This article has been written by Rashi Chandok pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
We live in a cyber era, significant progress has been made in bringing the legal framework up to speed with new technology and the resulting transactions via E-Contracts. Conceptually speaking the E-Contracts are similar to paper-based contracts. It can be argued that the legal framework related to E-Contracts in India is still in its infancy when compared to other nations. This article will help you understand the following topics:
- Meaning of E-contracts;
- E-contracts under Indian laws;
- Different types of E-contracts.
What is a contract?
The term “Contract” is defined under Section 2 (h) of the India Contract Act, 1872 (hereinafter referred to as “the Act”). According to Section 2(h) of the Act, an agreement enforceable by law is a contract. Also, as per Section 2 (j) of the Act a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. A contract could be written formally or informally or could be entirely verbal or in writing. Important sections (Section 10 of the Act) to considered in order to constitute a valid contract are as follows:
- Offer and acceptance is described under Section 2(a) and (b) respectively,
- Lawful consideration is explained under Section 23 and Section 25,
- Condition to be competent for parties is stated under Section 11, and
- Section 14 of the Act deals with free consent and factors that would deem a contract invalid.
What is an E-Contract?
Considering the situation of society due to the pandemic, an e-contract is one of the easiest options to enter into a contract. With recent advancements in computer technology, telecommunications technology, software, and information technology, people’s standard of living has been transformed in unfathomable ways. Communication is no longer limited due to geographical and temporal restrictions. More information is transmitted and received than ever before. This is where electronic commerce provides flexibility to the business environment in terms of location, time, space, distance, and money.
All essential elements of contract law apply equally to contracts established electronically or orally. People often question how old and conventional contract law concepts apply to new and innovative types of technology, which creates a dilemma. However, the basics and features of e-contracts remain the same as those of paper-based contracts as of nowadays. While the fundamentals of a paper-based contract apply to e-contracts, the techniques for concluding the e-contract are derived from Indian Contract Law and are nearly identical to paper-based contracts. E-commerce refers to the purchasing and selling of information, products, and services through computer networks. It is a method of conducting business online, typically over the Internet. It is the instrument that leads to ‘enterprise integration.’ Therefore, with the expansion of e-commerce comes to a significant increase in the usage of e-contracts.
E-contracting is a subset of e-business. It is comparable to traditional business in that products and services are exchanged for a certain amount of money. The only difference is that the contract is executed using a digital method of communication such as the internet.
E-Contracts under Information and Technology Act, 2000
Section 10A of the Information Technology Act, 2000 (hereinafter referred to as “IT Act”) deals with the validity of contracts formed through electronic means and states that the contract is legal if the contract creation, communication, and revocation of proposal/acceptance are all represented in electronic form or through electronic records. An e-contract will not be deemed unenforceable merely because it was created in an electronic format or through the use of electronic means. Signatures of contract parties are necessary to demonstrate acceptance of the terms and conditions for any contract to be legitimate. An electronic signature is used in the case of an e-contract.
Adding further, Section 4 of the IT Act grants legal recognition to electronic records, stating that if any legislation requires information or matter to be in a written or printed form, such need is deemed met if the information or matter is available and accessible in an electronic form.
As per the second schedule of the IT Act, the documents that cannot be executed in electronic or digital form and must be executed in physical form in order to be legal and enforceable in a court of law are as follows:
- Negotiable instruments except for cheques;
- Power of Attorney;
- Will or Testament;
- A sale or conveyance deed of immovable property or any interest in such a party.
E-Contracts under the Evidence Act, 1872
An e-contract has the same legal impact as a paper-based agreement under the Evidence Act of 1872 (hereinafter referred to as “the Evidence Act”). It should be emphasized that the term “evidence” has an encompassing definition under Section 3 of the Evidence Act, which includes any papers, including electronic data, presented for the Court’s examination as documentary evidence. Section 67A of the Evidence Act applies to loan and financing papers when, in addition to a secure electronic signature, proof of the subscriber’s electronic signature must be proven, which can be done by the subscriber’s own testimony.
Types of E-Contracts
E-contracts and their types are discussed in detail as under:
- Shrink-wrap agreements
Typically, shrink wrap contracts are a licencing agreement for software purchases. In the event of shrink-wrap agreements, the terms and conditions for access to such software goods should be enforced by the person purchasing it, with the start of the software product’s packaging. Tightening-up agreements are just the agreements that consumers accept, such as Nokia pc-suite, at time of installing the software on a CD-ROM. Additional terms may only be viewed after installing the programme into your computer, and if the customer disagrees, he has the option to return the software package. The Shrink-wrap Agreement protects the product maker by absolving the manufacturer of any infringement of copyright or intellectual property rights as soon as the customer rips the product or the covering for the goods. However, there is no firm decision or precedent in India regarding the legality of shrink-wrap agreements.
- Click or web-wrap agreements
A Click-wrap contract refers to a web-based contract that needs approval or assent of the user via the “I Accept,” or “OK” button. With the clickwrap agreements, the user must accept the conditions before using a specific software. Users who do not agree with the terms and conditions will be unable to use or purchase the product following cancellation or rejection. Someone nearly always abides by web-wrap agreements. Before users agree to the terms of service, they must be written down. For example, online shopping, software download or installation, to purchase airline tickets or music online, using websites, registering an account on a social media website, etc.
- Browse-wrap agreements
A browsing wrap agreement is a contract that is binding on two or more parties through the usage of a website. In the event of a browsing agreement, an ordinary user of a particular website is required to accept the terms and conditions of use as well as other website rules for continued usage. Such internet contracts are very common in our daily lives. Other nations have dealt with such online agreements and determined that both Shrink-wrap Agreements and Click-Wrap Agreements are enforceable as long as the contract’s general principles are not breached.
After the parties have formed the contract to suit their interests, the stage of execution by affixing an e-signature is the following step. The IT Act recognises two types of signatures: digital signatures generated by an asymmetric crypto-system and hash function, and electronic signatures defined in its second schedule, wherein the user of an Aadhar card is assigned a unique identification number via which they can electronically sign documents via third-party forums (often through generation of a one-time-password). Section 5 of the IT Act defines e-signatures as a broad range of ways for signing a document, whereas a digital signature is a type of e-signature that employs cryptography.
While a lack of jurisprudence on the legal tenability and feasibility of e-signatures indicates that acceptance of the same remains uncertain, efforts have been made to overcome these issues through changes to the IT Act. The Information Technology (Amendment) Act of 2008 replaced the phrase ‘digital signature’ for ‘electronic signature’ with the goal of broadening the scope of e-signatures.
E-signatures are valid if they are uniquely linked to the signatory, who must have complete control over all data used to create the e-signature, if alterations to the e-signature or the document to which it is affixed can be detected after the act of signing, and if a digital signature certificate is issued after the process is completed. With the exception of Schedule I papers, a combined interpretation of the IT Act and the Evidence Act will give legal legitimacy and enforceability to electronic documents completed using e-signatures.
Contracts for employment, contractors, consultants, sales and resale agreements, distributors, non-disclosure agreements, software developer and licence agreements, and contracts for source-code escrow are all examples of online agreements.
E-contracts are ideal to promote the re-building of business forms occurring at many companies, which includes a collection of advancements, procedures, and business systems that guide the instant exchange of data. E-contracts offer both advantages and disadvantages. From one point of view, they decrease expenses, save time, enhance customer response, and improve administration quality by reducing desk time, in this way expanding automation.
This is expected to increase the profitability and intensity of taking interest in businesses by offering extraordinary access to an online global commercial centre with a large number of customers and a broad range of products and administrations. However, with the electronic agreement, the thesis focuses not on individuals who make decisions on explicit transactions, but on how risk should be structured in a mechanized realm. In this way, the article is to provide default standards for assigning a message to a gathering in order to keep a strategic distance from any extortion and discrepancy in the agreement.
COVID-19 will also be used to drive India Inc. toward paperless and faster forms of document execution. Nonetheless, because the IT Act expressly states that only digital signatures and e-signs from Aadhaar are acceptable, foreign signatories who do not have digital signatures or e-signs from Aadhaar will be unable to e-sign. Throughout this circumstance, the worldwide signatories can rely on the signature technique at their disposal to establish their validity through evidence such as email communication or the parties’ activities to identify the intent.
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