This article has been written by Rohan Jain.
Table of Contents
Abstract
In this digital era, regularly an internet user comes across products on social media apart from e-commerce platforms. Manufacturers, wholesalers, and retailers have created their business accounts to advertise and even to sell the products on the social media platform or by providing a URL on social media platform that redirects internet users to their direct selling website/app or e-commerce marketplace websites/app like Amazon, Flipkart, eBay, etc.
Business accounts get traffic on social media through sponsored advertisements or social media influencers who create content about their product and tag them. These social media influencers have become the sources for the sellers to communicate about their products to the customers at large. Social media influencers influence their organic traffic to visit those business accounts on social media platforms or product pages listing seller’s products on an e-commerce platform to persuade them to make a purchase.
Additionally, sometimes they provide their personalized promo codes for additional discounts. Sometimes, post/message does or doesn’t include the price information. If price information is not included, users are called to ask for the price by direct messaging to the admins/owners of those business accounts.
It is necessary to consider whether the sponsored advertisements; paid promotions by social media influencers; posts related to the product on business accounts of manufacturers, wholesalers, and retailers; products shared by the seller on messaging apps for sale; and the products listed on direct selling websites/apps and e-commerce marketplace are “offer” or “invitation to offer”.
Further, it is necessary to assess at what point of time e-communication of offer and acceptance is completed. Furthermore, the place where an e-contract is concluded between the buyer and the seller in the digital space, must be assessed in such scenarios. Additionally, this paper looks into the aspect of jurisdiction, signature, and stamp duty in reference to e-contracts concluded in e-commerce.
Offer or invitation to offer
As per the Indian Contract Act, 1872, the formation of a contract requires an offer, acceptance, competent parties, lawful consideration, free consent, intention to be bound legally, and a lawful object. Moreover, such an agreement should not be expressly declared void by law. There is no difference in the essential requirements of a contract when formed electronically as Section 10-A of the Information Technology Act, 2000 states that all the essentials required to create a contract may be fulfilled through electronic medium and only due to such medium it cannot be adjudged as unenforceable. In digital space, there is only a change in the set of circumstances that are required to be carefully assessed to determine what constitutes an offer, invitation to offer, acceptance, consideration, consent, etc.
“Offer” is merely a statement made to take an acceptance of the person to whom such a statement is communicated. Whereas, “invitation to offer” is a statement made to encourage another person to make an offer from his end to the person who had invited him to state his offer. Acceptance can only be given to an “offer” and not to “invitation to offer”. Once a contract is formed after accepting the offer, then it can be legally enforced through the court of law by filing a suit for specific performance of a contract.
Be it a product displayed on the e-commerce marketplace website/app, product-related posts posted on business accounts on social media, products shared by the seller on messaging apps for sale, or a product review uploaded by social media influencer to invite someone to place an order is as similar as goods displayed in a shop.
Merely quoting a price on the product page or in the caption doesn’t amount to an offer. If a customer is willing to buy the product by paying an amount quoted online and filling the purchase form, even in such situations the seller has an option to accept/reject the offer made by the buyer.
As in the case of Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd., it was held that merely quoting price through price tags is not an offer and customers willing to purchase the product can make an offer to the seller and it is up to the seller whether to accept/reject the same. Moreover, even in the case of self-service, it is an invitation to offer and not an offer. It is pertinent to mention that merely exposing or displaying goods for sale doesn’t mean an offer to sell the goods, but it indicates that the seller is open for others to make an offer to sell.
Moreover, few e-commerce platforms show special prices, i.e. the lowest price on which they can sell the product to some customers when a customer searches for a particular category regularly. Even in such cases, if the buyer intends to make a payment and purchase the product, he/she offers the seller by placing the order and not communicate his/her acceptance as in the case of Badri Prasad v. State of Madhya Pradesh, it was held that solely asking the buyer whether he/she is ready to pay a specific amount of money or not, doesn’t qualify as an offer.
It is crystal clear that “placing an order” is equivalent to “making an offer”, but a contract can only be formed after placing an order online, the buyer gets acceptance from the seller. It can be in any form, i.e. via email, text message, video call, web page, conduct, etc. But what type of information/conduct from/of the seller amounts to “acceptance”? Does order confirmation page, instant acceptance of consideration through the bank account of the seller, or sending an order confirmation mail/text message amounts to an acceptance from the seller’s end? Can a seller decide what amounts to an acceptance on its own?
Surprisingly, it depends on whether, before this whole scenario of offer and acceptance, the buyer and the seller had an agreement related to the same or not. For example, terms & conditions, conditions of sale, availability guide, etc., that governs the e-commerce transactions.
In the case of prior agreement, it solely depends upon those terms to which parties have agreed before actually conducting a transaction. Sometimes order confirmation page or order confirmation email/text doesn’t amount to an acceptance. Still, a shipment confirmation email is deemed as an acceptance from the seller, which is sent once an order is shipped.
This practice is usually done by inventory e-commerce and marketplace e-commerce platforms as they had an automated system that shows the order confirmation page. It sends an order confirmation email after a successful payment, but there might be a situation where they can run out of stock, quoted the wrong price by an error, etc. and due to this, they are not in a position to fulfil the order placed by the buyer.
To avoid legal complications in such situations, they prefer to communicate acknowledgement of receipt of the order instantly and acceptance when the product is despatched from their end. Therefore, it is always advisable to avoid the automated system of an acceptance and treat the order confirmation page or order confirmation email as a receipt acknowledging the order and embed such a practice in the contract, which is usually followed by all the e-commerce giants.
It is a well-settled law that acceptance of an offer can be made by conduct if such conduct depicts the clear intention of accepting the offer. Moreover, communication of acceptance is not required when an offer is accepted by conduct.
But in the case of inventory e-commerce and marketplace e-commerce, for better documentary proof of each stage, sellers used to send acceptance emails. In case, shipping is deemed as an acceptance, then shipment email is also sent to the buyer. However, if transaction does not takes place on inventory e-commerce or marketplace e-commerce app/website like Amazon, Flipkart, Nykaa, MyGlamm, etc. but on instant messaging apps like Whatsapp, Telegram, etc. and there is no prior agreement between the seller and the buyer governing the rules related to offer and acceptance, in such scenarios, what amounts to offer and acceptance may differ from case to case.
They shall be judged by the court based on the Indian Contract Act. It is pertinent to mention that in the case of marketplace e-commerce/social media platforms, a contract of sale is concluded between the listed seller and the buyer only if that particular marketplace e-commerce/social media platform is acting as an intermediary.
Completion of communication – despatch, receipt, and place
Electronic records are used for offer and acceptance over the internet. Section 13 of the Information Technology Act, 2000 that states, the despatch of an electronic record can be pre-decided by the parties, or otherwise it occurs when it enters a computer resource which is outside the control of the originator and is deemed to be despatched from the place of business of the originator and received at the place of business of the addressee.
The time at which such communication is completed depends on two situations, i.e. whether the addressee has/hasn’t designated a computer resource for receiving electronic records from the originator. In case, computer resource is designated, then at the time when electronic record enters such computer resource of the addressee, or if it is sent to a non-designated computer resource then when such electronic record is retrieved by the addressee from such non-designated computer resource.
Whereas, in case no computer resource has been designated to receive electronic records from the originator, then receipt occurs when it enters the computer resource of the addressee. This can be better understood with the help of the following examples:
Let us take an example of an e-contract that is formed through the exchange of emails. Prima facie, appears to the user that after clicking ‘Send’, email is delivered from one mailbox to the other mailbox.
Whereas, in reality, there is a detailed background processing that works within seconds to deliver the email to the addressee. Suppose, A ([email protected]) wants to send an email to B ([email protected]). A drafts an email with the help of “User Agent”.
User agent provides user-friendly graphical interface to A & B for drafting/sending/receiving/reading emails quickly. When A clicks the send button, the Message Transfer Agent (MTA) client takes email from A and transfers it to the mail server (Gmail) where all the emails are collected at one place.
Then again, the MTA client collects email from the mail server (Gmail) and transfers it to the other mail server (Yahoo). For example, Gmail is the mail server in the case of A ([email protected]) and Yahoo of B ([email protected]). After receiving an email from Gmail mail server, the Message Access Agent (MAA) client collects email from Yahoo Mail Server and shows the email via the user agent in the recipient inbox, i.e. B ([email protected]).
In this case, there is no prior agreement as to the time of despatch and receipt of an electronic record. Hence, electronic record is despatched from A’s end when it enters the Mail server (Gmail), and receipt occurs when MAA Client shows the email via user agent in the recipient inbox, i.e. B ([email protected]).
The point of discussion is whether the postal rule or receipt/instantaneous rule is applicable on emails? Though communication through an email is faster than the regular post, it does not provide face-to-face experience as it is not delivered directly but has to pass through the particular procedure before reaching the final destination.
The sole reason behind the postal rule was based on the fact that an acceptance of an offer could go on ad infinitum, back and forth between the parties. The postal rule was introduced to prevent situations like what if one had to acknowledge the receipt and then the acknowledgement had to be acknowledged so on and so forth.
If the postal rule is not made applicable on emails, a party may fall prey to a situation of never-ending acknowledgements. Moreover, the court of Singapore had already considered email to be a non-instantaneous form of communication.
Hence, the contract is concluded when an email is sent by the offeree and at the place of the offeree as in the case of non-instantaneous modes, the place of the contract is the place from where acceptance has been posted/dispatched.
Instant messaging application
Another example could be an instant messaging application which is now also in use for conducting e-commerce transactions by various users. A user can text, voice calls, video calls, voice notes, and even chatbots to communicate with the other user. It is pertinent to mention all of them shall be referred to as an electronic record. An instant messaging application is what a user can see and use.
However, an instant messaging application installed on two phones can communicate with each other with the help of a central chat server and a persistent connection. A user is seen online whenever there is a persistent connection developed between the user and the central server.
Whenever a user sends a message to the other user, the software of the central server listens to the connection sent by a user. It then delivers to the correct connection maintained by the recipient user with the central server. The moment message is delivered to the recipient user, and it is marked as sent. As each instant messaging application company maintains their central server and only allows their users to make a persistent connection with the central server and not any other user using another instant messaging app, is the only reason why users of two different instant messaging apps cannot communicate with each other.
In this case, there is no prior agreement as to the time of despatch and receipt of an electronic record. Hence, an electronic record is dispatched from the sender’s end when it enters the central server of the instant messaging application, and receipt occurs when the central server delivers the message to the recipient user when he/she has a persistent connection with the central server. It must be noted that if a user sends a message and the recipient user has not maintained a persistent connection at that moment with the central server due to which message is still not yet delivered by the central server to the computer resource of the respective recipient user, then it cannot be deemed as a receipt.
It is pertinent to mention that the exchange of messages on instant messaging applications provides an effective, efficient and real-time communication experience without face to face. Here, messages do not remain for a few seconds or minutes in the server like emails and are instantly delivered with the help of persistent connections maintained by the users with the central server.
Hence, receipt/instantaneous rule is applicable on such modes of communication and contract is concluded at the moment when a message is received by the offeror and at the place where acceptance is received, as in the case of Entores Ltd. v. Miles Far East Corporation and Bhagwandas v. Girdharilal and Co. it was held that when the mode of communication is instantaneous, then the contract is formed where the acceptance is received.
Web page
Another example is communication between buyer and seller on websites. Whenever a client (user) requests a message from a web server, for a certain web page by clicking on a web page, submitting a form, running a search, or manually typing a URL in the search bar, such request is sent by the browser of the Client (user).
This message request and all other data between the client and the server, is sent across an internet connection using TCP/IP. The web servers wait for client request messages, process them when they arrive. After approval by the web server, the web server responds to the request by sending all the web page files to the client’s (user) browser as a series of small chunks called data packets. After that the browser assembles the data packets into a complete web page and displays it to the client (user). If a request sent by the client is not approved by the web server, it is denied with a message such as “404 Not Found”, “403 Forbidden”, etc.
In this case, if there is no prior agreement as to the time of despatch and receipt of an electronic record, electronic record is dispatched from the client (user) when it enters the TCP/IP, and receipt occurs when it enters the client (user).
It is pertinent to note that communication between client (user) and the web server cannot lead to ad infinitum, back and forth acknowledgements as the web server immediately process and responds to the client’s (user) request and have no option to respond afterwards when the client had already left the web page.
Thereby, it provides the real-time experience of communication. Hence, the receipt/instantaneous rule is applicable on such modes of communication and an e-contract is concluded at the moment when a message is received by the offeror and at the place where acceptance is received.
Signature – a mandatory requirement for e-contracts?
Under Section 4 and 5 of the Information Technology Act, 2000, “electronic records” are deemed equivalent to records in typewritten or printed format if they can be made available in an electronic form and accessible for subsequent reference. Moreover, if such a record is to be signed, it can be signed by e-signatures. It is pertinent to mention that electronic records are deemed as a document and are admissible in court.
The purpose of signature in contracts is to depict the intention of the party to be bound by the obligations. The lack of a signature would typically suggest that the parties had not yet reached the point of agreeing to be bound. Therefore, in e-commerce transactions, it is not mandatory to signify the assent through e-signature as law in India doesn’t make signature the only mode of giving assent. Assent, i.e. approval to the terms of an e-contract, can also be inferred through the actions of the parties. In the case of Trimex International FZE Ltd. Dubai v. Vedanta Aluminium Ltd., it was held that once a contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initialled by the parties would not affect either the acceptance or implementation of such contract.
Further, in the case of Tamil Nadu Organic Private Ltd. and Ors. v. State Bank of India, it was held that contractual liabilities could arise by way of electronic means and that such contracts could be enforced under the law. It is pertinent to mention that the usage of e-signature only helps in courtroom proceedings as it raises the presumption that the e-signature is affixed by the subscriber to sign or approve the electronic record. Hence, it can be helpful to prove the party’s intention.
A question may arise: what other alternatives can be used to depict the party’s intention in e-commerce transactions? Click-wrap agreements or scroll and accept agreements are the best way to ensure acceptances for online agreements.
However, a party must be able to prove that the other party was put on notice of the existence of the agreement, had an opportunity to review the terms, and unequivocally accepted the agreement. Moreover, a party must be able to show what the screen looked like at the time of signing, the version of the agreement signed by the party, the system used to capture acceptance, and individualized back-end records of acceptance. Convincingly, it can be stated that merely using electronic means for the formation of a contract doesn’t invalidate it, what will make that invalid is if it doesn’t comply with the requirements of the Indian Contract Act, 1872.
Is stamp duty payable on e-contracts?
In India, stamp duty is payable in respect of specified instruments in accordance with applicable central or state level stamp duty laws. The Indian Stamp Act applies to those States which do not have any State-specific stamp law. If an instrument is executed in two different states where stamp duty differs, it is recommended that the parties calculate the stamp duties that are payable in the relevant states and consequently stamp with the highest stamp duty. But whether stamp duty has to be paid on e-contracts or not? To be applicable for stamp duty, e-contract should fall under the category of an “instrument” mentioned under Schedule I of Stamp Act and it should be “executed” in India.
“Instrument” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. Additionally, an “electronic document” created only for a transaction in a stock exchange or depository and not otherwise is also included within the purview of an instrument. Hence, it can be concluded that an “electronic document” other than the above is not expressly included within the definition of an instrument as per the Indian Stamp Act, 1899. However, the wordings, i.e. “includes every document…” is used. If an electronic record is proved as a document and such a document is mentioned under the Schedule I of Stamp Act, then stamp duty shall be paid before or at the time of its execution.
Undoubtedly, an e-contract is an electronic record, and electronic records are legally recognized under the Information Technology Act, 2000. E-contract creates rights and liabilities, and to enforce this e-contract before the court, this should be made admissible, and to make it admissible, it should be deemed as a “document” by fulfilling the criteria of Section 65B of the Indian Evidence Act, 1872.
Once such an electronic record in the form of e-contract is deemed a document under Section 65B of the Indian Evidence Act, 1872, then to enforce such e-contract through courts, it must be duly stamped, if applicable. Over and above this, for the sake of clarity, many State Governments including Maharashtra have amended their State legislation and had expressly included “electronic record” under the definition of an “Instrument”. In other words, you cannot opt-out not to pay the stamp duty for e-contracts, if applicable.
Further, such an e-contract must be executed to be applicable for stamp duty. Execution with reference to instruments, mean “signed” and “signature”. A signature can be affixed by digital signature or any other e-signature prescribed by the government. Therefore, if any e-contract falls within the scope of those documents mentioned under the Central or State stamp duty laws on which stamp duty is applicable and such an e-contract is executed, then stamp duty must be duly paid to make it enforceable before the court of law. On the other hand, contracts on which stamp duty is not applicable can be executed with other means which are regarded as the most common methodologies such as by exchange of emails, click wrap or shrink wrap, by affixing digital signature, or performance of any action that depicts the free consent of the party to be bound by the terms of the e-contract.
Recommendation & conclusion
It is recommended to always draft and publish terms of use or terms & conditions agreement and mention what constitutes an offer, acceptance, and acknowledgement of receipt; when communication is completed; place of jurisdiction in case conflict arises; etc.
It is pertinent to mention that a statement to the effect of acknowledging a receipt of an order must be made just after receiving the order. Most importantly, an agreement governing terms of e-commerce transaction must be placed on a prominent place on websites/apps or must be circulated to the party if conducting e-commerce transactions through instant messaging apps or email, before posting/sending the products with/without price or while circulating an order form. Proper records should be maintained as they can be used as a piece of evidence in the worst scenarios.
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