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Electronic Contract: A New Normal

COVID-19 has no doubt pushed all the countries more towards digitalization. From online classes, webinars, work from home to electronic contracts has become a new normal. The expeditious emergence of industrialization, globalization, and technicalities became an important basis for the growth of technology and gave rise to this computer era. Electronic commerce is one of its by-products that it is a vital economic substance of the 21st century.

Thus, the internet is a new way-of-life that has undoubtedly come to stay and while it continues, it brings changes in our own style. The broad range of activities performed with the help of the internet has resulted to signify the old fashion ways of doing those particular activities. I can say that Charles Babbage, the creator of the computer must not have imagined how helpful his creation will be to the people.

The internet has a magnificent impact on business and its various practices. Also, in this pandemic situation, electronic contracts played a very vital and important role. When the government declared a complete lockdown, it became really difficult for people to enter into physical contact. Many important contracts were to be made in this one year. All thanks to emerging technology and the electronic era that we can still enter into contracts via electronic mails, telephonic conversations, faxes, etc.

Even for buying various items, we don't have to visit a store. All we need to do is download various apps sitting at our homes, order the items, click to I Agree button, and make payment and the goods will be delivered to our homes. When this business change will lead to a new business representation and of course, the delivery of E-commerce. One of such E-businesses includes Internet contract, which is E-contract.

Definition Of E-Commerce

Generally, E-commerce is a way to conduct business in total using the internet as a medium. According to Hemant Goel's book on Law and Emerging Technology, Cyberlaw, E-commerce is the directing of exchanges using a proper system of computers, and telecommunication i.e. internet. He also mentioned in his book that it is a transfer of goods or services via the internet, and a monetary consideration for them.

E-commerce refers to all forms of commercial arrangement containing groups, institutions, companies, or persons that are based on the working and transmission of digitized data or records, including faxes or text messages, voice or sounds, and images.

E-commerce or electronic commerce or EC refers to the buying or selling of goods, products, or services on the internet. Also, transferring money for some purpose or data via the electronic platform, fundamentally the internet. These business exchanges mainly happen in four such ways. Like business-to-business, that is B2B, business-to-consumer that is B2C, consumer-to-consumer that is B2C, or consumer-to-business that is C2C.

Introduction And Definition Of E-Contract

The use of the internet is not anymore limited up to communication or computing, calculating, and analyzing data, online contracts are in trend now and as a result, there lie no differences between online and offline contracts. Hence, online contracts are also contracts and all the rules that are needed for the formation of a contract will anyways apply.

The online contract formation uses a communication technology which involves a lot of mediator such as Internet Service Providers (ISPs). Imagine a contract that an Indian exporter and an African importer wish to enter into. One option could be that any one of the parties to the contract acquires two copies of the contract, signs those copies, and couriers them to the other party who is sitting in some other country or maybe the state. Now, the second party signs both the copies and couriers one copy back to the first party. The other option is that both the parties meet at someplace and sign the contract.

In this electronic era, the entire contract can be completed within few seconds that is by both parties simply attaching their digital signatures to an electronic copy of the contract that they are entering into. There is no need for sending couriers or waiting for replies through couriers and traveling costs and energy in such circumstances. There was initially a delay made by the legislatures to accept this modern form of technology, but now most of the countries have passed laws to accept electronic contracts.

Then, What Is E-Contract?

An E-contract(that are not paper-based rather they are electronic based) is a kind of contract formed in the course of e-commerce by the exchange of two parties using electronic means, such as e-mail, telephones, faxes. The interaction of an individual should happen with an electronic agent, such as a computer program, website forms like telephonic discussions, or an exchange of at least two electronic agents that are organized to allow the existence of a contract.

An E-contract is a contract shaped, specific, executed, and expand by a software system.

The 2 main parties to an e-contract are:
The Originator and the Addressee.
An Originator, as per the IT Act, 2008, states that it is a person who sends, generates, stores, or transmits any electronic message to be sent, generated, stored, or transmitted to some other person, and does not, include any Intermediary.

An Addressee, as per the IT Act, 2008, states that it is a person who is intended by the originator, to receive the electronic record, but does not, include any Intermediary.

Nature Of E-Contracts

  1. The parties do not meet each other physically.
  2. There are no physical boundaries set.
  3. No handwritten signature is needed. It should be an electronic agent.
  4. Since there is no full security, the risk factor is very high in such contracts.
  5. Jurisdictional issues are a great setback on e-contracts in case of any sort of breach.
  6. There is no single authority to look into the whole process exclusively in shrink-wrap contracts.
  7. Digital Signatures and electronic records are used as evidence when any case arises in court.

The subject matter includes:
  1. Physical goods, where goods are ordered on an online platform and payment is made via the internet, and delivery is made physically. For example, Amazon or Flipcart.
  2. Digital products like software can be ordered.
  3. Services like electronic banking, financial advice, etc are also subject matters.

Elements Of E Contract

  1. Offer

    Offer is defined under Section 2(a), of the Indian Contract Act, 1872. It states that an offer is an expression of the willingness of a person to enter into a legally binding contract with another party.

    Advertisement on websites is considered to be an invitation to offer until and unless it is specified clearly. Because offer and invitation to offer are two different concepts. An offer to any person, is an invitation to it, until intention, is clearly conveyed.

    When a person responds via an e-mail or fills in any forms available on the internet, they make an offer for a particular thing. Now it's in the hand of the seller whether to accept it or reject it either by an express confirmation or maybe by any conduct.

    As a result of which, we can say that an invitation to offer is incapable of turning into a binding contract by accepting its terms and conditions until it is accepted.

    In Kleinwort Benson vs. Malaysia mining corporation Berhad, 1989 1 WLR 379, when asked by MMCB to guarantee the debts of a subsidiary company stated that it is their policy to ensure that their business of the subsidiary company is at all times in a position to meet its liabilities. It was held that this was not a proposal and the words, � it is our policy�, merely expressed an intention to do something but they were not made to get the offeree to assent to them. Therefore, when the subsidiary was allowed to become insolvent by Kleinwort company, MMCB could not claim for a breach of a contractual undertaking.

    The question that arises is, is it applicable in electronic contracts also? Yes, it is applicable in electronic contracts also.
  2. Acceptance

    Once an offer is accepted, a contract comes to an end, except the postal acceptance rule applies. The postal acceptance rule is an exception to the normal rule that acceptance of a contract must be communicated to the offeror before a contract comes into existence.

    Under this rule, acceptance of a contract is said to occur at the time when the acceptance is posted. Hence, the communication of acceptance is complete, on part of the proposer when it is put in the course of transmission to him and as on part of the acceptor when it comes to the knowledge of the proposer that is when the acceptance enters into the designated computer resource.

    There is no disparity between Indian and Common law in this regard as seen in Lalman Shukla v. Gauri Dutt, (1913) 11 A11 LJ 489. Here the plaintiff is a munib. The defendant's nephew was absconded and the plaintiff volunteered his services to search for the missing boy. In this case, wherein spite of the fact that he found the boy whose uncle had promised to pay Rs. 501 to anyone who finds his nephew. But the munib was denied the reward seeing that he came to know only after finding the boy.
    Both offer and acceptance can be mainly done via email, website forms, and online agreements.

    Revocation Of Offer And Acceptance

    The Information Technology Act of 2000 is not a complete one and as a result, the Indian Contract Act of 1872 is still used for electronic contracts as well. However, both acts still complete each other.

    Section 5 which speaks of revocation will not be relevant as there is no much time in electronic contracts. The dispatch and receipt of mail happen within few minutes and simultaneously.

    In Re London And Northern Bank,(1900) 1 Ch 220, case we see that an offer to purchase shares was withdrawn by a letter posted on 26th October and it reached the acceptor (addressee) on the next day at 8:30 a.m. The acceptor actually posted the letter of acceptance of the offer after 8:30 a.m. The offer was held validly revoked.
  3. Lawful Consideration

    The Indian Contract Act of 1872 says that for a valid contract, there must be a lawful consideration. The same applies to e-contracts too.

    In the present days, once an item has been supplied and the payment is successfully done, the consideration is executed and the needs are satisfied. The main problem arises at that time when the consideration is mere executory once. Like in the case of online shopping sites which promise to supply any product. Another problem arises that Contract law can't be applied fully in e-contracts sometimes when an autonomous computer is used.
  4. Lawful Object

    The object which is used for entering into the contract should be a lawful one.
    Contracts that are illegal or which violate public policy will not be enforceable by courts. Such types of contracts are considered to be void.
    An agreement that calls for, the causing of a crime is illegal and therefore void.
  5. Competent Parties To Contract

    It is generally accepted, that natural persons and legal persons both are capable of entering into contracts.

    Computers don't come under natural persons, Neither English nor American contract law, at present, consider them to be legal persons and therefore are not considered to be competent parties to contracts.

    As a result, it is the buyer and the seller who are natural persons, and, are capable of being parties to the contract.

    The autonomous computer, clearly cannot be a contractual party to the contract.
  6. Free Consent

    The consent should be free from fraud, misrepresentation, mistake, etc.
    However, it becomes a bit difficult sometimes to determine because the margin that is used to determine the strict rule of free consent gets narrower.
  7. Certainty Of Terms

    Keeping a record of the contract as agreed is important and vital too. This leads to difficulty if there are several email exchanges, each attaching documents intended to form part of the terms of the contract including counter-offers and negotiations amongst the contracting parties. As mentioned above, it leads to difficulty in such a case to determine who is the offeror and who has accepted the offer, which may determine the party's terms and conditions apply.

Kinds Od E-Contract

E-Contracts Can Mainly Be Of Three Types:

  1. Shrink-Wrap Agreements

    Shrinkwrap contracts are mainly a licensing agreement used for software purchases. In this case, the terms and conditions used to access such software products shall be enforced by the person who is buying it, with the initiation, of the packaging up of the software product.
  2. Click-Wrap Agreements

    It comes into existence when an online buyer or user clicks on the �I AGREE� button on a webpage to purchase or download a particular program. It is derived from the fact that such agreements most of the time require clicking on an on-screen icon to signal acceptance.
  3. Browse-Wrap Agreement

    A browsing wrap agreement may also be called an agreement which is to be binding on two or more parties through the use of that website. In case of such an agreement that is on browsing, an ordinary user of a given website is to accept the terms and conditions for use and other website policies for making a continuous use.

Other types of online agreements include contracts for consultants, employees, contractors, sales and resale agreements, distributors, software developer and licensing agreements, and contracts for source-code escrow.

Validity Of E-Contract

Under the provisions, of the Information Technology Act, 2000, (IT Act, 2000) mainly Section 10-A, it says that an electronic contract is valid and enforceable.

The only essential thing to make it validate, an electronic contract is a conformity, with the pre-requisites which are provided under the Indian Contract Act, 1872. Also, the courts in India will regard electronic contracts under the provisions of the Indian Evidence Act, 1872. The recognition of a contract is bestowed under the Indian Evidence Act, by which the term �document' includes any information containing in an electronic record, which is printed on a paper, stored, recorded, or copied in optical or magnetic media produced by a computer. Such information conforms with the conditions of Section 65B of the Act which shall be admissible in any proceedings, without any further proof or production of the original document before the concerned authority and shall be regarded as evidence of any content of the original or any fact stated therein of which direct evidence would be admissible.

The provisions in the Information Technology Act, 2000, gives legal recognition to an electronic contract, particularly section 10-A of the IT Act which says that:
Section 10-A states about the validity of contracts formed by any electronic means:
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."

The above provision was initiated by the Information Technology Act, 2000 after recognizing the increasing over-reliance on various electronic means to reach commercial agreements. It applies where contract formation, communication, and acceptance of the proposal are carried out through any electronic means.

E-Contracts as well as E-Signatures i.e., electronic signatures are recognized under Indian law and are governed by the Information Technology Act, 2000 I.e., IT Act. Section 4 of the IT Act says that the requirement for any information or matter to be in writing or typewritten or printed form under any law shall be deemed to have been satisfied, if such information or matter, is in an electronic form and is accessible to be usable for a subsequent further reference.

Section 4 of the IT Act says as under:
"Section 4 � Legal recognition of electronic records � Where any law provides that information or any other matter shall be in writing or the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is:
  1. rendered or made available in an electronic form; and
  2. accessible to be usable for a subsequent reference.

As as far as, the signing of such contracts is concerned, electronic signatures are treated as equivalent to traditional by-hand signatures and are also considered legal under Section 5 of the IT Act. Section 5 of the IT Act, says as under:
Section 5 Legal recognition of electronic signatures:
Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated through an electronic signature affixed in such manner as may be prescribed by the Central Government.

For this section, "signed", with its grammatical variations and cognate expressions, shall, with reference to a person, mean affixing of his handwritten signature or any mark on any document and the expression "signature" shall be construed accordingly."

Exceptions of Applicability of Information Technology Act, 2000
Under the IT Act for the documents that can be executed in an electronic format and by the use of an electronic signature, there are certain exceptions to that. The First Schedule of the IT Act especially prohibits the following mentioned documents from being implemented in an electronic format and being electronically signed:
  1. Negotiable instruments (other than a cheque)
  2. Power of attorney
  3. Trust deeds
  4. Wills (including any other testamentary disposition) and
  5. Contracts for the sale or conveyance of immovable property or any interest thereof.
Therefore, according to the IT Act, contracts that too of any form, except the specific exclusions mentioned above, maybe implemented electronically by attaching an E-Signature. Kindly keep in mind that an E-Signature under the IT Act includes:
  1. digital signatures, which are stored in a USB token, and used along with a personal pin, and
  2. an electronic signature i.e., E-signature or electronic authentication technique using any e-KYC authentication (as provided in Second Schedule of the IT Act).

Case Study
Case Name: P.R. Transport Agency vs. Union of India & others
Court: Allahabad High Court - Bench: S Harkauli, U Pandey - Decided on: 24TH September 2005 - Citation: AIR 2006 All 23

In this case, an e-auction was held by Bharat Coking Coal, (here it is referred to as BCC for the allocation of coal. BCC accepted the bid of P.R. Transport Agency) ( referred to as PRTA) for 4000 metric tons of coal at Rs. 1,625/- per metric tons from Dobari Colliery.

On 19th July the acceptance letter of the bid was sent via e-mail to PRTransport Agency's e-mail address.

A sum of Rs. 81.12 Lakhs was deposited by PRTA to the cheque drawn in favor of BCC in terms of �Terms of Allocation'. PRTA anyways accepted the cheque but failed to deliver the coal.

An e-mail was sent by BCC for canceling the cheque deposited by PRTA because, of technical issues and unavoidable reasons. However, the actual reason was something different. It was that some other person's bid was higher than that of PRTA. The higher bid was not taken into consideration due to a flaw in the software. PRTA went to the Hon'ble High Court of Allahabad, aggrieved by this letter.

Issues Raised:
  1. Whether this court has territorial jurisdiction to listen and hear this writ petition?
  2. Whether the clause (No. 10.5) of the tender agreement has the effect of excluding the writ jurisdiction of this particular Court?

Laws Applied:
  • Code of Civil Procedure, 1908 (CPC): Section 20
  • Constitution of India: Article 226
  • Indian Contract Act, 1872: Section 28
  • Information Technology Act, 2000: Section 13(3)

Judgement Given By The Court:
The Court count on Section 13(3) of the Information Technology Act and held that the mail sent was to be for the address where the Company was in working condition i.e. Chamauli and Varanasi. Since both of the places were from within U.P., the High Court had jurisdiction, as the partial cause of action arose from within the High Court to exercise its jurisdiction.

The Court also held that the territorial jurisdiction can be a force out only for civil courts and not that of a High Court. Provided that the power is vested in the High Court on account, of part of the cause of action that has arisen within its territorial jurisdiction.

Further, it was also held that the Respondents (i.e. BCC) fall within the meaning of Article 12 of the Constitution of Indian and mail for cancellation of the bid at a later stage without hearing the Petitioner was held to be violative, to the reasons of natural justice. The Respondents were instructed by the court to handover the coal to the Petitioner following the bid.

In the case of Trimex International FZE Ltd. Dubai vs. Vedanta Aluminium Ltd., whereof the offer and acceptance had been conveyed by the parties via an email in the absence of signed documents. The Hon'ble Supreme Court of India had observed that once a contract is concluded orally or in written form, the mere fact that a formal contract has to be prepared and witnessed by the parties would anyway not affect either the acceptance or implementation of such a contract.

The COVID-19 no doubt has made India as well as other nations too digitalized to a large extent. Be it paperless budget or paperless courts, we could witness new things which were unbelievable for us. However, the government is trying to continue this digitalization process so that more and more people get to benefit from it and can enter into various types of contracts via electronic mode which is a New Normal.

Written By: Shreyashee Mitra, BBA LLB, School of Law, KIIT.

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