This article has been written by Bhavisha Manish Ramrakhyani, pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

With the exponential rise of the virtual economic system these days, online agreements have developed into inextricably being woven into electronic commerce. Of these, the most popular are clickwrap agreements, which may be stated as one of the most pervasive features in decreasing transaction prices while working on digital structures. Clickwrap agreements are majorly used in software program licenses, online offerings, and e-commerce, where the user has to click a button or check a box to show his consent to the stipulations. This paper examines the enforceability of clickwrap agreements in India, citing laws, case precedence, and practical implications for businesses and consumers.

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Enforceability

Clickwrap agreements take their name from the process that users engage in when they “click” on a button indicating their acceptance of the terms and conditions. In contrast to browsewrap agreements in which terms are just made available to the user, in the context of a clickwrap, the terms specifically demand some positive action from the user. This distinction is significant in a determination of its validity as it is taken to constitute an unambiguous expression of acceptance.

Legal framework governing clickwrap agreements in India

Information Technology Act, 2000

The Information Technology Act, 2000 (IT Act) serves as the primary statutory regulation governing electronic contracts in India. Notably, Section 10-A of the IT Act holds significant importance in this regard. It addresses the validity of electronic contracts by specifying essential elements that must be present for a legally valid contract.

According to Section 10-A, an electronic contract is considered valid if it fulfils certain fundamental requirements. Firstly, there must be an electronic pact that constitutes an offer. An offer is a proposal made by one party to another, expressing a willingness to enter into a contract on specific terms. In an electronic contract, this offer can be made through electronic means such as email, website forms, or e-commerce platforms.

Secondly, there must be acceptance of the offer. Acceptance is the act of agreeing to the terms of an offer, thereby creating a legally binding agreement. In an electronic contract, acceptance can be signified through various electronic actions, such as clicking on an “Accept” button, downloading a software program, or performing an act in accordance with the terms of the offer.

Thirdly, there must be lawful consideration. Consideration refers to the exchange of value between the parties to a contract. In an electronic contract, consideration can take various forms, such as the exchange of money, goods, services, or promises. It’s essential that the consideration be lawful and not prohibited by law.

Furthermore, Section 10-A also recognises electronic signatures as legally valid under certain conditions. An electronic signature is any electronic method used to authenticate a document, such as a digital signature or a scanned signature. The IT Act provides a legal framework for the use of electronic signatures, ensuring that they have the same legal effect as traditional handwritten signatures.

It’s worth noting that the IT Act, including Section 10-A, has been instrumental in promoting the legality and enforceability of electronic contracts in India. This has facilitated the growth of e-commerce and digital transactions, enabling businesses and individuals to engage in contractual relationships electronically.

The Contract Act, 1872

The Contract Act of 1872, an indispensable piece of legislation, provides the foundation for contracts and agreements in India. To ensure a binding contract, certain elements must be present: free consent, a lawful object, and lawful consideration. Click-wrap agreements, prevalent in the digital age, are not exempt from these requirements.

Section 2(e) of the Act defines a contract as “every promise and every set of promises, forming the consideration for each other, is an agreement.” This definition holds true for both traditional paper-based contracts and modern click-wrap agreements. Click-wrap agreements, often encountered during online transactions and software downloads, require the user to indicate their consent by clicking an “I agree” button or a similar action.

While click-wrap agreements offer convenience and efficiency in the digital realm, they are subject to the same legal requirements as their paper-based counterparts. The parties involved in a click-wrap agreement must provide their free and genuine consent, without any coercion or undue influence. The object of the contract must be lawful, and the consideration exchanged between the parties must be legal and valuable.

It’s crucial for individuals and businesses entering into click-wrap agreements to understand their rights and obligations. Carefully reviewing the terms and conditions before clicking “I agree” is essential to ensure that the agreement aligns with the parties’ intentions and complies with the legal framework.

The Contract Act of 1872 serves as a guiding principle for both offline and online contracts, ensuring fairness, transparency, and enforceability. By adhering to the principles of free consent, lawful object, and lawful consideration, click-wrap agreements can be legally binding and effective in the digital landscape.

Enforceability of clickwrap agreements: judicial perspective

Indian courts, over time, have accepted the enforceability of Clickwrap agreements. There has been a catena of judgements wherein courts in India have recognised and validated Clickwrap agreements by drawing a similarity between Clickwrap agreements and a traditional form of contract. Some of the important case laws are given as follows:

Trimex International FZE Limited, Dubai vs. Vedanta Aluminium Limited

In the famous 2010 case of Trimex International FZE Limited, Dubai vs. Vedanta Aluminium Limited, India, the Supreme Court ruled on the validity of e-contracts. In the case, there was a dispute between a Dubai-based company, Trimex International FZE, and an Indian Company, Vedanta Aluminium Limited, regarding the supply of bauxite. Trimex has contended that a series of emails exchanged between them formed a legally binding contract.

The main question before the court was whether these email exchanges would amount to a valid and legally executable contract under Indian law. SC ruled that an e-contract does indeed stand valid and enforceable if it meets the basic requirements of a contract as provided under the Act.

The court explained that the IT Act, 2000 itself gives legal recognition to electronic records and signatures, and therefore the contracts entered into online are valid contracts. Its judgement reiterated that the medium through which a contract is made will not invalidate it if elements of a valid contract exist.

The case was an important precedent for the enforceability of electronic contracts, including the clickwrap agreement, in India. It signalled that the judiciary acknowledged new commercial practices and the need to evolve traditional legal jurisprudence for the digital era. Clarity and confidence were given to businesses involved in electronic transactions by making it very clear that properly constituted electronic agreements are legally binding and also enforceable.

Karnataka Power Transmission Corporation Ltd. vs. M/s. Deepak Cables (India) Limited (2014)

The case of Karnataka Power Transmission Corporation Ltd. vs. M/s. Deepak Cables (India) Limited is very crucial for explaining the enforceability of e-contracts in India, heard by the Karnataka High Court. The dispute involved a contract for the supply and installation of cables. The agreement with its terms and conditions was brought to the notice and accepted through electronic means.

The main issue faced in the court was whether the acceptance of the contract terms through electronic mode was legally valid. The Karnataka High Court has maintained that an electronic contract is enforceable but that the basic requirements for a valid contract under the Indian Contract Act, 1872, have to be satisfied. These would include the lawful offer and acceptance, the intention to create legal relations and lawful consideration.

The court elaborated that the intention of the parties to enter into a binding agreement is of prime importance. In the case at hand, it was established beyond doubt through e-mail correspondence exchanged between Karnataka Power Transmission Corporation Ltd. and M/s. Deepak Cables that there was an intention to be bound by the terms of the contract. The IT Act of 2000 recognises electronic records and digital signatures, and thus the court held that the validity of such agreements is further strengthened.

This case becomes important because it reiterates the legality of e-contracts in India, including those created through clickwrap agreements, against the backdrop of such a scenario. The cases show that as long as digital contracts meet requirements developed for traditional paper-based arrangements, courts are prepared to enforce them. This judgement thus becomes most important for any business entity operating in cyberspace, as it affirms legal validity for agreements created and accepted electronically.

Elements necessary for enforceability

For making click-wrap agreements enforceable, the following elements should be cautiously considered:

Clear and conspicuous terms

Terms and conditions must always be presented in a clear and conspicuous manner, permitting review by users prior to acceptance. Courts have attacked agreements where terms were buried in long documents or presented in a misleading manner.

Affirmative action

Affirmative action—requiring users to click “I Agree”—means explicit consent on the part of the individual. This feature is what characterises clickwrap agreements versus browse wraps and is what validates such agreements.

Opportunity to review

The user must be given the opportunity to review the terms and conditions prior to accepting. Hyperlinking must be clear and conspicuous so that users can in fact review the text prior to a decision being made.

Case studies: enforceability in action

HDFC Bank Ltd. vs. Kumar & Ors. (2016)

The Delhi High Court’s decision in HDFC Bank Ltd. vs. Kumar & Ors. 2016 had significant implications for the enforceability of clickwrap agreements in India. Clickwrap agreements are electronic contracts formed when a user clicks “I Agree” or a similar button to accept the terms and conditions of a service or product. These agreements are commonly used in online banking, e-commerce, and software licensing.

In this case, HDFC Bank, one of India’s largest banks, had included a clickwrap agreement in its online banking services. The agreement contained various terms and conditions, including liability limitations, dispute resolution procedures, and data protection policies. Kumar, an HDFC Bank customer, challenged the enforceability of certain terms, arguing that he had not read or understood them before clicking “I Agree.”

The Delhi High Court held that clickwrap agreements are valid and enforceable in India, provided that certain conditions are met. These conditions include:

  1. Notice and consent: The user must be given clear and conspicuous notice of the clickwrap agreement before they click “I Agree.” The notice should be displayed in a prominent location on the screen and should be easy to understand.
  2. Opportunity to review: The user must be given a reasonable opportunity to review the terms and conditions of the clickwrap agreement before they click “I Agree.” The agreement should be presented in a legible and accessible format.
  3. Affirmative consent: The user must affirmatively consent to the terms and conditions of the clickwrap agreement by clicking “I Agree” or a similar button. The button should be clearly labeled and should not be placed in a misleading or confusing manner.
  4. Written record: The clickwrap agreement should be stored in a durable and accessible format, such as a PDF file or a screenshot. This record will serve as evidence of the user’s consent.

The Delhi High Court also held that clickwrap agreements are not automatically invalidated if the user does not read or understand the terms and conditions. However, the court noted that a user’s lack of understanding may be a factor in determining whether the agreement is enforceable in a particular case.

The HDFC Bank Ltd. vs. Kumar & Ors. 2016 decision has had a significant impact on the use of clickwrap agreements in India. Businesses that use clickwrap agreements should ensure that they comply with the conditions outlined by the Delhi High Court to ensure that their agreements are enforceable.

Thus, the court’s scrutiny rested on whether such a clickwrap agreement entered into by the customer with the company, requiring him to click a button for acceptance of the terms and conditions, sustained a valid contract. The Delhi High Court held this said clickwrap agreement to be good in law and, hence, fully enforceable, whereby the explicit act by itself manifested in an unequivocal acceptance under the rubric of clicking “I Agree.”. It reasoned that this affirmative action, coupled with the opportunity given to the user for reviewing the terms before acceptance, satisfied the requirements of Section under the Indian Contract Act, 1872.

The court also explained that the IT Act of 2000 legally recognised electronic records and digital signatures; hence, it cannot rule out the clickwrap agreements. This judgement made it totally clear that for the enforceability of clickwrap agreements, there must be a clear and conspicuous presentation of terms and the user’s affirmative consent.

What is important in the present case, considering the precedent value, is that it has clearly held that clickwrap agreements are enforceable in India. On the other hand, the courts have clearly endorsed digital contracts. This hence underpins the requirement of obtaining consent from the user and the need for a business to make sure that there is transparency and clarity in displaying terms and conditions through online transactions.

DLF Ltd. vs. Manmohan Lowe, 2017

The case of DLF Ltd. vs. Manmohan Lowe (2017) decided by the Delhi High Court, comes as a critical example with regard to the enforceability of clickwrap agreements in the Indian legal framework. DLF Ltd., one of the most prominent real estate developers, had introduced in its online residential property booking process what is known as a “clickwrap agreement.” Customer Manmohan Lowe challenged the compulsoriness of the terms and conditions he had agreed to by clicking on the “I Agree” button in the online booking process.

The court had to decide whether the clickwrap agreement passed the tests for a valid contract under Indian law. The Delhi High Court validated the clickwrap agreement by ruling that with every click on the “I Agree” button, the customer clearly and explicitly gave his consent to the terms and conditions of the agreement. It was noted that such an agreement was presented to the customer after allowing him to view the terms.

The IT Act, 2000, has also been referred to, under which legal recognition to e-contracts and e-signatures was accorded by the law, thereby further strengthening the validity of clickwrap agreements. The court, in its judgement, elucidated that enforceability depends upon the clarity and conspicuousness of the terms and affirmative action on the part of the user.

The ruling supports the stand of the judiciary that clickwrap agreements are enforceable in so far as they fulfil the essential elements of a contract—offer, acceptance, and intention to create legal relations. It provides legal strength in India to an electronic agreement and imparts useful lessons to businesses to legally bind their online contracts. This case assures both consumers and businesses that the legitimacy of electronic transactions facilitated through clickwrap agreements is based on law.

Challenges and considerations

Even though clickwrap agreements may generally be enforceable, there are some problems associated with them. These include:

Unfair terms and consumer protection

In clickwrap agreements, the unfair and unconscionable terms must not disadvantage the consumer. The Consumer Protection Act, 2019, empowers the consumer to challenge unfair terms in a contract, thereby striking a balance between the two parties: businesses and consumers.

Transparency and clarity

Terms and conditions should be clear and transparent in their presentation, meaning that businesses cannot bury their terms contractually; otherwise, such an agreement would be voidable since the courts uphold informed consent.

Problems of evidence

It can be very problematic, though, to prove their existence and to prove that acceptance in litigation disputes. Evidence problems, however, can be overcome if proper records of such acceptance between the user and the website are maintained.

Types of clickwrap agreements

Software licences

One of the purposes that the clickwrap agreement is put to use is by software companies that require the provision of licenses to their software products. To conclude the agreement, users must accept the terms prior to software installation.

E-commerce transactions

E-commerce platforms adopt the clickwrap method of binding users to terms and conditions prior to finishing a purchasing process. This application protects the platform and complies with policies.

Online services

Online service providers, including social media platforms and cloud service providers, use the clickwrap method of securing user acceptance of their terms of service, privacy policies, and usage guidelines.

Conclusion

Clickwrap agreements have very much become central to the digital landscape, offering a streamlined way to secure user consent. In India, the enforceability of clickwrap agreements originates from the IT Act of 2000, whereas the Indian Contract Act is from 1872. Judicial precedents also reinforce their validity, further providing basic criteria for the contract formation to be met. Businesses must ensure their presentation is clear, affirmative action, and transparent in order to be enforceable.  With the evolving digital economy, clickwrap agreements will continue to form an important tool for online transactions without the rigours of the law coming in the way of user convenience.

References

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