to include “any matter written, expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means which is intended to be used, or which may be used for the purpose of recording that matter”. Section 3 of the Indian Evidence Act, 1872 defines a document to mean “any matter, expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means, is intended to be used, or which may be used, for the purpose of recording that matter”. The definition of document would probably include electronic data. However for the sake of clarification, the Act exhaustively modifies the Indian Evidence Act to include electronic records wherever the word document was used in the Indian Evidence Act.

 

Digital Signatures and how they work.

A digital signature is an electronic algorithm or formula which is applied to a message or electronic record. A digital signature is not an unalterable code attached to the end of a document. It is actually a formula which will change the original document with a “key” so that it may be read only with the help of another “key”. Without the help of the second key it would be impossible to read the document. Further, if any alteration is attempted on the signed document, the document would lose its seal of digital signature, therefore making it tamper-proof. The two keys used are provided by a Certifying Authority, which provides the digital certificate. The Certifying Authority is in turn regulated by a Controller of Certifying Authorities which is a government body set up under the Act.

 

However, messages attached with digital signatures need to be proved unless they are attached with secure digital signatures[15].

 

For a digital signature to be secure it must[16]

a)         be unique to the person using it

b)        have capacity to identify such person

c)        be in the exclusive control of the sender

d)        and linked to the record/document in such manner that any alteration would render the certificate invalidated

 

Once it satisfies these conditions, the digital signature is considered “secure”.

 

The presumptions created when a digital signature is secure are

a)      that the person who is purporting to send the message is the actual sender and

b)     that the message sent has not been tampered with. The digital signature therefore, authenticates and binds the person sending the message to a contract or obligation[17].

 

Presumptions as to electronic records and digital signatures

85B[18]. (1) In any proceedings involving a secure electronic record , the court shall presume unless contrary is proved, that the secure electronic record has not been altered since the specific point in time to which the secure status relates.

(2) In any proceedings, involving secure digital signature, the court shall presume unless the contrary is proved that -

(a)       the secure digital signature is affixed by that person with the intention of signing or approving the electronic record;

(b)       except in the case of a secure electronic record or a secure digital signature, nothing in this section shall create any presumption relating to authenticity and integrity of the electronic record or an digital signature.

 

E-mail Messages

Similarly, ordinarily an e-mail message is presumed to be received in the same condition as it is sent without there being a presumption as to the sender’s identity unless the e-mail is sent with a digital signature.

 

Presumptions as to electronic messages

88A[19]. The Court may presume that an electronic message forwarded by the originator through an electronic mail server to the addressee to whom the message purports to be addressed corresponds with the message as fed into his computer for transmission; but the Court shall not make any presumption as to the person by whom such message was sent.

 

This is similar to the presumption under the Evidence Act for a telegraph.

88.       The Court may presume that a message, forwarded from a telegraph office to the person to whom such message purports to be addressed, corresponds with a message delivered for transmission at the office from which the message purports to be sent; but the Court shall not make any presumption as to the person by whom such message was delivered for transmission.

 

 

Encryption.

Encryption is usually effected by the use of public keys and private keys using a method not very dissimilar to the one used in a digital signature. These keys are nothing but mathematical algorithms.  Each user has a pair of these, a private which is confidential and a public which is open to other users.  Thus when a sender sends the message he will encrypt the message with the receiver’s public key.  Then the message can be decrypted by the receiver using his private key.  If  any other persons intercepts the message he will only be able to read junk characters. It is thus a means of sending documents which only the intended recipient can read.

 

Difference between Digital Signatures and Encryption

The chief difference between a digital signature and an encrypted message is that a message which uses a digital signature can be read by any person but cannot be tampered with (both as to origin and substance of the document); a message which uses encryption cannot be read by any person except the intended recipient but provides no guarantee of its origin. Of course it is possible to use both technologies together and get the benefit of both.

 

The flip side of the problem is that anti-national persons may send messages to each other using encryption technology and these messages cannot be read by the police agencies of the government. The IT Act therefore provides for making all private keys available to the government.

 

Original Document.

An electronic record which is produced which accurately reproduces the original will be admissible as the original if the terms mentioned in Section 65B of the Evidence Act, as modified by the IT Act, are satisfied.

 

Admissibility of computer outputs

65B.

(1)       Notwithstanding anything contained in this Act, a statement contained in a electronic record and included in a media, paper, optical or magnetic media produced by a computer (hereinafter referred to as a "computer output"), if the conditions mentioned in sub-section (2) and the other provisions contained in this section are satisfied in relation to the statement and the computer in question, shall be deemed to be also a document and shall be admissible in any proceedings, without further proof or production of the original, as evidence of any contents of the original or of any fact stated therein of which direct evidence would be admissible.

(2)       The conditions referred to in sub-section (1) in respect of a computer output shall be the following, namely:-

      the computer output containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer;

     

      during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement or of the kind from which the information so contained is derived;

     

      throughout the material part of the said period, the computer was operating properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of the period was not such as to affect the production of the document or the accuracy of the contents; and

     

      the information contained in the statement reproduces or is derived from information supplied to the computer in the ordinary course of the said activities.

     

      Where over any period, the function of storing or processing information for the purposes of any activities regularly carried on over that period as mentioned in clause (a) of sub-section (2) was regularly performed by computers, whether -

             

by a combination of computers operating over that period; or

 

by different computers operating in succession over that period; or

 

by different combinations of computers operating in succession over that period; or

 

in any other manner involving the successive operation over that period, in whatever order, of one or more computers and one or more combinations of computers, all the computers used for that purpose during that period shall be treated for the purposes of this section as constituting a single computer; and references in this section to a computer shall be construed accordingly.

     

      In any proceedings where it is desired to give a statement in evidence by virtue of this section, a certificate doing any of the following things, that is to say –

      identifying the document containing the statement and describing the manner in which it was produced;

     

      giving such particulars of any device involved in the production of that document as may be appropriate for the purpose of showing that the document was produced by a computer;

     

      dealing with any of the matters to which the conditions mentioned in sub-section (2) relate,

 

and purporting to be signed by a person occupying a responsible official position in relation to the operation of the relevant device or the management of the relevant activities (whichever is appropriate) shall be evidence of any matter stated in the certificate; and for the purposes of this sub-section it shall be sufficient for a matter to be stated to the best of the knowledge and belief of the person stated it.

 

For the purposes of this section, -

(a)   information shall be taken to be supplied to a computer if it is supplied thereto in any appropriate form and whether it is so supplied directly or (with or without human intervention) by means of any appropriate equipment;

(b)   whether in the course of activities carried on by any official, information is supplied with a view to its being stored or processed for the purposes of those activities by a computer operated otherwise than in the course of those activities, that information, if duly supplied to that computer, shall be taken to be supplied to it in the course of those activities;

(c)    a computer output shall be taken to have been produced by a computer whether it was produced by it directly or (with or without human intervention) by means of any appropriate equipment.

 

Explanation.- For the purposes of this section any reference to information being derived from other information shall be a reference to its being derived therefrom by calculation, comparison or any other process.’

 

 

Requirements of a signature.

As far as the law on paper based document is concerned, any signature or handwriting of a person must be proved. For an electronic document, signature by a secure digital signature creates certain presumptions noted above. An electronic document signed by a digital signature  which is not secure must be proved in a court of law.

 

67.       If a document is alleged to be signed or to have been written wholly or in part by any person, the signature or the handwriting of so much of the document as is alleged to be in that person’s handwriting must be proved to be in his handwriting.

 

 

67A.    Except in the case of a secure digital signature, if a digital signature of any subscriber is alleged to have been affixed to an electronic record the fact that such digital signature is the digital signature of the subscriber must be proved.

 

 

The process by which the court may verify a digital signature, in case of a dispute, is contained in Section 73A of the amended Evidence Act.

 

Verification of digital signature

"73A.  In order to ascertain whether a digital signature is that of the person by whom it purports to have been affixed the court may direct,-

 

that person or the Controller or the Certifying Authority to produce the Digital Signature Certificate;

      any other person to apply the public key listed in the Digital Signature Certificate and verify the Digital Signature purported to have been affixed by that person".

 

The law also creates a presumption as to records over five years old which are affixed with digital signatures.

 

Presumptions as to electronic records five years old

"90A.  Where any electronic record purporting or proved to be five years old ,is produced from any custody which the Court in the particular case considers proper, the Court may presume that the digital signature which purports to be the digital signature of any particular person was so affixed by him or any person authorised by him in this behalf.

 

Explanation .- Electronic records are said to be in proper custody if they are in the place in which ,and under the care of the person with whom they naturally be; but no custody is improper if it is proved to have had a legitimate origin ,or in the circumstances of the particular case are such as to render such an origin probable."

 

 

OTHER ISSUES

The problem of originality

The word ‘original’ is alien in cyberspace because a duplicate is as good as the original.  Therefore, it would be easy to duplicate records or electronic forms of money. Such duplicated records or money would be indistinguishable from the original making it difficult to establish that one is original and the other is not.

 

Issues of evidence in E-money and Smart Cards and the problem of originality.

E-money, is a means by which money is stored in a card (or on the hard disk of a computer) using sophisticated encryption methods. The money can be bought from an e-money vendor and the electronic cash is then stored on a smart card or the hard disk of the purchaser. Subsequently, the money can be used in purchasing goods from the internet or even used like a credit card in a shop. The e-money stays in circulation, is used like cash, and is in usage till it is sold back to the vendor from whom it was purchased. The benefits of using e-cash or e-money are the low transaction costs compared to a credit card and the anonymity[20] of the purchaser. The major problem with e-money would arise when the money is duplicated. Though the likelihood of doing so may be remote, the possibility does remain. Once an electronic record is duplicated, there is no difference between the original and the fake and the money may be reproduced millions of times in a matter of seconds. And since the money remains in circulation till the amount is redeemed from the vendor, the extent of the fraud may not be discovered for years to come. From an evidentiary viewpoint, the vendor would be obliged to honour the fake and the original because they are indistinguishable and the court would not be able to find out the fake currency and hold part of it to be fake unless, it is still in the hands of the person who duplicated the money.

 

Depending on the size of the vendor (who would probably be a large bank, financial institution or a group of them) and the size of the fraud, there could be impacts which could shake entire economies.

 

Stamp Duty issues

An important question from a transactional point of view is whether stamp duty is payable on an electronic document. Since electronic records are documents and therefore instruments under the Indian Stamp Act and state stamp acts, such instruments would be technically liable to pay stamp duty. However it is physically impossible to attach stamps to an electronic record, therefore the government needs to clarify that either electronic documents are exempt from stamp duty or specify the manner in which the duty needs to be paid.

 

 

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