Khushi Lunawat
Contracts are a part and parcel of our lives. We form a lot of contracts in our daily lives, knowingly or unknowingly. With the recent rise in e-commerce, the use of electronic means to execute contracts in India is becoming increasingly popular. This poses the question of whether such electronic contracts (or more generally known as e-contracts) may constitute valid contracts under Indian law or not? While the (Indian) Contract Act, 1872 (‘ICA’) does not expressly address the definition of ‘electronic’ contracts, it does not forbid them also per se. As any other type of contract, the electronic contract is often regulated primarily by the codified provisions of the ICA, as applicable to contracts in general.
E-contracts are also as valid as the normal traditional contracts but before going into the depth of the validity of an E-contract, one should learn the essentials and other provisions of a legal contract in general .Therefore, like an ordinary contract, an electronic contract cannot be validly enforced unless it meets all the essentials of a valid contract, such as (a) “Offer” and “Acceptance;” (b) Lawful consideration; (c) Lawful object; (d) Free consent; (e) the parties to be competent to enter into a contract; (f) the purpose of the parties to create a legal relationship; (g) assurance and the probability of performance; All other laws applicable to electronic contracts shall be read in accordance with, and not in substitution with, the ICA.
Section 10A of Information Technology Act, 2000, talks about validity of contract formed through electronic means:
Validity of contracts formed through electronic means.—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 records, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.
Also, as per the Indian Evidence Act, 1872, the contents of electronic documents can be proven in evidence by the parties in compliance with the provisions of the Evidence Act. In addition, Indian courts are allowed to assume that an electronic message sent via the originator by e-mail to the addressee to whom the message purports to be addressed corresponds to the message entered on his machine for transmission; without any assumption as to the person by whom the message was sent.
There are two primary parties to an e-contract, which are an ‘originator’ and an ‘addressee’.
An originator under the IT Act, 2008 is a person who sends, produces, stores or transmits any electronic message to be sent, generated, stored or transmitted to any other person and does not involve an intermediary.
An Addressee, pursuant to the IT Act, 2008 is a person who is intended by the originator to obtain an electronic record but does not involve an intermediary.
How can someone enter into an E-contract?
Like a common contract, e-contracts consisting of an offer and acceptance are enforceable. The behaviour of the parties, such as the exchange of e-mails or the acceptance of a condition or terms or by downloading, can also mean a contract. A number of procedures are required for the creation of electronic/online contracts, some of which are explained below:
The parties can enter into a valid contract by exchanging e-mail correspondence. Offers or acceptances can be fully shared via e-mail or combined with paper records, faxes and oral discussions.
Websites Forms
In certain cases, the e-commerce website sells products or services purchased by consumers for sale, by filling in and uploading an on-screen order form. The seller enters into a contract after the order has been approved. Physically, goods and services may be distributed off-line. The contract will also be valid for the terms of use of the website until the user acknowledges the contract by clicking on “I agree.”
EULA
The End User License Agreements also form valid contracts in which end users click “I Accept” or “I Accept the Terms.”
Types of E-contract
Shrink Wrap Contracts
Shrink-wrap contracts are typically the licencing contracts related to the purchasing of software goods. In the case of shrink-wrap agreements, with the removal of the packaging of the software product, the terms and conditions of access to the software product shall be extended to the individual who purchases it. Shrink-wrap agreements are essentially those that are approved by the customer when the programme is installed from a CD-ROM.
Click Wrap Contract
Click-wrap contracts are web-based contracts that involve the approval or consent of the user by clicking on the “I agree” or “I accept” button in the dialogue box. In the form of click-wrap agreements, the user has essentially to agree to the terms and conditions for the use of the specific programme. Users who do not agree to the terms and conditions will not be allowed to use or purchase the product upon cancellation or refusal. An individual witnesses to web-wrap agreements almost on a daily basis. Terms and conditions of usage shall be made available to users prior to acceptance.
Browse Wrap Contract
A contract signed to be binding on two or more parties by the use of a website can be referred to as a browser wrap agreement. In the event of a browser wrap arrangement, a frequent user of a specific website shall be considered to recognise the terms of use and other rules of the website for continuous use.
Essentials of an E-contract
Offer
Like paper made or a traditional contract, one of the most significant aspects of an online contract is the necessity for an offer to be made. A lawful proposal or offer made by a party known as the proposer must be made and it is the starting point of the contract. Through searching and selecting the products and services available on the seller’s website, the buyer makes an offer to buy them in relation to the invitation to offer made by the seller. A proposal must be distinguished from an invitation to offer or a request for care and must be made with a view to forming a legal relationship.
Acceptance
If a proposal or offer is made by the person to whom the offer is made, it becomes a promise. The acceptance of the proposal must be unconditional and absolute and must be conveyed to the proposer or the offeror. In the case of an online contract, the offer and acceptance can be made via e-mail or by uploading the appropriate form on the website. They will also need to enter into an online agreement by clicking on ‘I agree’ or ‘I accept’ to make use of the services offered.
Legal Relationship
If there is no intention of the parties to the contract to create a legal relationship, there is no contract between them. It is an important aspect of a legitimate contract that the parties to the contract must have the intention of forming lawful relationships. The intention of the parties shall be considered by the Court in each case and shall be decided by the terms of the agreement and the effects thereof. Agreement of a social or domestic nature does not establish a legal arrangement, which is why they are not contracts and are not enforceable by law. In the case of social relations contracts, it follows, of course, that the parties do not wish to obey the legal implications. For example, an invitation to watch a movie with a friend or family by a friend or family through e-mail or fax or by any means of telecommunication is not a contract.
Lawful object
The parties to the contract must only contract with each other, if there is a lawful object in question. It must not defeat any provision of law and must not be of a dishonest nature. Thus, a contract on a website designed to sell illicit drugs online is an illegitimate contract. If an agreement is made to inflict harm to another person or property, such an agreement is not lawful and is thus deemed to be void. If any competent court finds any contract as opposed to public policy, the contract is invalid.
Lawful Consideration
Consideration is one of the most essential aspects of the contract. The basic rule is that when a party to a contract agrees to deliver on its commitment, it must get something in exchange for the success of its promise. Consideration is of some importance in the eyes of the statute. It could be of some kind of value, right, interest or profit to the party as an opportunity to pledge. An act constituting consideration must be carried out in compliance with the wishes of the Promisor and must be legal, actual and not imaginary. Promises that are technically difficult to produce cannot be given serious consideration. For instance, An online site promising to buy land in the moon, cannot be termed as a lawful consideration.
Capability of Parties
The parties to a contract must be legally capable to enter into a contract. He must have reached the age of majority and must have a sound mind. It must not, for the time being, be excluded from contracting by any statute. In our country, an arrangement in which either party is a minor has no meaning. It is known to be void ab-initio. According to Section 12 of the Indian Contract Act, 1872, any person who is in a position to judge and protect his or her own interests is of a sound mind and capable of entering into a contract. If a person is found insolvent by any competent court, he cannot enter into a contract relating to his property.
Genuine Consent
Consent as specified in Section 13 of the Indian Contract Act, 1872 is an important condition of a contract. It’s simply a meeting of the parties’ minds. When both agree to the same thing in the same way, they are told to give their consent. In the event that the consent is due to coercion, it shall be null and void at the discretion of the party whose consent has been given. Consent must be free and honest and not caused by misrepresentation, undue force, i.e. a situation in which one person is in a position to control the will of another. However, in the case of an online contract, there is a limited scope of physical contact between the website and the customer making use of their service, only by clicking on the option that guarantees free and sincere consent.
Possibility of Performance
A contract to do an act impossible on its own cannot be executed in compliance with section 29 of the Indian Contract Act, 1872. For e.g., a website claiming to double the money in just 2 mins!
Validity of an E-Contract
An E-contract is as valid as a normal traditional contract. The Information Technology Act, 2000 sets out various procedural, administrative requirements and governs regulations relating to all forms of electronic transactions. These involve the security of computer records, the authentication of documents by digital or electronic signature. While electronic contracts have been recognised by the IT Act, 2000, the majority feel that it is less safe to enter into some kind of online contracts as there are no concrete judicial precedents for the validity and enforceability of online contracts in India. The Information Technology Act, 2000 allows for a number of procedures. In the case of browse wrap contracts, we typically accept the terms and conditions of the contract by pressing the ‘I agree’ button and, in the case of shrink wrap contracts or sales of software goods, approval is granted to the user or the purchaser by tearing of the wrapper of the product and using it . Some prefer not to read the terms and conditions carefully before agreeing to them. However, these acts should be done knowingly and carefully only after reading the terms of the contract correctly as it leads to a legal contract and the terms can be strictly enforced against them. That being said, courts in other countries such as the United States have dealt with the validity and enforceability of contracts such as shrink wrap and click wrap contracts. It was held in the famous case of ProCD Inc. vs. Zeidenburg, “that the very fact that purchaser after reading the terms of the licence featured outside the wrap licence opens the cover coupled with the fact that he accepts the whole terms of the licence that appears on the screen by a key stroke, constitutes an acceptance of the terms by conduct.” On the other hand, The validity of the click wrap agreement was first discussed in the case of Hotmail Corporation v. Van $ Money Pie Inc, et al., the court held that “the defendant is bound by the terms of the licence by clicking on the “I accept” box indicating his consent to be bound”.
However, as previously stated, there are no much provisions related to E-contract in Indian Contract Act, 1872. The Indian Contract Act, 1872 provides for a simple contractual rule that a contract is legitimate if it is made by the competent parties on the basis of their free consent for a lawful purpose and consideration. There is no particular way to convey the offer and accept it; it can be achieved orally, in writing or even by actions. Oral contracts are therefore as legitimate as written contracts; the only condition is that they have all the essentials of a valid contract. In, Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas, the court held that,
“that ordinarily, it is the acceptance of offer and intimidation of that acceptance which results in a contract. This intimation must be by some external manifestation which the law regards as sufficient. Hence, even in the absence of any specific legislation validating e-contracts cannot be challenged because they are as much valid as a traditional contract is.”
An online contract is essentially a correspondence between the two parties concerning the transfer of goods/services. And as per the Indian Evidence Act, any e-mail and other correspondence rendered electronically is considered as legitimate evidence by the Court of Justice. By considering the points, it can be inferred that the contract following the correspondence is also true and that Indian law also acknowledges the validity of the online contracts.
Conclusion
The people of India are promoting the idea of Digital India, but there is no specific legislation on transactions on computerised communication networks. Several statutes, such as the Indian Contract Act, 1872, the Information Technology Act, 2000, the Indian Copyright Act, 1957 and the Consumer Protection Act, 1986, have worked and acted to some degree to address issues arising from the creation and validation of online contracts. The Information Technology Act, 2000 is the Act that regulates transactions carried out over the Internet which explains the significant mode of acceptance of the offer and sets out the rules for the cancellation of the offer and acceptance in an ambiguous or indefinite manner. Hence, a separate legislation for the enforcement of contracts on the basis of electronic devices is also strongly recommended.