This article is written by Chitra Srinivasan, pursuing a Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho.
Table of Contents
Introduction
Everyday we engage in multiple activities without considering the legal relationships we are entering into, not realising or recognising that they are contracts in some form or the other.
When I look into my phone for calls or messages, I am in contract with the phone company which provides me service for the monthly payment I make.
Every time I buy food, it is a contract between me and the shop owner.
When I hire a cab to reach my office, I enter into an unwritten contract with the taxi service company.
So, contracts are the focal point in our everyday lives and there are many definitions as to what contracts are or how they are formed.
Similarly, contracts are the central part of any business worldwide. The parties need to enter into commercially and legally binding contracts depending on their needs and the mutual benefit they both stand to gain. The general principles of a contract, inter alia, being quid pro quo (something for something), and consensus ad idem (meeting of the minds) are the driving forces between the two parties intending to enter into a contract.
Definition
The Indian Contract Act, 1872 gives recognition to agreements being enforceable as contracts if they are “made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void” [Section 10 of the Indian Contract Act].
Electronic contracts are paperless agreements born out of the need for ease, speed and efficiency. It is an agreement between two parties which can be accomplished within a few minutes by simply affixing their digital signatures to an electronic copy of a contract.
Legal validity
Like a regular contract under the Indian Contract Act, E-contracts are governed by the IT Act, which came into force on 17th October, 2000 and is a comprehensive law governing inter alia, electronic contracts, electronic records and electronic signatures in India. The law is based on the Model Law on Electronic Commerce adopted by the United Nations Commission on International Trade Law [‘UNCITRAL’]. It is an Act to provide legal recognition for transactions carried out using electronic data interchange and other means of electronic communication.
E-contracts get their validity from Section 10A of the amended IT Act with the same offer, acceptance, agreement and consideration. Though contracted through electronic means without paper, it is also an agreement enforceable by law if the agreement meets all the criteria as required under the Contract Act, 1872.
So while e-contracts are valid under the IT Act, contracts for the sale or conveyance of immovable property or any interest in such property still requires to be on paper.
The basic differences between a regular contract and an E-Contract are that the E-contracts are drafted and signed digitally. There is no physical contact between the two parties, and it is not time-consuming.
Types of e-contracts
- Emails
- Click wrap
- Shrink wrap
- Browser contracts
- Data exchange and many more.
Parties to the e-contracts
E-contracts have two parties, the originator and the addressee, where the former party sends, generates or transmits the electronic message by way of an offer to the intended addressee, which is accepted by way of an electronic record.
In the case of a click wrap Agreement, if the originator accepts the offer of an addressee by way of the latter clicking an ‘I agree’ button, then it should be valid in contract law.
And in the case of shrink wrap, it is considered that the user has agreed to the terms and conditions once the package has been opened. It is a form of license agreement upon the buyer when he buys software.
Shrink wrap agreements
Talking only about shrink-wrap agreements, it is an End User License Agreement (EULA) which is a software license acting as a contract between the producer and the user of the computer software to specify the limits to which a purchaser is entitled to, as granted by the owner. The EULA comes to effect immediately at the time of purchase, irrespective of how or when it was installed. The agreement is placed strategically inside but visible through the wrapping of the product. It may be located on a CD-ROM sleeve or described within the user’s manual. Many people hardly ever read these terms in detail, generally view them as non-negotiable and accept them as they come.
It is incorporated in such a way that the consumer has to accept the terms and conditions of the agreement on opening the packaging of the product he is purchasing without actually reading it. So the position in law as to the consumer’s acceptance of the Agreement is unclear as he is ignorant of the facts of terms and conditions till he opens the package to read them. The legal Agreement is between the software vendor and the consumer without an actual signature on it.
Validity
Now the question arises whether it is a valid agreement as it is not signed. Some vendors use a registration card or key to sign it, which provides them with an opportunity to safeguard their copyright in a court of law. The validity of these agreements has been questioned, also because there is no bargaining power at all in these agreements.
Of late, there have been instances of court cases that have challenged the use of EULAs within shrink-wrapped software as many complaints have forced some software companies and retailers to accept returns of opened software or to provide EULAs on their websites for consumers to read before purchasing their products. The buyer’s act when he opens it, uses the product, reviews the license and doesn’t reject the product, the shrink-wrap license becomes valid, and the agreement is concluded and the purpose achieved.
Enforceability
While there is ambiguity about the enforceability of shrink-wrap agreements in some jurisdictions, the lack of workable alternatives to such agreements has ensured their continued and wide-spread use.
In the case of Interglobe Aviation, the High Court did not consider the terms of the Indigo Carriage only because the people purchasing tickets are not expected to read the terms. But the Supreme Court overruled that reasoning and held that the buyer is expected to read the terms in cases of shrink wraps as well.
Stamp duty
A typical e-contract would be executed virtually, with the parties agreeing to the terms electronically and affixing their electronic signatures. Stamp duty on such e-contract would have to be paid before or at the time of execution as per section 17 of the Stamp Act.
There are two modes of payment of stamp duty:
Physical mode and Electronic stamping (e-stamping); In India, it is facilitated by the Stock Holding Corporation of India [‘SCHIL’] appointed by the Government of India. It is responsible for the overall E-Stamping application operations and maintenance, and also the authenticity of an e-stamp can be verified online.
Admissibility of e-contracts as evidence
The enactment of the IT Act meant changes in other laws would be necessary. Accordingly, necessary amendments were made to the Evidence Act and the insertion of sections 65A, 65B dealing with electronic records and their admissibility as evidence.
In a recent ruling, the Supreme Court in Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal, (2020) held that furnishing a certificate under section 65B (4) of the Evidence Act is a precedent to admission of electronic records in evidence. The judgment reconsidered the decision of a Division Bench judgment in the case of Shafi Mohammad v. State of Himachal Pradesh (2018) 2 SCC 801.
It upheld the view of the court in an earlier ruling in the case of Anvar P.V. v. P.K. Basheer (2014) 10 SCC 473).
Conclusion
As it is easy to copy, duplicate, reproduce or sell it under any name, the license agreement is protected in the interest of the manufacturers. The license is contracted and enfolded in the product and is enforceable as the buyer on opening the product has agreed to abide by the rules of law validating it. There is continuous activity in the field of electronic contracts identifying and evaluating the legal nuances surrounding it. The various parties involved in E-contracts like service providers, payment gateways, websites dealing with banks and card verifications make E-Business more complex.
In India, there are still not many definite and proper guidelines to protect the buyers and sellers of goods and services in the electronic medium.
Several laws like Indian Contract Act, 1872, Consumer Protection Act, 1986, Information Technology Act, 2000 and Indian Copyright Act, 1957 unify together to regulate the business transactions of the E-Business. And digital signatures play a very important role in safeguarding the identity of the transacting parties. As all businesses are conducted through the internet, a safe measure for cyber security is the need of the hour and a speedy redressal of disputes would promote E-Contract transactions.
Reference
Source: “All about Electronic contracts” by Vinod Kothari Consultants Pvt Ltd.
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