ONLINE CONTRACTS: LEGALITY AND PROBLEMS FACED IN INDIA

By Ridhi Garg, a first year law student at UILS Punjab

NTRODUCTION TO E-CONTRACTS

In the context of India’s remarkable diversity and its swift embrace of modernisation and globalisation, consumers have increasingly acclimated themselves to conducting business online. This shift is primarily driven by factors such as geographical limitations, time constraints, and a desire to avoid the cumbersome administrative processes associated with traditional contracts. As a result, people are turning to electronic contracts (E-Contracts) as a convenient alternative to physical contracts.

What exactly E-Contract is? It is basically an electronic form of contract which is online and formed during the course of e-commerce through electronic means, such as email or other digital communication methods. It involves exchange of offers, counteroffers, and acceptance of terms between parties. When both parties arrive at a shared understanding and agreement on the contract terms through this electronic process, the E-Contract holds the same legal validity as a conventional contract established through in-person negotiations or paper-based correspondence.

LEGAL VALIDITY OF E-CONTRACTS IN CONTEXT OF INDIA

The Indian Contract Act of 1872 recognizes traditional agreements, including oral contracts, when they are entered into by consenting parties who are legally capable of contracting, for a lawful purpose with lawful consideration, and not explicitly deemed void. Consequently, this Act does not contain provisions that prevent electronic agreements from being enforceable, as long as these agreements meet the fundamental requirements of a valid contract.

One crucial aspect of a valid contract is the presence of free consent, which is vital. However, electronic contracts often do not offer much room for negotiation. Users typically encounter a “take it or leave it” scenario, where they must accept the terms as presented without the opportunity for negotiation or modification.

Here are some key points regarding the legality of e-contracts in India:

Information Technology Act, 2000 (ITA): The Information Technology Act (ITA) establishes a legal framework for electronic transactions in India. It acknowledges the legitimacy of electronic records and digital signatures. Section 10A of the ITA explicitly affirms that contracts created through electronic methods are valid and can be legally enforced, subject to specific requirements being met. The ITA also grants electronic signatures the same legal status as physical signatures. Various methods, including digital signatures, are accepted for signing electronic contracts. The adoption of digital signatures is encouraged to enhance the security and authenticity of electronic contracts.

 The Information Technology (Certifying Authorities) Rules, 2000, regulate digital signatures in India. The ITA also addresses cross-border e-commerce and e-contracts. However, specific provisions related to international aspects may vary.

ADDITIONALLY, The Indian Evidence Act of 1872 plays a crucial role in determining the admissibility of electronic records and contracts. According to this Act, information contained within electronic records, when it’s reproduced in print form or stored in optical or magnetic media through a computer, is considered as valid documentary evidence. This evidence can be presented in legal proceedings without the need for additional proof or the original electronic record, subject to specific conditions being met.

 ROLE OF JUDICIARY AND CASE LAWS RELATING TO E-CONTRACTS

Courts have generally been supportive of recognizing electronic communication as a valid medium for contract formation, provided that essential elements of a contract, such as offer, acceptance, and intention to create legal relations, are present. Several key legal principles and ratios upheld by the Indian judiciary regarding electronic contracts can be summarized as follows:

• Mutual Agreement: The courts emphasize the importance of a “meeting of minds” in e-contracts, similar to traditional contracts. This means that for an electronic contract to be valid, there must be a clear and mutual agreement between the parties.
• Acceptance via Electronic Communication: Courts consistently validate the acceptance of offers through electronic means like emails, WhatsApp messages, or online channels, recognizing them as valid methods for contract formation.
• Arbitration Clauses: Inclusion of arbitration clauses in electronic communications, such as emails, is considered legally binding, reinforcing the dispute resolution mechanism in e-contracts.
• Intent for Legal Relations: The judiciary seeks evidence of the parties’ intent to create legal relations when assessing the validity of e-contracts. If it’s evident that the parties intended to be legally bound, the contract is upheld.
• Validity of Electronic Records: Courts acknowledge the legal validity of electronic records and documents. Information stored or transmitted electronically can be treated as documentary evidence in legal proceedings.
• E-Auctions: Online auctions (e-auctions) are recognized as legitimate means of forming contracts, provided that the terms and conditions are clearly stated, and participants have a fair opportunity to accept or decline.
• Digital Signatures: Digital signatures are considered a reliable method for authenticating electronic documents and agreements, enhancing the credibility of e-contracts.

These principles demonstrate the Indian judiciary’s commitment to adapting to the digital age by recognizing the legitimacy of electronic contracts and related agreements, provided that the essential elements of a contract are met, and there is clear evidence of mutual consent and intention to be legally bound.

Some of the important landmark judgements are:

• Trimex International FZE Ltd. v. Vedanta Aluminum Ltd. (2010): In this case, the Madras High Court upheld the validity of an arbitration clause in an e-contract. The court recognized the enforceability of e-contracts and electronic arbitration agreements.
• Rajasthan High Court’s decision in the case of Ramesh Bajaj v. State of Rajasthan (2010): In this case, the court held that an e-ticket issued by the Indian Railways for booking a train ticket is a valid e-contract. This decision reinforced the legality and validity of e-contracts in the context of online ticket bookings.
• Shri Ansal Properties and Industries Ltd. v. State of Uttar Pradesh and Anr (2008): In this case, the Supreme Court of India recognized the legal validity of electronic signatures (digital signatures) and held that they are legally equivalent to physical signatures.
• Niranjan Shankar Golikari v. Century Spinning & Manufacturing Co. Ltd. (AIR 1967 SC 1098): Although this case predates the Information Technology Act, it laid down important principles of contract law in India. While not specific to e-contracts, it established that a valid contract can be formed through electronic communications as long as there is an offer and acceptance.

PROBLEMS FACED DUE TO E-CONTRACTS IN INDIA

While electronic contracts (e-contracts) offer numerous advantages, such as convenience and efficiency, they can also pose several challenges and problems. Here are some common problems associated with e-contracts:

• Limited Comprehension: Parties may struggle to grasp the complexities of lengthy or intricate e-contract terms, leading to misunderstandings and disputes.
• Signature Verification: Verifying the legitimacy of electronic signatures can be problematic, with disputes arising over whether a signature was forged or unauthorized.
• Data Protection: E-contracts often entail the exchange of sensitive personal and financial data, making parties vulnerable to data breaches and cyberattacks, jeopardizing their security and privacy.
• Technical Hurdles: Technical glitches, system failures, or network interruptions can disrupt the e-contract process, causing delays and frustration.
• Digital Record Management: Managing digital records effectively can be daunting. Parties must ensure the accurate and secure preservation of electronic records for the legally required duration.
• Jurisdictional Complexities: E-contracts may involve parties from different jurisdictions, each with varying legal prerequisites. Determining applicable laws and resolving conflicts can be intricate.
• Enforceability Doubts: Despite legal recognition, concerns about the enforceability of e-contracts persist, especially when disputes arise regarding contract validity or electronic signatures.
• Access and Inclusivity: Unequal access to technology can exclude individuals who lack digital literacy or lack access to digital tools and the internet.
• Scaling Challenges: Managing a high volume of e-contracts can be taxing for organizations, particularly when handling numerous transactions concurrently.
• Legal Hurdles: E-contracts may not consistently align with existing laws and regulations, necessitating adjustments in legal frameworks to adapt to technological advancements.
• Evidence Complexities: Establishing the terms of an e-contract as evidence in a legal dispute can be more intricate compared to traditional contracts, where physical documents are typically available for verification.

CONCLUSION

In this digital age where virtually all human activities have shifted to the online realm, electronic contracts, or e-contracts, have emerged as a vital adaptation to these changing circumstances. They serve as a means for businesses and organizations to exchange information and collect data, making it possible to establish agreements even when parties are geographically dispersed. However, as the popular saying suggests, “every positive development comes with its own set of challenges,” and e-contracts are no exception.

On the positive side, e-contracts offer numerous advantages. They enhance productivity, expedite the fulfillment of customer requirements, prove cost-effective, and save valuable time. Furthermore, they make customer services more accessible to people all around the world, leading to an expansion of organizations’ customer bases and intensifying competition among businesses.

Nevertheless, it’s essential to recognize that the legal framework governing e-contracts is predominantly shaped by previous legal cases, rather than a comprehensive legislative foundation. Consequently, individuals and entities must exercise caution to avoid falling victim to online scams and fraudulent platforms. Only through such vigilance can we fully realize the intended benefits of electronic contracts. This adaptability to technological advancements remains essential as we move forward.

To address these challenges, parties engaging in e-contracts should take proactive measures. These include a careful review of contract terms, a deep understanding of the technology and authentication methods in use, and the implementation of robust measures to protect the security and integrity of electronic records. Additionally, seeking advice from legal experts well-versed in e-contract law can help navigate potential hurdles and ensure compliance with relevant regulation.