Online Execution Of Loan Agreements

India's banking industry has seen rapid digital transformation in recent years, which has resulted in increased use of e-signatures and e-stamping for loan documents. While the move to a paperless system represents a significant evolution in financial transactions, streamlining processes, reducing paperwork, and enhancing accessibility, the transition highlights various legal challenges which require careful navigation to ensure effective conclusion of the loan transactions.

Some of the key aspects that require consideration are as follows:

1. Enforceability of acceptance of loan sanction letters

Acceptance of the loan sanction letter marks the borrower's agreement to the terms and conditions governing the loan. Prior to the advent of e-contracts, the borrower was traditionally required to physically sign and return the letter. Using electronic means for conveying acceptance of the terms was enabled by the provisions of Section 10A of the Information Technology Act, 2000 (IT Act) which ensures that contracts formed through electronic means are valid and enforceable at par with their traditional paper-based counterparts. Similarly, the Bharatiya Sakshya Adhiniyam, 2023 (BSA Act), under Sections 62 and 63, recognises the evidentiary value of electronic documents, ensuring that they are legally enforceable. Therefore, if a loan sanction letter is accepted via e-mail or the if terms are accepted on a lender's online portal, the agreement will be legally enforceable; however, parties to e-contracts should ensure that the method of acceptance (e.g., click-wrap, e-mail, or OTP-based confirmation) is clearly recorded and stored, as it will serve as evidence of agreement in any downstream dispute.

2. Chargeability of stamp duty

Under the Indian Stamp Act, 1899, the stamp duty is chargeable at the location where the document is first executed. If the document is executed across multiple States, additional stamp duty may be required in the State where there is a higher rate, even though the first State of execution determines the primary stamp duty obligation, as was established by the Supreme Court in New Central Jute Mills v. State of West Bengal.¹ For instance, if a borrower executes a document in State A then e-stamping should be done in State A, irrespective of where the party's head office is situated. If the document is then taken to State B for execution by the lender, additional duty is required only if State B's rate is higher. Where the borrower and lender are located in different States, both parties must clarify and agree upfront (in written terms) on where first execution will take place to avoid complications with under- or over-stamping. The parties must assess stamp duty in advance to ensure correct stamping and avoid penalties or inadmissibility during enforcement.

3. Date of execution

It is pertinent to note that the date of execution for the purpose of determining stamp duty is the date on which documents are signed digitally, and not the date on which the e-stamp is purchased or the date on which the loan amount is disbursed. Furthermore, it must be ensured that the relevant stamp duty must be paid prior to the execution of the documents in the respective States where the parties sign since Section 17 of the Indian Stamp Act, 1899 requires that the document is stamped before or at the time of execution. Hence, parties should align and schedule the execution promptly after payment of stamp duty, minimising delays and mitigating the risk of any change in stamp duty rates.

4. Jurisdictional considerations

Despite the aforementioned aspects, determining the jurisdiction for purchasing e-stamps and the appropriate Court in case of a dispute present the most pressing challenges in the digital execution of documents. When a borrower signs a document digitally in State A and the lender executes it in State B, the jurisdiction could technically fall in either State. It has been consistently held that when two Courts have jurisdiction, parties can contractually agree to confer exclusive jurisdiction upon one Court,² as long as it aligns with the actual cause of action. For instance, if an agreement specifies exclusive jurisdiction in Delhi, but neither the borrower nor the lender has any cause of action or substantial connection to Delhi, Courts may reject such a clause as unfair or impractical. Lenders must carefully draft jurisdiction clauses to ensure they reflect the realities of the transaction and avoid potential challenges. Lenders should draft jurisdiction clauses based on actual operational and transactional connections while borrowers must read jurisdiction clauses carefully and negotiate where necessary to avoid being dragged into inconvenient forums.

5. Admissibility of digitally signed agreements

The IT Act governs electronic signatures and provides the legal framework for acknowledging electronic documents under Section 3A and Section 4. In order to qualify as an 'electronic signature' under Section 3A, the signature must be:

• Unique to the person signing
• Clear in terms of identifying the signatory
• Created using a method under the signatory's control
• Linked to the document in such a manner that any tampering or alteration after signing invalidates the signature

Section 4 states that if a law requires a document to be in writing, typewritten, or printed, an electronic format will suffice as long as it is accessible for future reference. This is highly relevant for agreements, such as loan contracts and rental agreements, which are increasingly executed online. Section 4 ensures that both individuals and businesses can function seamlessly in electronic formats without sacrificing legal enforceability by acknowledging electronic formats as legally enforceable.

The provisions of the Electronic Signature and Electronic Authentication and Procedure Technical (Amendment) Rules, 2015, Information Technology (Security Procedure) Rules, 2004 and Digital Signature (End Entity) Rules, 2025 further strengthen the legal recognition of digital agreements.

Lenders should ensure their digital signature platforms comply with legal standards while borrowers must confirm they are signing through a secure, legally recognised method and save a copy of the signed document for future reference.

6. Audit trail

The shift from paper to digital introduces an ease of process in terms of record keeping, allowing audit trails to be obtained and maintained easily during the tenure of the loan. An audit trail is particularly crucial if the loan gets classified as a non-performing asset resulting in subsequent litigation. Both lenders and borrowers should ensure that every stage of document execution, acceptance, and modification is recorded and accessible in case of disputes or audits.

Conclusion

The transition to a digital framework has fundamentally transformed the financial sector, streamlining processes, improving accessibility, and enhancing security in loan transactions. However, this digital evolution also brings critical legal and operational considerations that banks and corporate stakeholders must address. For banks and NBFCs, ensuring compliance with stamp duty laws across multiple States remains a key challenge, especially for digitally executed loan agreements. To mitigate legal risks, they must establish standardised protocols for determining stamp duty applicability and ensure e-stamping is completed before execution. Jurisdiction clauses should be carefully drafted to reflect transaction realities and minimise disputes. Fintech firms must prioritise the integrity and security of digital agreements by investing in robust electronic signature authentication and maintaining verifiable audit trails to safeguard against disputes. Corporate debtors, on the other hand, should ensure proper documentation of electronically signed agreements to prevent enforceability issues and align internal governance frameworks with evolving digital compliance requirements.

Footnotes

^{1. AIR (1963) SC 1307}

^{2. Hakam Singh v. Gammon India Ltd, 1971 SCC 286}