In the recent past years, India as a result of rapid advancement in technology, higher access in internet, digital India initiative and a supportive regulatory environment, India has witnessed an exponential growth in the digitization of transactions.
This era of digitalization has an impact over various aspects of our lives including finance and business. Therefore, in this fast-moving world, wherein user convenience and seamlessness is shifting everything towards digitalization, there is a high need for the Government to digitize the paper work undertaken in commercial transactions, allowing people to execute transactions in a speedier, efficient and secured manner. Since, most of the businesses especially entities in the financial sector are increasingly favoring digital execution of papers since it is simple, quick, and effective.
The Ministry of Electronics and Information Technology (“MeitY”) considering the same recently amended the First Schedule of the Information Technology Act, 2000 (“IT Act”) vide Notification dated 04.10.2022, to bring in few of the crucial documents within the scope of IT Act to widen the ambit of Digital Transactions in India.
In this article, we attempt to discuss the documents brought within the ambit of Digital Ecosystem, what will be its impact on the businesses and how it will help further revolutionize the digital ecosystem of India.
DOCUMENTS WHICH CAN NOW BE EXECUTED DIGITALLY.
Section 1 (4) of the IT Act, states that the documents mentioned in Sr. No. (a) to (f) will not fall within the ambit of IT Act and therefore cannot be executed in a Digital Manner. However, the MeitY considering the urgent need of widening the ambit of digital transactions excluded the following documents, in order to allow the people to execute the following documents in a Digital Manner –
1. Cheques, Demand Promissory Note (“DPN”) or Bill of Exchange (“BOE”)
The MeitY vide amendment in Section 1(4)(a) of the IT Act excluded, Cheques, DPN and BOE from the category of Negotiable Instruments, as a result of which now a person can execute Cheque, DPN and BOE digitally with the help of digital signature, provided it issued in favor of or endorsed by an entity regulated by the Reserve Bank of India, National Housing Bank, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority (“Regulatory Authorities”)
2. Power-of-Attorney (“PoA”)
The MeitY in order to ensure that transactions do not get delayed due the requirement of a physical Power of Attorneys for delegating power to the relevant stakeholders, amended Section 1(4)(b) of the IT Act, allowing the PoA to be digitally empowering an entity regulated by the Regulated Authorities to execute a transaction in a seamless manner.
3. Contracts for the sale or conveyance of immovable property or any interest in such property
The MeitY considering the high need of streamlining and expediting the process of real estate transaction in a secured manner and to curb fraudulent transaction has amended Section 1(4)(e) of the IT Act, in order to allow a person to execute Sale Deeds and Lease Deeds in a digital manner.
The RBI in its Report of the Working Group on Discounting of Bills by Banks, has stated that, in many instances, the goods reach earlier than the documents. However, now since Cheques, DOE and BOE can be executed in a digital manner, documents will now be executed in a real time manner, which will help further streamline and expedite the transaction process in a secured manner.
Furthermore, over time key processes like origination, Know Your Customer (“KYC”) process, verification have already been digitized and the only thing that remained to be digitized was the documents mentioned in the First Schedule of the IT Act.
However, the amendment introduced by the MeitY will now act as a shot in the arms of the Banking, Financial Services and Insurance (“BFSI”) Industry, since the BFSI industry as a result of this amendment will be able to digitize 100% of their paperwork and offer 100% digital products such as secured lending, construction/housing finance, gold loans, wealth advisory etc. in a seamless, secured and instant manner.
In addition to the above, prior to the amendment in the IT Act, the PoA and instruments for the sale or conveyance of real estate have historically required personal presence of the parties, as it was necessary for the parties to be present in person to authenticate the document.
However, the applicability of the IT Act not only permits the digitalization of the transaction, but also allows for legal recognition of the electronic record and the digital signature that has been affixed on the electronic record.
India is witnessing an exponential shift towards digitization and considering the increasing demand of digital transactions, and rapid advancement in technology the amendments introduced by the MeitY in the IT Act is a welcoming step.
With the rapid development of technology, it is just a matter of time that other beneficial instruments like Trust Deeds and Wills also make a beeline towards benefitting from such technologies. Such as the blockchain technology will help in facilitating storage of original documents and record of transfer of such documents at every stage, thereby making it virtually impossible to either defraud the beneficiaries of the transaction or the exchequer.
However, it is imperative that the amendment is followed up by a robust framework, which will allow digital execution of Cheques, DPN, BOE, PoA, Sale Deed and Lease Deed in a secured manner, making the financial system, both reliable and robust.
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