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As a banker, I ask people to put their signatures on the loan agreement form, the demand promissory note, etc. For illiterate people, I ask them to put their thumb impression countersigned by a witness.

I see these days some apps are providing instant loans, which I didn't try. I think some of them use One-time password authentication and UIDAI authentication.

I couldn't find references what describes a consent by the people taking loans that they will return the money according to guidelines.

I believe it should be a record not an unrecorded verbal promise.

So, specifically for my country India, what are the things that will describe a consent - old times and modern times?

Say, a video record of their verbal statement. Or say, a photo of them holding a banner "I will pay back".

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  • There are statutes in the U.S. on digital signatures and assents counting as signed writings. I suspect that India has a similar law but do not know that for a fact.
    – ohwilleke
    Oct 2, 2023 at 14:57
  • You don't need "consent" for the borrower to owe the principal back. You need consent to demand interest. Nov 7, 2023 at 4:37

2 Answers 2

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Consent in banking transactions

The provisions of the Indian Contract Act, 1872 relating to "consensus ad idem" which is a term meaning "meeting of minds" interpreted in contract law as "agreement on the same thing in the same sense" apply here.

You must note the provision for "Free Consent" which lists matters such as coercion, undue influence, fraud, misrepresentation, and mistake that vitiate the consent of a party in a contract and render it void or voidable in specific instances.

The information about the loan/banking product when given fully, and in accordance with banking regulations, satisfies the requirement for "consensus ad idem" as you are complying with the statutory obligations under banking regulations to provide such information which enables the customer to make the decision.

Thus, for instance, NBFC's are bound by the RBI Master Circular - Fair Practices Code which provides for provision of information on various aspects of the lending instrument to the borrowers. Circulars such as these are ostensibly intended to insure that the customer has full information about the product so as to ensure "consensus ad idem".

Standard Form of Contract

The Supreme Court of India has cited Chitty's Law of Contracts to give relief on the basis of such contracts, where it has cited this discussion/definition.

The use of standard form contracts.

The process or mass production and distribution, which has largely supplemented if it has not supplanted individual effort, has introduced the mass contract - uniform documents which must be accepted by all who deal with large-scale organisations.

When you ask a customer at your branch to sign on the dotted line of a loan agreement, you are in effect asking them to sign a standard form of contract. This is a contract which is used by corporates to give a "standard" set of terms and conditions, which are not substantively negotiable except for certain amendable provisions, such as the term and other negotiable components in your contract.

Electronic Signatures

Under the Information Technology Act, 2000, the provision on what constitutes a valid "Electronic Signature" is important to note for the purposes of your question. (Electronic Signature is a broader category than the hash-able "digital signatures" with the latter falling within the definition of the former). Section 3-A says that it must be a technique that is either reliable or is listed in the Second Schedule. This provision enables the electronic signature of loan agreements in any of the ways specified in the provision.

Hence, the effect of all of the above is that when a person signs your standard form contract, they are bound to return the loan amount with whatever interest as per the terms. They consent to do so when they "execute" the contract, as any standard loan agreement has a repayment schedule. This execution, which takes effect by the signing may be physically, or by way of digital signing methods deployed by digital lending apps.

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Consent in contract law

For India specifically, most of this is covered by the Indian Contract Act 1872 as well as common law precedent. That Act defines consent in s13 as:

Two or more persons are said to consent when they agree upon the same thing in the same sense.

I can consent in writing, verbally, or by conduct.

Some examples:

  • You present me with a 120-page loan agreement and ask me to sign at the end and initial every page; if I do that, we have consent.
  • if you say, "Do we have a deal?" and I say "Yes" - that's consent.
  • if I ask to borrow $10 and you say, "Pay me back by Thursday" and offer me the cash, if I take it, we have consent.
  • if you text me, "Do you still want to buy my car for $2,000?" and I text 👍 - that's consent.

So, no, consent doesn't have to be by signing a written document: as soon as we "agree upon the same thing in the same sense", we have consent.

Evidence of Consent

Consent may or may not leave a clear and unambiguous record that it happened or what, precisely, was agreed upon. Just because there is no evidence of consent doesn't mean it didn't happen. For example, if both parties to a purely verbal contract die after consenting, that's still a valid contract - albeit one with some pretty difficult evidentiary problems if there's a dispute.

Conversely, a signature on a document may not be consent for all sorts of reasons I'm not going to go into.

Don't confuse "consent" with a record of that consent: they are separate concepts.

Banking law

Banking is one of the most heavily regulated industries in the world. It may be that a loan between a bank and a customer in India is not valid if it isn't in writing - I don't know Indian banking law sufficiently well to be sure but that's pretty common worldwide.

However, most contracts don't fall into that category.

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