Contracts are the foundation of law and are an essential part of the legal skeleton in the modern world – from buying a car to leasing a property or owning a house, to clicking “I Agree” on any website, contracts are the invisible threads binding the whole world together. A contract is a legally binding agreement between two or more parties creating a promise and establishing the rights and duties of each of the parties as well their liabilities.

As per the Indian Contract Act, 1872, a legally enforceable contract fulfils the following essentials under section 10[1] :

• Free consent
• Competent parties
• Lawful object
• Lawful Consideration

Traditionally, these contracts were made on paper like those “farmaans” with the king’s seal on it, then evolved to papers, and now they have gradually shifted to digital interface. Therefore, now we witness what we call as E-contracts and Smart Contracts.

Traditional contracts – trust in papers and people Traditional contracts are legally enforceable agreements that are based on fundamental principles of contract law, including offer, acceptance, consideration, and the intent to establish legal relationships.

Features of Traditional Contracts:

• A contract can be simply understood as the establishment of rights and obligations through an agreement. When this agreement is recognized by law, it qualifies as a contract according to Section 2(h) of the Indian Contract Act, 1872.
• A contract begins with a proposal or offer, as outlined in Section 2(a), which allows an individual to respond with either acceptance or rejection to the actions proposed by another party. The phrase "willingness to do or abstain" indicates consent. Once a proposal is accepted, it transforms into a promise, as defined in Section 2(b).
• Section 2(d) introduces consideration, a crucial element of any contract; without it, the contract is deemed incomplete. Consideration refers to the mutual exchange between parties, often described as quid pro quo, which is provided at the request of the promisor for a specific purpose. This consideration can also take the form of a promise in return for another promise, known as a reciprocal promise, as per Section 2(f) of the Indian Contract Act.
• Finally, if a contract cannot be enforced by law, it is classified as a void contract, highlighting the necessity of legal enforceability for a contract to be valid.

For instance, if A promises to give B chocolates, and in return, B promises to allow A to use his bicycle, this illustrates a reciprocal promise.

E-contracts: keeping up with the digital era Section 10A of the IT Act 2000 states: “—Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or through electronic records, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”

In this section, we explore E-contracts, which refer to the creation of contracts via digital channels, formatted for digital platforms. However, the core principles that apply to these contracts are consistent with those outlined in the Indian Contract Act of 1872.

Features of E-Contracts:

• Section 4 and Section 10A confirm the legal standing of E-Contracts, granting them official recognition. Essentially, Section 4 emphasises that information can be presented in electronic form and must be accessible for future use, regardless of whether it is written, printed, or typed.
• E-Contracts involve three parties: the addressee (offeree) as defined in Section 2(b), the originator (offerer), and the Internet service provider.
• The communication of these contracts occurs through electronic channels.
• Section 11 outlines attribution, stating that the originator is recognised if they send the record themselves, if someone acts on their behalf, or if an automated system does so on their behalf.
• Section 12 addresses the acknowledgement of receipt, which can be communicated either automatically or manually by the addressee to the originator or through actions that sufficiently demonstrate acknowledgement. If the originator has specified a particular method for acknowledgement, that method must be adhered to.

Types of E-Contracts:

1. Click wrap: Users click "I agree" to the terms and conditions. (Eg, Website access)
2. Shrink wrap: Terms are enclosed with a product (cover usually). (Eg – CDs)
3. Browse wrap: Terms are available via a link, and usage implies consent. (Eg, Amazon site)
4. Digitally signed contracts: Formal contracts signed using recognised e-signatures. (Eg - Zerodha)

E-Contracts are considered legally enforceable under the Indian Contract Act of 1872, provided they comply with Section 10 and the Information Technology Act of 2000. In today's society, these contracts are the most widely used, appearing in various daily activities. This encompasses actions like making purchases on Amazon, finalising rental agreements online, and accepting internship offers through electronic means.

Smart contracts – code driven or smart imagination
Smart contracts are automated agreements that execute themselves automatically when predetermined conditions are satisfied. They operate on blockchain technology. This innovative technology is rapidly advancing and making its mark in the legal sector and beyond, facilitated by platforms such as smart contracts and digital currencies or tokens like cryptocurrency.

Working Of The Smart Contract

• Before examining smart contracts and their operation or legality, it's essential to grasp the basics of blockchain. The term 'blockchain' can be understood by breaking it down: a 'block' is a data packet that holds information for transfer, paired with a specific hash value. These blocks connect to form a chain, which is what we refer to as a blockchain.
• Blockchain refers to a decentralized and distributed ledger technology that ensures transparency and the unchangeable nature of transactions for its users. Its defining traits include decentralization, distribution, transparency, security, and immutability. Immutability signifies that once a transaction is entered into the blockchain, it cannot be altered; any adjustments require initiating a new transaction.
• At present, India lacks a specific law governing smart contracts, but two existing statutes lend some support:
  • The Indian Contract Act of 1872, which defines the essential elements of valid contracts, including offer, acceptance, and free consent.
  • The Information Technology Act of 2000, which offers legal recognition to electronic records and digital signatures.
• The problem is that smart contracts may not always comply with traditional legal standards like 'free consent' or 'lawful consideration,' particularly with the unregulated status of cryptocurrency in India. What happens if a smart contract malfunctions? Can it be taken to court? Currently, there are no precedents. There are no established rules for how courts should resolve blockchain-related conflicts.
• Many smart contracts are associated with cryptocurrency, which lacks a clear legal framework in India. Blockchain operates internationally — which jurisdiction's laws apply if a party is in a different nation? Legal professionals and judges must be trained to comprehend smart contract technology. These are a few of the problems that are faced when it comes to the legal enforceability of smart contracts.
• There are several challenges associated with the legal enforceability of smart contracts. However, as society evolves, so too must the law. Embracing a hybrid approach, similar to trends seen in the automotive and education sectors, as well as the legal system, could be beneficial. This model combines traditional contracts to define relationships and objectives, while smart contracts handle execution and automation, providing legal safeguards and improving technological efficiency at the same time.
• To conclude, Contracts, whether inscribed on parchment, printed on paper, or encoded within blockchain technology, serve as the fundamental basis for all human and commercial interactions. From historical handshake agreements to contemporary clickwrap contracts and the anticipated decentralized smart contracts of the future, the legal framework is continually evolving to accommodate new realities. India, characterized by its dual legal system comprising the Indian Contract Act of 1872 and the Information Technology Act of 2000, is progressively adopting digital innovations. E-contracts have seamlessly integrated into daily life — facilitating flight bookings, product purchases, and rental agreements — and are recognized legally. However, smart contracts, despite their transformative potential, encounter legal uncertainties in India. Issues regarding enforceability, jurisdiction, and adherence to traditional legal principles such as free consent and lawful consideration must be addressed before their full incorporation into the legal framework can occur.
• The future likely entails a harmonization of traditional legal principles, which will provide a solid foundation, while smart technologies will create efficient, automated, and secure systems atop this foundation. As India advances, the intersection of law and technology should be steered not only by innovation but also by inclusivity, adaptability, and legal clarity. The contracts of the future will transcend mere agreements, evolving into a synergy of law, logic, and code.

End Notes:

• https://www.indiacode.nic.in/bitstream/123456789/2187/2/A187209.pdf
• https://www.indiacode.nic.in/handle/123456789/1999
• Ibid.
• Ibid.
• Ibid.
• Ibid.
• https://www.geeksforgeeks.org/blockchain-technology-introduction/