- Validity under ICA and IT Act
- The exception to E-contracts under IT Act
- Digital and Electronic Signatures
- Common Kinds of Electronic Contracts
- Admissibility of E-contracts as Evidence
Electronic contracts, or e-contracts, are the new-age contracts made electronically between parties instead of being entered into through the usual medium of paper. Electronic contracts came into use to make business transactions more efficient in the age of globalisation where online-based companies enter into a significant number of contracts on a daily basis, usually with clients or other businesses centred in places miles away.
Electronic contracts save a party from the exhaustion of travelling physically all the way to the other party in order to make a deal. Their ease of use has made a deep-rooted place for them around us. Right from a common man booking his cab online for the daily ride to the office to governments signing international MoUs, electronic contracts have become highly ubiquitous.
Due to the vast variety of electronic contracts and the absence of separate legislation governing these contracts, there exists confusion on the validity of electronic contracts. However, contracts formed, executed and concluded electronically are similar to their counterpart, the paper-based contracts.
Validity under ICA and IT Act
In India, any type of contract formed is primarily governed by provisions of Indian Contract Act, 1872. According to the Act, the essentials of a contract are mainly lawful offer and acceptance made with the intention to create a legal relationship. Apart from the general compliance with formalities under different laws governing the agreement, section 10 and section 11 of the Act lays down other requirements for the contract to be valid as follows:
- Lawful object
- Lawful consideration
- Parties to be competent to contract
- Free consent
Further, the Information Technology Act 2000 (IT Act) extends legal recognition to electronic contracts as well. Section 10A of the IT Act deals with the validity of contracts formed through electronic means and states that if in entering a contract, communication and revocation of offer or acceptance are expressed in an electronic form or by means of electronic records, it will not be considered unenforceable solely on the ground that electronic form or means were used for the purpose of the contract.
In the case of Bhagwandas Goverdhandas v. Girdharilal Parshottamdas, it was reaffirmed that in the absence of any other specific legislation governing e-contracts, their validity cannot be challenged and that they are as much valid as a traditional contract is. It is mainly the acceptance of offer and intimidation of that acceptance which results in a contract and this intimation can be by any external manifestation which the law regards as adequate.
The exception to E-contracts under IT Act
Although IT Act generally provides for lawful electronic contracts to be valid and enforceable if they fulfil requirements of being a valid conventional contract, the Act doesn’t extend recognition to the validity of a few documents made online. These documents, given in the First Schedule of the Act, cannot be enforced if a contract based on them is made electronically. They are:
- A negotiable instrument other than a cheque under the Negotiable Instruments Act, 1881;
- A power-of-attorney under the Powers of Attorney Act, 1882;
- A trust under the Indian Trusts Act, 1882;
- A will under the Indian Succession Act, 1925; and
- A contract relating to the sale or conveyance of immovable property.
Digital and Electronic Signatures
The conventional paper-based contract with signatures is easier to prove in a court of law due to the reason of clarity of consent, represented by the signature. Even with electronic contracts, digital signatures are used to showcase a clear acceptance of the terms and conditions of the contract.
The terms “digital signature” has been defined under Sections 2(p) of the IT Act. Digital signatures are not generally used by private parties for making electronically made transactions. Rather, the use of digital signatures can be commonly observed while making filings with authorities like the Registrar of Companies.
A digital signature makes the electronic record ‘secure’ under the IT Act and Evidence Act, showing that the signatory had exclusive control over the signature. When an electronic record is ‘secure’, the court presumes that unless proved otherwise, such record has not been amended or altered since the point of time to secure status came to being. In cases involving electronic records with no digital or electronic signatures, no automatic presumption relating to the authenticity of electronic record is made by courts and it becomes harder to prove the validity of the electronic contract.
The term “electronic signature” is defined under 2(ta) of the IT Act. The term also finds a place in the IT Act as well, under section 5. They widen the ambit of the ways of officially authenticating electronically executed documents. Section 5 states that where any law requires that a document be authenticated by affixing, then such requirement shall be deemed to have been met if that document is authenticated by means of an electronic signature affixed in such way as may be prescribed by the Central Government.
Electronic signatures include digital signatures, among other the electronic techniques specified in the Second Schedule of the IT Act. The latter could also include e-sign based on Aadhaar e-KYC services. Aadhaar e-signature allows an Aadhaar owner to provide their signature electronically with the help of third-party applications.
Common Kinds of Electronic Contracts
Although electronic contracts have been given recognition by the IT Act, 2000, they still remain a less secure way of contracting due to lack of concrete judicial precedents on the validity and enforceability of online contracts in India. Since most of the electronic contracts on the internet are without the provision for electronic signatures, the acceptance of offer remains unclear. The four types of electronic contracts commonly found online are as follows:
1. Browse-wrap Agreements
A browse-wrap agreement is an agreement that deals with the access to or use of services on a website or a product which is downloadable. In such agreements, the user does not manifestly assent to the terms and conditions by electronic means. Rather, a web-site user’s consent is taken to be implicitly given simply though the use of the services of the website product. The terms and conditions are pre-determined.
The Courts around the world which have reflected upon the validity of browse-wrap agreements have primarily opined that the browse-wrap agreements are valid only if the consumer had actual or constructive notice of the terms and conditions prior to using the website or downloading the product.
2. Click-wrap Agreements
In this type of agreements, the terms and conditions of the agreement are provided along with an “I Agree” or “I Accept” tab that must be clicked on before the user can commence the use of the website services. These agreements seek to express the consent of the user through the click.
Click-wrap agreements do not provide users with an opportunity to negotiate the terms and conditions. Hence, they create a take it or leave it agreement where the user cannot avail the services until the user has specifically clicked the dialog box. In such contracts, one party has a position of power, thus enabling them to dictate the terms of the agreement while the user has no power to negotiate the terms.
While it may seem that such a contract would be tough to enforce, a click-wrap contract can be enforceable under Indian law as long as the essentials of a valid contract, as given under the Indian Contract Act, are met. It is assumed that the user at the time of clicking the “I Accept” would have carefully gone through the terms and conditions made a conscious choice at the time of clicking to give consent. Therefore, a person cannot assert that he was not mindful of the terms and conditions or that he was coerced into giving consent unless he can prove otherwise.
In the case of LIC India v. Consumer Education and Research Centre, inter alia, the Supreme Court opined that when a contract is in the nature of an adhesion contract and when the parties to the said contract do not have equal negotiating power, then under Article 14 of the Constitution, the Court has the right to hold such an agreement to be invalid on grounds of being unfair or unreasonable.
In the U.S case of Feldman v. Google, the Court held that reasonable notice of the terms of the contract was provided by Google and since the user had clicked on the “I Agree” button, he was supposed to be aware of the contents of the contract. Therefore, the said click-wrap agreement was held to be perfectly valid and enforceable.
However, in another U.S case of Bragg v. Linden Research Inc., the Court held that since the terms of the click-wrap agreement were procedurally and substantively unconscionable, the same could not be enforced through the user had agreed to the terms of the contract prior to purchasing the game.
The same view was expressed in the Indian case of Mumbai v. Gujrat Pipavav Port Ltd. In this case, the Income Tax Appellate Tribunal, on the topic of enforceability of clickwrap or adhesion e-contracts, opined that where the terms of the contract are voluminous and where the user often doesn’t read through the entire contract before accepting the terms of the said contract, the same does not have a negative effectupon the validity of the contract unless the terms of the same are unconscionable.
3. Shrink-wrap Agreements
Shrink-wrap agreements are the license agreements that are wrapped with the software. The name of these agreements derives from the shrink plastic wrap that covers the product (the software boxes in this case) at the time of delivery. These agreements containing the terms and conditions of the use of the product are usually present on the plastic, or in the manuals which come with the software products.
In the case of shrink-wrap contract or purchase of a software product, consent is implicitly given by the user on tearing the wrapper and using it. For instance, at the time of installation of your anti-virus software from a CD, you assent to the agreement of the product which can include clauses on non-distribution and liability limitations. Other common clauses of shrink-wrap agreements include sections on the license, fees and payments, warranties, indemnification and limitations of liability.
In India, there is no stable or clear judicial precedent on the validity of shrink-wrap agreements. Like the click-wrap agreements, even in such agreements, there is no free bargaining power with the user. These agreements too end up becoming take-it or leave-it agreements, except in this case, the user might not be fully aware of the liabilities they’re taking up prior consenting to the agreement.
The major disadvantage with such agreements is that the customers’ consent is implied on their opening of the plastic packaging in which product/manual containing the terms and condition are wrapped. In such a situation, the customer is unaware of the exact terms and conditions they’re consenting to until they have actually removed the wrap. The lack of informed consent, in this case, leads to ambiguity about the validity and enforceability of the said agreement. Thus, there is no well-settled law on this matter and the enforcement of such agreements depends greatly on the facts and circumstances of the case.
The validity of the shrink-wrap agreement was first considered in the case of ProCD, Inc v. Zeidenberg. The trial court, in that matter, held that the licence was invalid because its terms and conditions did not appear on the outside of the package. However, in appeal, this decision was overturned stating the licence was to be treated as an ordinary contract accompanying a sale transaction. While the terms and conditions were within the package, its terms had provided the buyer with an opportunity to review the product and its terms before being bound by them.
4. E-mail Agreements
E-mails are held as valid means of contracting. In the case of Trimex International FZE Limited, Dubai v. Vendata Aluminum Ltd., the Court held that a contract between the parties which was unconditionally accepted through emails and met the requirements of being a valid contract under the Indian Contract Act was a valid and enforceable contract.
However, whilst such a contract is valid, there exists a risk in proving proper execution in the event that it is challenged by the other party. Consequently, parties need to ensure that the language of the email conveys clear acceptance and make use of secure, encrypted email transmission to lessen the risk of the other party disclaiming the attachment of the contract to the email confirmation.
Admissibility of E-contracts as Evidence
In accordance with the provisions of the Indian Evidence Act, 1872, the contents of electronic records can also be used as evidence by the parties. Under section 3 of the Act, the term ‘evidence’ has an inclusive definition, giving an electronic contract the same legal status as that of a paper-based agreement. ‘Evidence’ includes all documentary evidence including ‘electronic records’ produced for the inspection of the Court.
In the case of State v. Mohd. Afzal and Ors, the Delhi High Court reaffirmed that the general rule is that the electronic records are admissible as evidence. And, in the case that someone challenges the accuracy of an electronic record on the grounds of misuse of the system or operating failure or interpolation, then that person must prove the same beyond a reasonable doubt.
As stated earlier, the use of digital signatures in electronic contracts adds a layer of authenticity. In the absence of a digital signature, the party that is claiming the admissibility of the electronic contract would be required to prove that the electronic contract in question is authentic, i.e., authenticity is not presumed is the absence of digital/electronic signature. The provision for this has been provided under section 67A of the Act.
Under section 85B, in the presence of electronic signatures, a court of law presumes that the electronic contract has not been altered or amended since the point of time at which the electronic signature was affixed by either of the parties and that such electronic signature was used with the intention of assenting to its terms and conditions.
The section in the Indian Evidence Act which deals with the admissibility of electronic records is Section 65B. This section states that any information contained in an electronic record produced by the computer in printed, stored or copied form shall be deemed to be a document and if the conditions laid in the section are satisfied, it can be admissible as evidence in any proceeding without further proof of the original subject.
The Supreme Court in the case of Harpal Singh v. State of Punjab, reiterated the principle of section 65A by stating that any electric record in the form of secondary evidence cannot be admitted in evidence unless the conditions of Section 65B are met.
Section 85A, 85C, 88A and 90A of the Indian Evidence Act, 1872 are other provisions which deal with the presumptions in relation to electronic records. Section 85A was inserted later to uphold the validity of electronic contracts. It says that any electronic record in the form of e-agreement is considered concluded and valid the moment a digital signature is affixed to such record. Sections 85C and 88A deal with the presumption in the case of electronic signature certificates and electronic messages respectively. Section 90A is concerning the presumption regarding electronic records five years old.
Attempt this quiz to test your knowledge on the subject !
#1. Are shrink-wrap agreements legally enforceable in India?
The correct answer is 2. Some of them are, it depends on the facts of the case.
#2. Which of the following documents cannot be executed electronically under the IT Act?
A negotiable instrument other than a cheque under the Negotiable Instruments Act, 1881
#3. Which Indian case upheld the validity of e-mail contracts?
The correct answer is 2. Trimex International FZE Limited, Dubai v. Vendata Aluminum Ltd
#4. Where is the term “digital signature” provided under Indian law?
The correct answer is 4. Section 2(p) of IT Act, 2008
#5. Which section in the IT Act, 2000 recognises the validity of e-contracts?
The correct answer is 3. Section 10A
 Bhagwandas Goverdhandas Kedia v. M/S. Girdharilal Parshottamdas, 1966 AIR 543, 1966 SCR (1) 656.
 L.I.C. Of India & Anr v. Consumer Education & Research, 1995 AIR 1811, 1995 SCC (5) 482.
 Feldman v. Google Inc., 513 F. Supp. 2d 229.
 Bragg v. Linden Research, Inc., 487 F.Supp.2d 593.
 CIT v. Gujrat Pipavav Port Ltd., 2017 SCC OnLine ITAT 2058.
 ProCD, Inc. v. Zeidenberg, 86 F. 3d 1447 (7th Cir. 1996).
 Trimex International FZE Ltd. Dubai v. Vedanta Aluminium Ltd., India, 2010 (1) SCALE 574.
 State v. Mohd. Afzal And Ors., 2003 VIIAD Delhi 1, 107 (2003) DLT 385.
 Harpal Singh v. State of Punjab, (2017) 1 SCC 734.
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