This note is only intended as a general overview and is not to be viewed as a substitute for legal advice. Brands & Bonds shall not be liable for any actions taken or not taken on the basis of this note.
The Internet has revolutionized the way people communicate. More than that, the Internet and electronic exchange of data has changed the way people do business. It has brought about a new form of trade and commerce called the E-commerce. With the high level of internet penetration throughout the world, and the number of internet users skyrocketing, the e-commerce is booming. The high speed and the absence of geographical boundary, the main advantages of the internet has contributed a lot to the growth of e-commerce. For example, a buyer in India can purchase goods from a vendor in the U.S by a few clicks of the mouse, and that too without even having to leave his home or office. The e-commerce has brought about a new form of contracting in the electronic world known as electronic contract or simply e-contract or online contracts. Most of us are familiar with electronic contracts – most common ones are the “End User License Agreement” or EULA where one has to click on the “I Agree” button to install a software or the Terms and Conditions/User Agreement on a website.
In India, all agreements and contracts including the online contracts are governed by the Indian Contract Act, 1872. A contract, simply put, is an agreement enforceable by the law. Section 10 of the Indian Contract Act deals with the basic essentials of a valid contract:
Until the above conditions are satisfied, a contract cannot be said to be valid. In India, a valid e-contract should satisfy both the Indian Contract Act, 1872 and the Information Technology Act, 2000. An online contract, if the above essential conditions are met, is legally binding on the user the moment he/she clicks the “I Agree” button.
Similar to an ordinary contract, online contracts are enforceable e-agreements consisting of an offer and acceptance. A contract can also be implied from the conduct of the parties like exchange of e-mails or accepting a condition or terms or by downloading, etc. A variety of procedures are available for forming electronic/online contracts:
Email : By exchanging e-mail communications, the parties can create a valid contract. Offers and acceptances may be exchanged entirely by e-mail, or can be combined with paper documents, faxes, and oral discussions.
Website Forms : In many cases an e-commerce Web site will offer goods or services for sale, which the customer orders by completing and transmitting an order form displayed on screen. Once the vendor accepts the order, a contract is formed. The goods and services may then be physically delivered off-line. The Terms of Use of a website would also become a valid contract once the user accepts the same by clicking “I Agree”.
EULA : The End User License Agreements also form valid contracts where the end consumer clicks “I Agree” or I Accept the Terms” button in the form.
In short, the major difference between an e-contract and a traditional contract is that e-contract is paperless and the parties might not meet face to face. Here we are trying to analyse and examine different aspects of a traditional contract vis-a-vis an online contract.
Jurisdiction refers to a territory or sphere of activity over which the legal authority of a court or other institution extends. In a wider sense, it refers to the land, or country whose laws are applicable during the time of interpretation of any terms in the contract or in the eventuality of a dispute and this usually is determined by the pace of execution of the contract. A traditional contract is concluded once the parties to the contract meet and execute the contract by affixing their signatures on the document usually at a predetermined place and time. This is not the case in e-contracts where the parties meet “online” and could be in different locations. Hence, there is an absence of a “place of execution” in a strict sense, to determine the Jurisdiction. However, this can be overcome by the parties submitting themselves to a particular jurisdiction voluntarily, which could either be the place where one of the parties to the contract carries on the business or a totally different jurisdiction which has been agreed upon by all the parties to the contract.
Signature generally means signing one’s own name on a document. The main functions of signing a document is to confirm the identities of the parties to a contract, convey the assent of the parties to the terms of the contract and non-repudiation, i.e., once a person affixes his signature, he cannot later deny that he was not a party to the contract. A signature is not essential as per the Indian Contract Act, which holds that even an oral agreement between parties can be a valid contract. Hence a contract need not be physically signed for it to be valid. However, certain statutes have specified signature requirements, for e.g., a deed of transfer of an immovable property cannot be a valid document unless the same has been attested with affixation of signature and/or a thumb impression by the vendor. In another instance, the Indian Copyright Act, 1957 necessitates the requirement of signature by the assignee. In such case, the IT Act equates electronic signature with physical signature. An electronic signature has to be issued by competent authorities under the IT Act, however the Central Government has not notified any electronic signatures.
The Indian Stamp Act as well as various State Legislation mandates the requirement of stamping of documents wherein rights are created or transferred. A document which is not properly stamped may not be admissible as evidence in a court of law, or even a competent authority unless the same has been impounded (Payment of a fine amounting to ten times the amount of the requisite stamp duty). However, stamping of documents are till date not possible for an online contract.
A majority of online contracts belong to the “Click-Wrap” type which is a standard form contract wherein all the terms are already set out in the webpage or the installation page of a software and all the party has to do is click on the appropriate button showing his/her assent to the terms. There is no scope of negotiations in standard form contracts. There has been instances where the courts (outside India) have found that certain specific terms in contracts were unconscionable and were struck down. As to the position in India, Section 16(3) of the Indian Contract Act provides that when a party in a domination position enters into a contract with another, and the transaction appears on the face of it or on evidence adduced, to be unconscionable, the burden of proving that such contract was not signed under pressure, shall be on the person in the dominating position.
The IT Act, 2000 specifically excludes the following documents from electronic transactions:
The Laws of Information Technology in India has come a long way since the enactment of the IT Act, 2000. However, there exists uncertainties and confusion with respect to many aspects of an online contract, especially on the requirements of signature and stamping. With the current trend of demonetisation and digitization, eradicating any uncertainties in validity of e-contracts seems to be the need of the day and we sincerely hope the Government would take necessary steps in this regard.
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