This article has been written by Jyotiranjan Mallick pursuing the Diploma in Cyber Law, FinTech Regulations and Technology Contracts from LawSikho. This article has been edited by Aditi Deshmukh (Associate, Lawsikho) and Dipshi Swara (Senior Associate, Lawsik

Introduction 

With the rampant development of Information technology, telecommunication, software, and cyber infrastructure there is a rapid change in lifestyle. This modern development of cyber infrastructure has also impacted the manner in which businesses operate since information and dissemination of the data takes place within seconds through the cyber network of the internet. This is the place where concepts such as e-commerce and e-contracts come into play, which provides flexibility in terms of operation of businesses and executing contracts through the virtual medium of the internet. The rise of e-commerce and e-contracts results in a high level of  “enterprise integration” wherein these contracts become a daily part of our commercial lives. The rise of e-contracts however comes with its own sets of legal and conceptual implications. 

Meaning of E-Contract

E-contract can be defined as any contract formed in the course of e-commerce by the interaction of two or more individuals using electronic ways, such as e-mail, or other option the interaction of an individual with an electronic agent, such as a computer program, or any software. In India per the Information Technology Act, 2000 particularly Section 10-A which was introduced with the IT amendment act 2008, an electronic contract is held to be valid and enforceable.

Since section 10 of the IT Act gives the validity to e-contracts, the next set of steps includes the additional compliances that must be made for its validation. For the validity of the e-contract, an electronic signature comes to play. An electronic signature is defined by the IT Act, Section 2(p) as the authentication of any electronic record by a subscriber by means of the electronic technique specified in the second schedule and it includes a digital signature.

An electronic signature serves the same aim as that of a hand signature. Further Section 85 c of the Indian evidence act states that as far as a digital signature is concerned, the courts presume that the information provided in that certificate is true and correct. As long as there are two parties who have executed the e-contract with the digital sign it will be held to be valid. 

What are the essentials of E -contract ?

Similar to the application of a traditional contract the smart contract also has to follow its essential ingredient for it to be deemed as a “valid contract”. Take for consideration a clickwrap contract, before agreeing to the box that states “I Agree” or “I agree to the terms” the catalogue represents a set of terms that you must affirm before proceeding further. This catalogue represents an “offer” which if agreed by asserting the “I agree” constitutes the acceptance of the contract. The crux of a contract being completed, the auxiliary ingredients such as lawful consideration, competency of the parties to contract and the free consent is by default implied with the assent to the “I agree”. However, the contours of smart contracts unlike the traditional contract is majorly operated via the internet or blockchain which results in creating its own sets of limitations which will be discussed in the next section. 

What are the general limitations of the e- contract?

1. Jurisdiction 

One of the general limitations of e-contracts is the virtual medium within which it operates. The Internet represents a medium that doesn’t have any set or defined territorial boundaries. The manner in which the network node operates can transgress any international boundaries. This means that an e-contract can be executed between the two individuals sitting from the two opposite corners of the world. The complexity of delineating a boundary represents a dilemma of ascertaining the jurisdiction as to where the contract was formed, what would be applicable domestic law in case such a source is determined, etc. This results in complex litigation which consumes a lot of time in delineating such jurisdiction let alone adjudicating the issue to resolve the same. 

2. Formation of the contract 

The complicity of the internet as a mode of forming the contract has resulted in creating certain uncertainties. One of the uncertainties is whether the website owner who is using the web address as a  medium to formulate the contract is acting in the capacity of an offer maker or someone who is making an invitation to the offer. Does the potential customer’s communication constitute an offer or an acceptance? 

The answer will dictate the time and place a contract is made. This is the reason that an e-commerce business should clearly stipulate a method of acceptance of the contract for selling the item on its website. For example, the medium should reciprocate that the medium such a website or the app is a facilitator for an invitation to offer and should mandate that any indication of interest sent by an e-customer is an offer, not an acceptance. Once the e-business receives an offer from a purchaser, it can decide whether or not to accept. 

3. Validity of the Electronic contract 

Another emerging issue is the legal validity of Web wrap or click-on contracts. These types of clickwrap agreement or end-users license acceptance are mainly found when you are trying to purchase certain items from the internet or installing software etc. This mechanism allows the user or customer to purchase the product or service by clicking agree to the terms by clicking a box on the screen that says “OK” or “I agree.”. The complication however arises as to when the acceptance takes place. Traditional contract law usually holds that an acceptance takes place when sent by the offeree using an authorized mode of communication. This is referred to as the “mailbox rule”. 

In the case of the internet as a mode that involves an instantaneous mode of communication the interpretation of the acceptance can be understood Enrores u. Miles Far East Corporation where an English court ruled that acceptance is effective upon receipt in situations involving instantaneous forms of communication. This is generally followed in the case of e-contract however from the depiction it’s clear that it is in abrogation of the mailbox rule, but is consistent with the policy in the virtual medium. However, complications arise when a conflict emerges in the application. Thereafter, the rule of interpretation will apply for considering acceptance. 

Limitations of E-contract vis a vis Indian Contract law 

The formation of the contract under the Indian law is governed by the Indian contract act 1872. The contract act however only specifies basic criteria such as a lawful object, free consent, the competence of the parties etc. which is not in pace with the various applications of smart contracts or electronic contracts. 

1. One of the key problems that arise is the mechanism under which the contracts are formulated under the contract act. Section  4 of the Indian Contract Act follows the postal rule method for determining the communications. As previously discussed, this postal/mailbox rule which confirms the acceptance to the contract when the other party receives a receipt of the same.

In the case of online contracts, the method is instantaneous communication where a simple click to order something from an online shopping portal leads to a complex electronic contract and. an ordinary consumer may lack the capacity to understand the issues arising out of the same. . For instance, in e-mail contracts, the recipient may not be aware of the acceptance till he checks his email. In terms of the applicability of the Contract act to such modern technologies, complications arise to determine the “acceptance” of the contract. For understanding, if we were to apply the “mailbox/postal” rule then in communication involving tech, e-mail, e-commerce sites the acceptance should technically be completed the moment the communication of acceptance is sent. 

This is owing to the fact that per the contract act, such acceptance is complete against the offeror and a valid contract has already arisen irrespective of whether the offeror has checked his messages or not. On the other hand, in case of website contracts, offer and its acceptance may be simultaneous and instant resulting in a binding contract upon a mere click‘ even when such click may be due to server error or by mistake on part of the consumer. This might create a legal and logistical complication of determining as to when the contract was completed/accepted creating problems in ascertaining jurisdiction to adjudicate commercial disputes. 

2. Another issue that arises with electronic contracts is the flaw in giving a free and fair consent to the terms of the same. In traditional terms of law, a contract is an agreement between two people who agree to the same objectives with a consensus of mind, with additional requirements such as competence, free consent and lawful objectives. The rationale is that parties are on the same level of transactional power with no one having a disproportionate influence over the other party. This is however not the case in online contracts, specifically clickwrap agreements and other standardised forms of transaction in commerce/banking where one party sets the terms and conditions for the entire contract. This results in disproportionate influence of one party over the other which attracts manifold numbers of cases of mistake, misrepresentation or fraud wherein the other party is forced  to enter such contracts due to a huge volume of terms in the same.

Conclusion 

Electronic contracts simplify daily transactions for an e-consumer to a large extent. However, they also give rise to issues of free consent and freedom to contract. To reside the responsibility of the caution all on the hands of the consumer would result in creating a disproportionately inequivalent ecosystem. Hence caution should not be the only solution that should be available with the customer of an e-contract. There needs to be proper supervision to the terms that are set to the e-contracts. Moreover, there needs to provide accessible solutions in a limited time span for daily dishonored e-contracts.

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