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Analyzing the Validity E-Contracts

8 min read

By Jalaj Tokas

Published On: November 17, 2021 at 12:35 IST

Introduction

With the evolution of technology, the way of executing contracts has also evolved. With the increasing demand for convenient-modern methods for entering into binding transactions and electronic agreements, instruments like electronic signatures have gained a lot of popularity in recent times. Technological developments have not only shaped the ways in which these transactions are entered into but also the execution process has also revolutionised significantly.

The catastrophic state of affairs due to COVID-19 pandemic and the consequent lockdowns have created obstacles for all commercial activities by raising numerous logistical hardships. Almost all transactions which were being created prior to the pandemic have been remitted as signing the contracts physically has been challenging. At uncertain times like these, parties have started considering the option of opting for electronic contracts (E-Contracts).

E-Contract is not a new concept but was prevalent and recognized in India well before pandemic. In view of this pandemic, there has been an increase in the execution of electronic contracts and electronic signing of documents.

The issues about re-engineering of legal processes for the digital world have also been more in news recently due to the Pandemic. In this article, the legal validity and the execution of electronic agreements has been discussed. This article will thus unpack how electronic contracts work especially during this uncertain time.

What are E- Contracts?

Electronic contracts are the contracts which take place through e-commerce, without meeting of the parties to the contract. These contracts are generally very similar to the paper based commercial contracts in which the commercial transactions are conducted and concluded electronically. With the advancement of technology and globalization, it has accelerated the presence of e-commerce companies throughout the world.

According to Section 10 of the Indian Contract Act“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

Therefore, if an agreement is made between freely consenting parties with lawful consideration and the capacity to enter into a contract that concerns a lawful object, and this agreement is accepted in a legally binding way; then the agreement is a contract. 

This holds true for E-contracts too; but one of the main distinguishing aspects of E-Contracts is that the contract is accepted by means of electronic signature or other electronic modes of acceptance.

Execution of E-Contracts

The lucidity of executing an E-Contract being astonishing, sometimes bothers us up to an extent that we begin to question its validity, especially when compared to a traditional written contract. However, if we carefully analyse we might recall that the Indian Contract Act, 1872 doesn’t categorically furnish any particular way of communicating an offer or what constitutes its acceptance. A customary contract ceases as soon as parties meet and perform their part of the contract, by placing their signatures on the document.

On the other hand, in e-contracts the parties agree to the terms and conditions of a contract online and therefore can be located at different places. Consequently, there lies a loophole in determining the place of executing the contract and its jurisdiction, if not stated otherwise. An easier and convenient approach would be that the contracting parties voluntarily submit themselves to a particular jurisdiction.

Validity of E-Contracts

Considering that the pre-conditions of a valid contract enshrined under the Indian Contract Act, 1872 are satisfied, an electronic contract becomes a legally-enforceable valid contract. The valid essentials of a contract include-

  • Offer and acceptance
  • Free consent
  • Capacity 
  • Lawful consideration

Section 10-A of the Information Technology Act, 2000 highlighting the validity of E-Contracts states that:

“Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”

The provision mentioned above was included by the Information Technology (Amendment Act), 2008 supposedly after marking the growing subservience of commercial agreements on electronic means. This includes electronic communication of the proposal, its acceptance and finally the formation of the contract between the parties.

It implies that in spite of an E-Contract’s lucidity, it remains just as valid as a traditional written contract.

Hence, all E-Contracts that abide by the pre-requisites of a valid contract constitute legally binding contracts and therefore there is legal recourse if these e-contracts are broken.

Recognition of E-Contracts

The legal recognition and regulation to E-Contracts is provided by various legislatures such as the Information Technology Act, 2000 and the Indian Evidence Act, 1872.

  • The Information Technology Act, 2000

The Information Technology Act, 2000 (the IT Act) calls for the legal recognition of electronic records and approves to a contract where the contract has been proposed, communicated and accepted in electronic form.

The provisions in the I.T. Act mention about the ascription, recognition and the transmit of electronic records procedures. Digital Signature Certificates (DSC) are also legally valid and enforceable as per the IT Act(2000).  Considering that the IT Act has recognised e-signatures as legal and binding, the same may also form a strong basis for initiating litigation before a court of law.

Thus, the IT Act observes the basic features of the contract such as the communication of their offers, acceptance of proposals, breach of proposals and acceptances which are communicated through electronic means.

  • The Indian Evidence Act, 1872

The Indian Evidence Act, 1872 validates a contract by recognising the term “document” which includes any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical produced by a computer.

Such information is in conformity with the conditions of Section 65B of the Act which shall be admissible in any proceedings, without any further proof or production of the original document before the concerned authority and shall be regarded as an evidence.

According to Section 65-B any information maintained in an electronic form is destined to be termed as a document and is therefore admissible in any Court proceeding as an evidence.

But, its admissibility remains constrained by various pre-requisites as mentioned under section 65-B. It is imperative that the document produced should be received from an authorised person, who at the time of producing it possessed lawful knowledge of the system.

Further, Section 47A of the Evidence Act stipulates that if the Court has to take a decision as long as the validity of the electronic signature is concerned, the Certifying Authority’s opinion, who in fact issued the electronic Signature Certificate, is a cornerstone.

Admissibility of E-Contracts as Evidence by Courts

The courts in India have also recognised electronic contracts with regard to the provisions of various legislatures. Electronic agreements under Section 65-A of Indian Evidence Act, 1872 are thus recognised by the Courts pan India. The procedure for producing electronic agreements as evidence in a Court of law is enshrined under Section 65-B of the Indian Evidence Act, 1872.

Under the Evidence Act, 1872, an e-agreement has the same legal effect as an ordinary paper based agreement. The definition of “evidence” as provided under Section 3 of the Evidence Act includes “all documents including electronic records produced for the inspection of the court.”

The Indian Evidence Act, 1872 thus requires a court of law to presume that the contract has not been altered since the digital signature is affixed by either of the parties and such digital signature was affixed with the intention of approving it. Therefore, there is an advantage for contracts to be executed using a digital signature issued by the licensed Certifying Authority versus other electronic means.

Case Laws

  • E-mails exchange constitute a Contract – Trimex International FZE Ltd. Dubai Vs Vedanta Aluminium Ltd.[i]

In this case, the offer and its subsequent acceptance was communicated by the parties through email. Recognising the validity of an electronic transaction, the Supreme Court of India observed that if a contract is concluded then a formal contract prepared and initialled by the parties would not affect the implementation of such a contract.

  • Contractual Liabilities by way of Electronic Means are enforceable – Tamil Nadu Organic Private Ltd. and Others Vs State Bank of India[ii]

The provisions of the IT Act were followed thoroughly and the High Court highlighted that contractual liabilities can arise by way of electronic means. It further delved the validity and enforceability of such contracts. It observed that Section 10A of the IT Act not only validated E-contracts but also enabled the use of electronic records for the conclusion of contracts.

  • Admissibility of Electronic Documents – State of Punjab and Others Vs Amritsar Beverages Ltd. and Others[iii]

The Supreme Court of India in this case had observed that Section 63 of the Evidence Act includes the admissibility of computer outputs in various media like paper, optical or magnetic forms. In addition, it also includes the procedure for furnishing electronic documents as evidence.(Section 65-B of the Evidence Act)

  • Legal Recognition to Electronic records – Sudarshan Cargo Pvt. Ltd. Vs M/s. Techvac Engineering Pvt. Ltd.[iv]

Karnataka High Court held that even if any information is in writing it still fulfills the requirement of Section 4 of IT Act, 2000. It further contemplated that communication conveyed through an e-mail is valid as per Section 2(b) of IT Act, 2000. Thus, if a confession is delivered by a addressor to the receiver through an e-mail then it would amount to a valid electronic communication.

  • Integrity of an Agreement entered through an Electronic medium – Rudder Vs Microsoft Corporation[v],

An online “click-wrap” agreement was agreed upon without scrolling down through all pages of its terms and conditions before providing an access to the services. The court held that the Member Agreement was enforceable stating that scrolling through several pages was similar to having to turn through several pages of a paper contract and failure to do so would create chaos in the marketplace.

Thus, the judiciary in India has time and again confirmed the validity, enforceability and legality of E-contracts.

Conclusion

It can safely be concluded that in an E-contract signed through electronic means, the parties are at consensus-id-idem if such a contract fulfils all the pre-requisites of a valid contract which make it valid and legally enforceable.

Digital Contracts or E-contracts have thus made their way through e-commerce, and have become a significant trend ever since. They are not just popular, prevalent and convenient but also time and cost-effective.

 ABOUT THE AUTHOR

Jalaj Tokas is a second Year Law student pursuing B.A.LLB from University School of Law and Legal Studies, GGSIPU, New Delhi. He is a life-long learner is self driven towards his ambitions. He strongly believes that expectations are premeditated disappointments and strives not just to be successful but more importantly to be of value.

Edited by: Aashima Kakkar, Associate Editor, Law Insider

References


[i] Trimex International FZE Ltd. Dubai Vs Vedanta Aluminium Ltd. 2010 (2) AWC 1170 (SC).

[ii] Tamil Nadu Organic Private Ltd. and Others Vs State Bank of India AIR 2014 Mad 103.

[iii] State of Punjab and Others Vs Amritsar Beverages Ltd. and Others AIR 2006 SC 2820.

[iv] Sudarshan Cargo Pvt. Ltd. Vs M/s. Techvac Engineering Pvt. Ltd., 2013 SCC OnLine Kar 5063

[v] Rudder Vs Microsoft Corporation 1999 CanLII 14923 (ON SC)