Online contracts in India are governed under the Indian Contract Act and validated under Section 10A of the Information Technology Act. The relationship between the customers and the e-commerce entities are governed by the Terms of Service (ToS) (for websites) and End-User License Agreement (EULA) (used for downloadable or packaged software). Typical contracts for e-commerce sites are in the form of “click wrap contracts” and “browse wrap contracts”, are standardised and leave no scope for negotiation as they are on a “take-it-or-leave-it basis”. There is no conceptual problem with a standardized contract, but some of the terms of such contracts may not be enforceable, especially if they are unreasonable. In India, we do not have case laws pertaining to enforceability of online contracts but in other countries typical problem areas pertaining to the terms of service have surrounded the following:
- Arbitration clause which exclusively determines the arbitration forum and the courts which have jurisdiction in case of any dispute. This can place undue cost on the other party. Courts may reject this choice and allow the customers to sue in another location also.
- A choice of law clause which decides the law of the country that will apply. For example, a clause which states laws of Singapore will be applicable. What if the buyer is in India? Can the contract completely exclude Indian law? Courts may reject a clause like this.
- Limitation of liability clause which absolves or limits liability to an artificially low extent. On this point, Indian courts have case law with respect to provision of goods and services on a brick-and-mortar based model. As long back as 1966, the Madras High Court had struck down a clause in a laundry services contract which restricted the liability of the service provider to 50 % of the cost of the goods.
Best practices for terms of service (TOS)
While there is no way to have certainty on whether Terms of Service (TOS) will be treated as enforceable before a court, e-commerce sites may follow the follow certain “best practises”:
- When a customer is registering for the service, the entire Terms of Service should be presented in a clear readable format and ensure that the customer has read them (example through a timer that detects if the customer clicks on “I Agree” too soon or by disabling the “I Agree” feature until the customer scrolls down till the bottom of the provisions).
- The e-commerce site should ensure that important terms and conditions are presented in a concise manner. In some jurisdictions, it is safer if the more one-sided terms (such as arbitration or limitation of liability clause) are presented near the “I Accept” button.
- An opportunity must be given to the customer to save or print the terms of service
- The Terms of Service must be identifiable at a conspicuous place on the website, which will be easy to locate in case a customer needs to refer to them again.
- Changes to terms of service must be bought to the notice of the customers in a prominent manner and customers must be given an opportunity to accept them. For example, Facebook, Google and LinkedIn do this very clearly by prompting users to a drop down box or a pop-up which requires them to take a click-based action, such as ‘Dismiss’ or ‘I Agree’. Ideally, there must also be a “Decline” button which should of the same size as the “I Agree” button, although few sites implement this.The e-commerce site should present or direct users to the terms and conditions every time a purchase is made at the site. Indian e-commerce and travel sites do this.
- Another problem that the e-commerce sites might face relates to usage of the website by minors. Under the Indian law, a contract is not enforceable against a minor. It is essential that the website must mention in its terms of service that the service is available only to persons above 18 years of age. Typically websites such as YouTube require confirmation that the users are ‘above 18’ before granting access to certain types of content. However, it might be practically difficult to restrict minors from creating accounts using fake information.