E-Contracts -Execution and Enforceability Understanding electronically formed Contracts

By: Urvi Karolia
The drastic switch to electronic means and the increase in dependence on electronics in today’s world, crops up the question of the validity, execution and enforcement of contracts formed through electronic means. This article explains the governing laws for execution and enforcement of e-contracts in India and also, divulges the lack of provisions regarding the same as well as, the need for a sperate legislation to encompass such contracts.
Keywords – E-contracts, E-commerce, IT Act, Indian Contract Act, Execution, Enforcement,

Recent technological advancements have had a corresponding impact on many things that we do in our daily lives – be it shopping, trading, ordering food or even connecting with our friends. It is no longer restricted by geographical limitations. With a drastic growth in e-commerce there has been an elevation in the use of electronic contracts. However, the purview of e-contracts is still clouded and not very well established.
E-contract is a kind of contract formed by the interaction of two or more individuals using electronic means, such as e-mail, the interaction of an individual with an electronic agent, such as a computer program, or the interaction of at least two electronic agents that are programmed to recognize the existence of a contract
The 2 main parties to an e-contract are- the Originator and the Addressee.

  • Originator according to the Information Technology Act, 2000 (“IT Act”) is a person who sends, generates, stores or transmits any electronic message to be sent, generated, stored or transmitted to any other person which excludes an intermediary.
  • An Addressee according to the IT Act, 2000 is a person who is intended by the originator to receive the electronic record but does not include any Intermediary
    In order to understand the insertion of the concept of e-contracts into the legal system, we need to first understand the laws that govern it and also, the matters brought before the Courts in this regard.
    Prior to the judgement of Bhagwandas Kedia the Indian Contract Act, 1872 (“ICA”) was only applicable to traditional mode of contracts. However, this case the Court ruled that “when parties aren’t in each other’s presence and communicate long distance either by post or telegram, both parties get bound by contract as and when the acceptor puts the letter of acceptance in the course of transmission to offeror so as to be out of his power to recall”
    Also, in the case of Trimex International FZE Limited, Dubai vs. Vendata Aluminium Ltd. , the Hon’ble Supreme Court of India held that the contract between the parties was unconditionally accepted through e-mails and was a valid contract which satisfied the requirements of the Indian Contract Act.

Types of e-contracts
Electronic contracts can be made either through online agreements or via email. Further, online agreements through websites are divided into three more types, which are, a) Browse-wrap, b) Shrink- wrap and c) click wrap agreement.

  • Browse Wrap Agreements are such which are intended to be binding upon the contracting party by the use of the website. These include the use of the website, the user policies and terms of service of web sites and are in the form of a ‘terms of use’ or ‘terms of service’, which are usually seen at the on a website.
  • Shrink Wrap Agreements are the license agreement by which the terms and conditions of the contract are enforced upon the contracting parties and are usually present in handbook accompanied with the software products which a consumer buys.
  • Click Wrap Agreements require the user to give his consent to the terms and conditions which are known as end user agreement and govern the licensed usage of software by clicking the ‘ok’ or the ‘I agree’ button.

Laws governing e-contracts
In India, there are no particular legislations or guidelines protecting the buyers and sellers of goods and services over the electronic medium. However, several laws acting in unison are there to regulate the business transactions of e-contracts. They are as follows:

o Indian Contract Act, 1872
o Consumer Protection Act, 1986
o Information Technology Act, 2000
o Indian Copyright Act, 1957

The majority of principles that govern online contracts are found in the Indian Contract Act, 1872 and the Information Technology Act, 2000. Thus, it is important to read the IT Act, along with its Rules, and the ICA in true conjunction.
In an effort to safeguard security, the government has made digital signatures necessary in several E-contracts which are used for the verification of the such contracts. These are controlled by the IT Act, which provides the outline for digital signatures, their issues and their verification.

With a boom in e-commerce and the growing trend of commercial transactions being created via internet, execution of contracts by electronic means has become quite prevalent.
As asserted above, just as ordinary paper contracts, even e-contracts are governed by the provisions of the Indian Contract Act. Thus, an e-contract also cannot be validly executed unless it satisfies all the essentials of a valid contract laid down in Section 10 of ICA, such as ‘Offer’ and ‘Acceptance’, Lawful consideration, Lawful object; Free consent, Parties to be competent to contract, intention of parties to create legal relationship, Certainty and possibility of performance, Not be expressly declared to be void, and Compliance with formalities under different laws governing the agreement.
All other statutes applicable to an e- contract are to be read in conjunction, and not in substitution, with the ICA. Therefore, keeping this in mind, if an electronic contract has been formed based on a series of electronic communications where the essential elements of the contract are captured separately, then safe maintenance of all such electronic records and emails becomes essential to prove the record of the contractual agreement between the parties.
Electronic contracts/records have also found statutory recognition under the IT Act. Amidst other things, the Act specifically states that a contract shall not be considered unenforceable, solely on the ground that electronic form/means were used for communication of proposals, acceptance of proposals etc. The IT Act also recognizes “digital signatures” or “electronic signatures” and validates the authentication of such electronic records by using digital/electronic signatures. Moreover, contents of electronic records also have evidentiary value in accordance with the provisions of the Indian Evidence Act, 1872.
Thus, it is evident that though e-contracts can be executed through various modes, the safest and most legally recognised method of executing an e-contract is made through the use of digital signatures after exercising legal due diligence.
It is also pertinent to note that there are some contracts under the IT act which are exempted from being executed electronically such as contracts for sale or transfer of immovable properties, negotiable instruments, trust deeds, wills and powers of attorney.

Enforceability of e-contracts is made evident by its governing laws. The above stated laws that govern e-contracts also contain provision for its enforcement. That is to say, that once such a contract is formed, it is protected by law and has the capacity to be enforced before a Court of law.
Looking into the provisions of the IT Act, Section 10 A, which was added by a recent amendment, clearly gives legal representation and enforcement of e-contracts under the IT Act. It reads as follows;
Section 10A- 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 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.” Moreover, Section 4, 11, 12 and more similar section of the IT Act, give way to the rightful enforcement of e-contracts.
The acknowledgment of e-contracts and their enforceability is also seen in the Indian Evidence Act. The definition of ‘evidence’ was amended to add electronic data and the definition of ‘documentary proof’ was also amended to include all files consisting of electronic information. Many such other sections also enumerate the enforceability of e-contracts.

The acknowledgment of e-contracts and their enforceability is also seen in the Indian Evidence Act. The definition of ‘evidence’ was amended to add electronic data and the definition of ‘documentary proof’ was also amended to include all files consisting of electronic information. Many such other sections also enumerate the enforceability of e-contracts.
While making an e-contract, it is important to keep in mind the requirements of that particular agreement from the point of view of its enforcement. A signature is not always required to create a contract. However if it is required, then to check whether the e-signature is considered legally binding or not depends on the intent of the parties as well as their consent.

For electronic signatures to be valid and enforceable, the document itself must be valid and enforceable. This means the electronic document must not be hampered in any way. The document must be complete and it has to be signed by all parties. An e-contract has the similar challenges as to a paper contract which is signed and dated by hand. It can be challenged that the contract was hampered with after it was signed. The fact that certain steps were taken to preserve the integrity of the document would be looked into in a situation where the signature of an e-contract is being questioned.
In cases where various steps of a contract have been affected by electronic means, it is to be understood that as long as the parties are at consensus-ad-idem, and the agreement fulfils the essentials of a valid contract under ICA then, then such a contract is said to be valid and legally enforceable.

The judicial intent of the laws relating to e-contracts appears to clear the fact that all legally valid acts that are ordinarily performed would continue to be valid even if performed electronically or digitally, as long as such electronic/digital performance adheres to all the elements of a valid contract, as prescribed under the law.
However, that still leaves behind grey areas around the subject. Although, the common legislature gives way to e-contracts, it cannot be denied that there still exists a need for a sperate legislature governing the concept.
The law governing e-contract lacks certain provisions like -There is nothing to determine the intention of the parties to enter into a legally enforceable contract. Also, determination of territorial jurisdiction for e-contracts becomes complicated in the absence of geographical or national boundaries for execution and implementation of such contracts.
Thus, there is serious need for a separate legislation that can fill in the gaps and make it easier to validate, execute, enforce and redress matters relating to e-contracts.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close