Complexities of Draft IT Bill

This article was originally published by Prience Shrestha in the Himalayan Times on September 22, 2019.

The rapid developments in Information and Communication Technology (ICT), and its adoption specifically in the business sector has visibly reduced the time taken to transact information, and therefore generated business process efficiency. In wake of such digitization and its wide application for information transaction, the Ministry of Information Communication and Technology (MoICT) has recently drafted a Bill related to Information Technology (IT) as an attempt to improve and broaden the legal framework governing the use of ICT.  This particular step undertaken by the Nepal Government is commendable in nature as it also attempts to legally recognize the use of ICT for the conduction of contractual transaction for business purposes.

Specifically, Section 10 and Section 17 of the draft Bill which deal with the legal validation of the contracts transacted through electronic medium, and the legal recognition of digital signatures as an alternative to handwritten signatures are two provisions that facilitate conclusion of contracts through electronic means thereby substantially saving time during contractual procedures. The ability to electronically conclude contracts between distantly located parties secured via the encryption mechanism of digital signature significantly reduces the amount of time and cost involved in logistics of contract documents. However, the legal provision for digital signatures and contracts transacted through electronic means detailed in this draft Bill may not provide adequate legal infrastructure to validate all electronically transacted contracts undisputedly in courts.

The new draft Bill related to Information Technology registered at the Federal Parliament is definitely a progress from the former Electronic Transaction Act 2008 because it recognises the application of digital signatures as a means to conclude contracts. Yet, the observation that the Bill does not harmonize with the prevailing provision of the Civil Procedural Act 2017 regarding validation and enforceability of certain kind of contracts makes it highly doubtful for all contracts to be seamlessly executed electronically with unchallenged legal recognition.

This limitation of the provisions provided in the draft Bill regarding electronic contract enforcement begins from the fact that it fails to clearly state whether such contracts need to be attested in line with section 36(2) of the Civil Procedural Act 2017. After all, Section 36(2) requires contracts above the value of NRs 50,000 other than financial instruments to be attested by the concerned ward office. As such, the provision of the new draft Bill to legally validate all contracts seamlessly transacted through electronic means with the authentication mechanism of digital signatures is defeated because contracts exceeding the stipulated value need to be physically produced alongside physical presence of contracting parties for attestation at the local ward office. However, one may argue that the Civil Procedure Act clearly mentions in its Section 3 that the said Act shall not affect the provisions created in other acts produced for specific purposes. But, since the draft Bill fails to clearly state whether contracts concluded electronically are subject to attestation in order to be enforced, the issue relating of enforcement becomes debatable and perhaps even dependent upon the discretion of the enforcing body. A lack of explicitness in the enforcement of electronic contracts makes them subject to interpretation of arbitrators and courts with regards to procedural requirement for validation of contract enforced through electronic means, thus generating uncertainty of enforcement.

Nevertheless, the recent intention of the lawmakers to legally incorporate the provision regarding electronic enforcement of contract is undoubtedly a crucial step towards improving the state of contract enforcement in Nepal that can be reflected in the ranking of Doing Business Reports in future. However, the lack of adequate provision in the new IT related draft Bill governing secured electronic transaction of contracts fails to assure the potentiality of businesses to enforce contract seamlessly through electronic means. Such anomaly is likely to generate severe repercussions in terms of contracts validation invoking unnecessary disputes in the court. And importantly, it directly affects the business environment of the country in which contracts are used as a primary tool to instigate business transactions.

As a resolution, lawmakers should pledge towards harmonizing the provisions of this newly drafted IT related Bill with the conflicting provisions of Civil Procedural Act 2017 in order to remove obstacles and simplify the budding legal framework governing the nexus of ICT and business processes.