Home Contract Law All you need to know about e-contracts

All you need to know about e-contracts

September 4, 2023

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This article has been written by Arya B S pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution at LawSikho and has been edited by Shashwat Kaushik. This article is an analysis of the accommodation of e-contracts in law.

It has been published by Rachit Garg.

Table of Contents

Introduction

We live in an era of technology, where we carry out almost all of our day-to-day activities with the help of gadgets and devices. It is almost impossible to imagine a life without technology now, as it has made our lives easier. It is pertinent to note that, unknowingly, we depend a lot on technology to make our lives simpler; right from carrying out simple tasks like purchasing groceries to doing major tasks like filing your tax returns or purchasing shares of a company, all these can be done in just one click. That’s the importance of technology in terms of how it makes our lives effortless and hassle-free at every step. Technology has also helped the whole world connect. Through various electronic means and applications available world-wide, individuals have the ability to see, talk and connect with each other in the comfort of their own space without having to meet in-person. Another important change that technology brought to us was the shift from paper-based records to electronic records. Documents, records, agreements, etc. could be copied, modified, searched and carried without the fear of them getting misplaced or misfiled and without the use of paper, thus taking a step towards protecting the environment.

As the use of technology and the internet has advanced, there is a need for adapting laws relating to them, as misuse of transactions done with the help of technology and the internet can take place. Therefore, in order to prevent such a situation from occurring and to authenticate and grant legal recognition to the use of electronic documents, laws have been made and implemented around the world. There are different areas of law where provisions related to technology and e-formats of various objects are mentioned. In this article, we will deal with how contractual law has adapted to electronic contracts, commonly known as e-contracts.

What are e-contracts

A contract is a legally enforceable agreement, as defined under Section 2(h) of The Indian Contract Act, 1872 (herein referred to as “ICA, 1872”). In simple words, it is an agreement that gives rise to a legal obligation to perform an act as promised by the promisor (the person who makes a promise) in return for consideration provided to him by the promisee (the person to whom the promise is made). An electronic contract, commonly referred to as an e-contract, is a legally enforceable agreement formed through electronic means. It is drafted, negotiated and executed digitally, and hence it is completely digital in nature. The term “e-contract” or “electronic contract” has not been defined under The Indian Contract Act, 1872 or The Information Technology Act, 2000 (herein referred to as the “IT Act, 2000”), but the IT Act, 2000, talks about the validity of contracts formed through electronic means. It is mentioned under Section 10A of the IT Act, 2000, that if communication, acceptance or revocation of proposals is expressed in electronic form or by means of any electronic record, then such a contract is deemed to be enforceable.

The main advantage of e-contracts is that they are not paper-based and parties to the e-contract can enter into it even if the promisor and the promisee happen to be in different places, i.e., an in-person meeting is not required for signing the contract. Instead, the parties can enter into the contract by means of a digital signature. A digital signature is a valid digital replacement or alternative to a hand-written signature. It is defined under Section 2(1)(p) of the IT Act, 2000. Section 3 of the IT Act, 2000, provides for the authentication of electronic records by affixing the digital signature of a person.

Essentials of e-contracts

The essentials of a valid e-contract are the same as those of a valid traditional contract. The essentials of a contract are given under Section 10 of the ICA, 1872. These include:

Offer,
acceptance,
presence of a lawful object,
presence of a lawful consideration,
parties to the contract must be competent, and
parties must have entered into the contract by free consent.

An electronic contract formed without any of the above-mentioned essentials shall be deemed void.

Types of e-contracts

There are three main types of electronic contracts. They are:

Shrink-wrap contracts;
Click-wrap contracts; and
Browse-wrap contracts.

Shrink-wrap contracts

In this type of contract, a person is said to have agreed to the terms and conditions of the agreement once he/she makes a purchase of a certain product or software. These agreements are based on the simple idea that once a certain product that was packed or wrapped is opened, acceptance of the terms and conditions of that product is marked. A key factor to note is that there is no power of negotiation in shrink-wrap contracts. An instance where such type of an agreements are seen is when a purchase of mobile phone or any of the software devices is made by a customer. An example of a shrink wrap agreement is an End User License Agreement, commonly known as an EULA.

Click-wrap contracts

Here, a person is deemed to have given acceptance or approval if he/she is said to have clicked on the “I Accept” or “Click to Accept” option in the terms and conditions of the web interface. The user here has to read and go through the points mentioned in the terms and conditions or the privacy policies before giving acceptance for use of the website or interface. Just as in the case of shrink-wrap contracts, the power of negotiation is not available in click-wrap contracts as well. Click-wrap contracts can be seen on almost all the websites that we use. A few of these websites include LinkedIn, Facebook, Urbanic, Urban Clap, etc.

Browse-wrap contracts

These are licensed contracts provided on a website or web interface wherein a “Hyperlink”, when double-clicked, takes the user to a webpage containing the terms and conditions for using that particular application. Downloading such an application or using the website itself means that the user has accepted the terms and conditions of the contract. In browse-wrap contracts, too, there is no power of negotiation. Examples include hyperlinks that show Terms and Condition before downloading mobile applications like Netflix, Amazon, etc.

An analysis of accommodation of e-contracts in law

Electronic contracts are much in use in the present day, and they play a major role in trade and business. The main reasons for this are that they are easily accessible, environment-friendly, faster and easier to work on, with the chances of errors being minimal when compared with paper-contracts. Provisions relating to e-contracts have also been accommodated in different areas of the law, as discussed above.

The validity and enforceability of e-contracts were discussed in detail in the case of Tamil Nadu Organics Private Limited vs. State Bank of India (2019). The Madras High Court in this case held that e-contracts are enforceable under law and contractual obligations shall arise from the same.

In Trimex International FZE Ltd. Dubai vs. Vedanta Aluminium Ltd. (2010), the Supreme Court held that since the offer and acceptance were communicated by the parties through the exchange of e-mails, the e-mails would constitute a contract in themselves. The Supreme Court of India observed that if a contract is concluded, a formal contract prepared and initialed by the parties would not affect the implementation of such a contract.

In the case of Rudder vs. Microsoft Corporation (1999), the plaintiff initiated a class action suit against MSN (a web portal provided by Microsoft), who happened to be a subscriber to the same, for misappropriation, breach of contract and breach of fiduciary duty. Microsoft contended that there existed a clause in the click-wrap contract between the subscribers and the company providing for exclusive jurisdiction to the State of Washington for dispute resolution and hence pleaded for dismissal of the class action suit. Rudder, the plaintiff argued that such a clause wouldn’t be applicable since it was not brought to the attention of the users. Justice Warren Winkler held the decision in favour of Microsoft, stating that the subscribers to the portal were supposed to click on an “I Agree” option twice to accept the terms and conditions of the web portal. The plaintiff had clicked on this option, thereby making him legally obligated to follow the clauses as mentioned in the terms and conditions of the contract, irrespective of whether he read the contract or not. The Court held that the contract would be enforceable, stating that scrolling through several pages of a webpage or web portal was similar to having to turn through several pages of a paper-based contract.

In the case of Bhagwandas Goverdhandhas Kedia vs. Girdhari Lal Parshottamdas & Co. and Anr. (1965), the Supreme Court held that the place for enforcement of a contract formed through electronic means would be the place where acceptance of the offer was received.

Conclusion

To conclude, the use of e-contracts has been rapidly growing since the past decade and has been an advantage to many people around the world. It is important to understand and use these contracts wisely. The usage of e-contracts is sure to increase in the future, especially since digitalization is being promoted by the government, and hence an all-inclusive legislation for enforcement of e-contracts and its related matters is needed to be developed.

References

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All you need to know about e-contracts

Introduction

What are e-contracts

Essentials of e-contracts