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Digital Signature and its importance

Digital signature certificates (DSCs) have become quite common and useful for making electronic filings to government authorities. If you are going to incorporate a company/ LLP or make a tax filing, you will be mandatorily required to use a digital signature certificate. Therefore, it is important for an entrepreneur to understand how digital signature certificates work. This write up will explain digital signatures to you in brief.

What is a digital signature certificate?

The Information Technology Act, 2000 provides for use of ‘digital signatures’ on documents filed electronically to ensure their security and authenticity. Under the Information Technology Act, 2000 (or the IT Act), a digital signature has a technical definition. It refers to a technique for authentication of an electronic record by use of an asymmetric crypto system (which uses a public
key and a private key) and a hash function. These are technical terms and it is not necessary to understand the concept to use a digital signature. There are many free online resources however if you want to understand the subject. 
As per the IT Act, if a legal provision requires a particular document to be signed, such document can be digitally or electronically signed in a manner prescribed by the Central Government.

What is the advantage of a digital or electronic signature?

The identity of the sender of an ordinary email or the creator of an electronic document could be challenged in ordinary cases – unless a digital signature is appended. From a legal perspective, appending a digital signature to a document is considered to be reliable evidence of the following:
  1. the genuineness of the identity of the person who created or signed the document (i.e. that there was no forgery) and that
  2. the document was not tampered during transmission.
Fraudulent or dishonest use of use of a digital or electronic signature is punishable with imprisonment of up to 3 years or fine of INR 1 lakh.

In which situations are digital signatures used?

At a practical level digital/ electronic signatures may be used for the following purposes:
  • Making regulatory filings with government authorities – For example, form filings with the Ministry of Corporate Affairs (MCA) must be digitally signed. Tax filings with Income Tax Department can also be digitally signed.
  • Submitting bid documents to government departments for government contracts – Several state and central government departments have started purchasing products or services online. Before entering into a contract with suppliers/ service providers, the department issues a request for proposals (RFP) and invites bids from the public. Interested suppliers/ service providers can submit bids online by digitally signing the bid document.
  • Entering into secure online payment transactions – for example, while entering into payment or banking transactions, users are advised to ensure that there is a ‘lock’ symbol next to the URL, which essential represents a certificate from entities such as Verisign or Thawte indicating that the page is encrypted, through a technique known as ‘code signing’. This technique involves the use of digital signatures.
  • Users may sign outgoing email with digital signatures
  • Entering into electronic contracts – Globally, while websites such as DocuSign or SignNow allow users to electronically sign documents, electronic signatures are rarely used to sign contracts in transactions by Indian businesses.
Merely any digital signature will not suffice for the purpose of submitting bid documents or making regulatory filings –users must obtain a digital signature from ‘certifying authorities’ recognized by the Controller of Certifying Authorities, which is a body created under the Information Technology Act. However, for theremaining purposes outlined above, any digital or electronic signature technique will suffice. Merely any digital certificate will not suffice for the above purposes, it is necessary to use a digital signature.

What type of digital signature is required for filing purposes?

There are three different types of Digital Signatures Certificates – Class 1, Class 2 and Class 3.
  • Class 1 certificates can only be used to append a digital signature to an email message.
  • Class 2 certificates are necessary for filings to the Registrar of Company in relation to incorporation of LLP and Company.
  • Class 3 certificates are used for the electronic tender process in India, that is, if you submit an electronic bid for supply of goods or services to the government.

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