IT Act and Commerce

Posted by Pranesh Prakash at Aug 11, 2009 02:10 PM |
This is a guest post by Rahul Matthan, partner in the law firm Trilegal, and widely regarded as one of the leading experts on information technology law in India. In this post, Mr. Matthan looks at the provisions in the amended Information Technology Act of interest to commerce, namely electronic signatures and data protection.

This post analyses the amendments brought about to the Information Technology Act, 2000 (“IT Act 2000”) through the recent 2008 amendments (“IT Act 2008”).

Definitions

The IT Act 2008 has introduced a few additional definitions to the list of definitions originally included in the IT Act 2000. These definitions have either amplified the existing provisions or been introduced in order to address new issues required to be defined in the context of the newly introduced provisions in the statute. Some of the significant definitions have been discussed below:

Computer Network

The definition of “computer network” has been amended to specifically include the wireless interconnection of computers. While wireless technology did fall within the scope of the IT Act under the rather generic head of “other communication media”, the Amendment Act clarifies the scope of the IT Act by expressly including the term “wireless”.

Communication Devices

The IT Amendment Bill, 2006, had provided an explanation for “communication devices” under Section 66A. This definition has been moved into the definition section and now applies across all sections of the IT Act 2008. “Communication devices” is defined to mean “a cell phone, personal digital assistance (PDA) device or combination of both or any device used to communicate, send or transmit any text, video, audio or image”.

There has been case law even under the IT Act that has held mobile phones to fall within the ambit of the IT Act, as a result of which all the provisions of the Act that apply to computers are equally applicable to mobile phones. This amendment only makes that position more explicit.

Electronic Signatures

One of the major criticisms of the IT Act 2000 was the fact that it was not a technology neutral legislation. This was specifically so in relation to the provisions in the IT Act 2000 relating to the use of digital signatures for the purpose of authentication of electronic records. The statute made specific reference to the use of asymmetric cryptosystem technologies in the context of digital signatures, and, in effect, any authentication method that did not use this technology was not recognised under the IT Act 2000.

The IT Act 2008 has attempted to make this more technology neutral. In doing so, the attempt has been to bring the law in line with the United Nations Commission on International Trade Law Model Law on Electronic Signatures (“Model Law”).

Replacement of Digital Signatures

The first significant change in the IT Act 2008 is the replacement of the term “digital signatures” with “electronic signatures” in almost all the provisions in the IT Act 2000. In some provisions, reference continues to be made to digital signatures, but the net effect of the amendments is to treat digital signatures as a subset (or an example of one type) of electronic signatures.

Electronic signatures have been defined as the authentication of an electronic record using the authentication techniques specified in the 2nd Schedule to the Act, provided they are reliable.  

The reliability criterion has been introduced, very much along the lines of the Model Law. However, the contents of the 2nd Schedule are yet to be stipulated, which means that despite the existence of a reliability standard, the only authentication method available at this point in time is the digital signature regime.

Dual Requirement

One significant implication of this amendment is the introduction of a dual requirement – to meet the reliability standard as well as to be included in the 2nd Schedule. However, structuring the authentication procedures in this manner offsets the objective tests of neutrality borrowed from the Model Law, since an authentication method may meet the reliability test but will not be deemed to be legally enforceable unless it is notified in the 2nd Schedule.

Additionally, there will be grounds for challenging electronic signatures that are notified to the 2nd Schedule, if it can be shown that the signature so notified is not reliable under the terms of the reliability criteria. This can act as an impediment to the recognition of electronic signatures by notification.

Emphasis on Digital Signatures

Another concern is the treatment of digital signatures in the post amendment statute. The IT Act 2008 continues to retain all the provisions relating to digital signatures within the main body of the statute. The term “digital signature” has not been uniformly substituted with “electronic signature” throughout the statute. In certain provisions this leads to a certain amount of absurdity, such as in those relating to representations made as to the issuance, suspension or revocation of digital signature certificates; due to the lack of uniformity, these principles now apply only to digital signatures and not to all types of electronic signatures.  

It would have been preferable if the provisions relating to digital signatures had been moved in their entirety to the 2nd Schedule. Then, digital signatures would have become just another class of electronic signatures listed in the Schedule. By omitting to do this, the authors ensure that digital signature-specific provisions remaining in the main body of the statute challenge the technology neutrality of the statute.

Certifying Authorities

The IT Act 2008 has made the certifying authority the repository of all electronic signatures issued under the statute. Given that there are, at present, multiple certifying authorities, this provision is impractical. Instead, the statute should have either referred to the Controller of Certifying Authorities or should have been worded to state that each certifying authority would be the repository for all electronic signature certificates issued by it.

Impact on Other Statutes

Since the enactment of the IT Act 2000, amendments have been carried out in other statutes, relying on the concept of digital signatures. For instance, the Negotiable Instruments Act, 1881, makes the use of a digital signature essential for an electronic cheque.1 While the IT Act 2008 has expanded the scope of the available authentication measures, by introducing the technologically neutral concept of electronic signatures, corresponding amendments in other statutes like the Negotiable Instruments Act, 1881, will need to be carried out, so that they are not limited in their application to digital signatures.

Data Protection

Prior to the passing of the IT Act 2008, the concept of 'data protection' was not recognised in India. The amendments have now introduced some amount of legal protection for data stored in the electronic medium. This chapter analyses the changes sought to be introduced and their impact on data protection law in India.

Data under the IT Act 2000

The only provision under the IT Act 2000, which dealt with unauthorised access and damage to data, was Section 43. Under that section, penalties were prescribed in respect of any person who downloads copies or extracts data from a computer system, introduces computer contaminants or computer viruses into a computer system or damages any data residing in a computer system.

Data under the IT Act 2008

Under the IT Act 2008, far-reaching changes have been made in relation to data. Two sections have been inserted specifically for that purpose – Sections 43-A and 72-A, one dealing with the civil and the other with the criminal remedies in relation to the breach of data related obligations.

The Civil Remedies for Data Protection

The newly introduced Section 43-A reads as follows:

Compensation for failure to protect data - Where a body corporate, possessing, dealing or handling any sensitive personal data or information in a computer resource which it owns, controls or operates, is negligent in implementing and maintaining reasonable security practices and procedures and thereby causes wrongful loss or wrongful gain to any person, such body corporate shall be liable to pay damages by way of compensation, to the person so affected.

Explanation - For the purposes of this section:

(i)  “Body Corporate” means any company and includes a firm, sole proprietorship or other association of individuals engaged in commercial or professional activities;

(ii) “Reasonable Security Practices and Procedures” means security practices and procedures designed to protect such information from unauthorised access, damage, use, modification, disclosure or impairment, as may be specified in an agreement between the parties or as may be specified in any law for the time being in force and in the absence of such agreement or any law, such reasonable security practices and procedures, as may be prescribed by the Central Government in consultation with such professional bodies or associations as it may deem fit; and

(iii)  “Sensitive Personal Data or Information” means such personal information as may be prescribed by the Central Government in consultation with such professional bodies or associations as it may deem fit.

While at first this provision appears to address several long standing concerns relating to data protection in India, there are several insidious flaws that could affect the development of a data protection jurisprudence in the country.

Non-Electronic Data

In the first instance, there is no mention, under this provision, of non-electronic data. Most international data protection statutes recognise and protect data stored in any electronic medium or a relevant filing system (including, for instance, a salesperson's diary). The newly introduced provisions of the IT Act 2008 do not provide any protection for data stored in a non-electronic medium.

It could be argued that given the legislative focus of this statute (it has been called the Information Technology Act with a reason), it would be inappropriate to include within this statute protection for forms of data that do not relate to the digital or electronic medium. While that argument is valid to many who look to the new provisions introduced in the IT Act 2008 as the answer to the data protection concerns that the country has been facing all these years, their enthusiasm must be tempered as these new provisions merely provide solutions for electronic data.

Classification of Data

Most international data protection statutes distinguish between different levels of personal data – specifying difference levels of protection for personal information and sensitive personal information. Depending on whether the data can be classified as one or the other, they have different levels of protection, as loss, unauthorised access or disclosure of sensitive personal information is considered to have a deeper impact on the data subject.  

The new provisions of the IT Act 2008 make no such distinction. Section 43-A applies to all “sensitive personal data or information” but does not specify how personal data not deemed to be sensitive is to be treated. In essence, personal information and sensitive personal information do not appear to be differentially treated in the context of data protection.

Consequences

Under most international data protection statutes, the person in “control” of the data is liable for the consequences of disclosure, loss or unauthorised access to such information. This ensures that liability is restricted to those who actually have the ability to control the manner in which the data is treated.  

However, under the new provisions of the IT Act 2008, the mere possession of information and its subsequent misuse would render any person who possesses this data liable to damages. While there is likely to be a debate on what constitutes possession and how this differs from control, there can be little doubt that by referring to “possession” in addition to “operation” and “control”, the IT Act 2008 appears to have widened the net considerably.

Negligence in Implementing Security Practices

Section 43-A specifically places liability on a body corporate only if such body corporate has been negligent in implementing its security practices and procedures in relation to the data possessed, controlled or handled by it. The choice of language here is significant. The statute specifically refers to the term “negligence” in relation to the security practices and procedures as opposed to stipulating a clear, pass-fail type obligation to conform.

There is a significant difference between the terms “negligence to implement” and “failure to implement”. The former can only result in a breach if the body corporate that was required to follow reasonable security practices with regard to the data in its possession or control does not perform the required action and it can be proved that a reasonable man in the same circumstances would have performed the required action. If a body corporate is to be made liable under the provisions of this Section, it is not enough to demonstrate that security procedures were not followed; it has to be proved in addition that the body corporate was negligent.

Wrongful Loss and Gain

The Section appears to have been constructed on the basis that a breach has occurred in the event that any “wrongful gain” or “wrongful loss” was suffered. These terms have not been defined either under statutes or through any judicial precedents in the civil context. However, these terms do have a definition under criminal law in India. The Indian Penal Code, 1860 (“IPC”), defines “Wrongful Gain” to mean gain, by unlawful means, of property to which the person gaining is not legally entitled; and “Wrongful Loss” to mean the loss by unlawful means of property to which the person losing it is legally entitled.

There does not appear to be any greater significance in the use of these terms even though they are typically found in criminal statutes. Therefore, apart from the slight ambiguity as to purpose, their use in the IT Act does not appear to have any great significance.

Limitation on Liability

The provisions of Section 43 originally had the total liability for a breach capped at Rs. 5,00,00,000 (five crore rupees). The original text of Section 43-A had the same limitation of liability in respect of its data protection provisions. Before the bill was passed into law, this limitation was removed and now a breach of Section 43-A is not subject to any limitation of liabilities.

Reasonable Security Practices and Procedures

Section 43-A makes a reference to “reasonable security practices and procedures” and stipulates that a breach has been caused only if such practices and procedures have not been followed. There are three methods by which reasonable security practices and procedures can be established:

  • By agreement;
  • By law; and
  • By prescription by the Central Government.


As there is no law in India which sets out an appropriate definition for the term and since it will be some time before which the Central Government comes out with necessary regulations, it would appear that the only option available is for the parties to arrive at an agreement as to how the sensitive personal data and information exchanged under their contract is to be handled.

As a corollary, till such time as the government establishes the necessary rules in relation to these security practices and procedures, if a body corporate does not enter into an agreement with the person providing the information as to the reasonable security practices and procedures that would apply, the body corporate cannot be brought within the purview of this section for any loss or damage to data.

The Criminal Remedies for Unlawful Disclosure of Information

In addition to the civil remedies spelled out in such detail in Section 43-A, the newly introduced provisions of Section 72-A of the IT Act 2008 could be used to impose criminal sanctions against any person who discloses information in breach of a contract for services. While not exactly a data protection provision in the same way that Section 43-A is, there are enough similarities in purpose to achieve the same result.

Section 72-A reads:

Punishment for Disclosure of information in breach of lawful contract - Save as otherwise provided in this Act or any other law for the time being in force, any person including an intermediary who, while providing services under the terms of lawful contract, has secured access to any material containing personal information about another person, with the intent to cause or knowing that he is likely to cause wrongful loss or wrongful gain discloses, without the consent of the person concerned, or in breach of a lawful contract, such  material to any other person shall be punished with imprisonment for a term which may extend to three years, or with a fine which may extend to Rupees five lakh, or with both.

In substance, this provision appears to be focused on providing criminal remedies in the context of breach of confidentiality obligations under service contracts; given that the section specifically refers to the disclosure of personal information obtained under that service contract, it is fair to classify this as a provision that addresses data protection issues.

Personal Information

The IT Act 2008 does not define “personal information”. Equally, there are no judicial precedents that provide any clarity on the term. The Right to Information Act, 2005 does provide a definition for “personal information”, but that definition is inappropriate in the context of the IT Act 2008. In the absence of a useable definition for the term “personal information”, it becomes difficult to assess the scope and ambit of the provision and in particular to understand the extent to which it is enforceable.

"Willful"

The section would only apply to persons who willfully disclose personal information and cause wrongful loss or gain. Hence, in order to make a person liable it has to be proved that the person disclosing the personal information did so with an intention to cause wrongful loss or gain. It would be a valid defense to claim that any loss caused was unintentional.

Service Contracts

The section appears to be particular about the fact that it only applies in the context of personal information obtained under a contract for services. This appears to rule out confidential information (that is not of a personal nature) that has been received under any other form of agreement (including, for example, a technology license agreement). The section is clearly intended to protect against the misuse of personal information and cannot be adapted to provide a wider level of protection against all breaches of confidential information. That said, employers now have a much stronger weapon against employees who leave with the personal records of other fellow employees.

Consent

This section also clearly applies only to those disclosures of personal information with the intent to cause wrongful loss or gain which have taken place without the consent of the person whose personal information is being disclosed. What remains to be seen is how the law will deal with situations where a general consent for disclosures has been obtained at the time of recruitment.

Such clauses are made effective around the world by including opt in and opt out clauses, to allow the employee to either expressly agree to the disclosure of his personal information or to specifically exclude himself from the ambit of any such disclosures.

Media of Material

This section, unlike several other provisions of the IT Act 2008, deals with all manner of materials without requiring them to be digital. However, while disclosure of information stored in the non-electronic medium has been recognised, in the absence of a clear definition of personal information, it is difficult to ascertain the application and enforcement of this section.

What’s Missing

In order to be a truly effective data protection statute, the IT Act 2008 must include provisions relating to the collection, circumstances of collection, control, utilisation and proper disposal of data. At present the statute is silent about these aspects. In many ways, the statute addresses the particular concerns of companies or corporate entities looking for protection in relation to data outsourced to any other corporate entity for processing. Within these specific parameters the statute works well. However it does little to protect the average citizen of the country from the theft of personal data. Until we have statutory recognition of these issues, we will not be able to say that we have an effective data protection law in India.

 

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