Validity and Challenges of E-Contracts

Vanshika Arora is a first-year B.A.LLB student at Army Institute of Law, Mohali. This article is a birds-eye view of the validity of e-contracts under Indian law the umpteen challenges faced in an e-contract transaction. 

INTRODUCTION

At the outset, through the advancement of technology, especially the internet, business transactions have taken a big leap and become trans-continental. More specifically, this trans-continental trade largely takes place through the electronic mode and is hence called ‘e-commerce’ (electronic commerce). 

The Indian Contract Act, 1872 was curated as a statute to deal with traditional contracts, namely, contracts over a piece of paper, requiring signatures of parties, and all prerequisites mentioned in the act. However, it is not viable to hope for age-old legislation to supply answers to every evolving mode of business, trade, and contracts. Therefore, The Information Technology Act, 2000 attempts to answer questions of validity and lay down processes for the contracts entered into through the online mode.

What are E-Contracts? 

An E-contract is a kind of contract formed by negotiation between two or more individuals through the use of electronic means, such as e-mail, the interaction of an individual with an electronic agent, such as a computer program, or interaction of at least two electronic agents that are programmed to recognize the existence of a contract. The UNCITRAL (United Nations  Commission on International Trade Law), Model Law on Electronic Commerce, 1996, does not define e-contracts, but merely states in Article 11 that a contract can be made by exchanging data messages and when a data message is used in the formation of a contract; the validity of such contract such not be denied. Therefore, there exists no formal definition of an e-contract, provided by any statute. 

Types of E-Contracts

There exist three broad types of e-contracts, namely click-wrap, shrink-wrap, and browse-wrap or web-wrap. 

  • Shrink-Wrap: Such contracts have been part of traditional transactions too and are not indigenous to the e-commerce industry. This type of contract can be understood through the example of computer software one may purchase from the electronic store. On the box of the software, a clear plastic wrap is attached, displaying a warning sign that the software is subject to terms of a license agreement that the user cannot read unless she purchases it. If the user does not wish to enter into a contract, she may choose not to purchase the software. However, the moment she opens the plastic wrap, she shall enter into a valid contract with the manufacturer. In the case of Pro CD Inc. v. Zeidenburg, the court observed that once the user checked the product, used it and reviewed the license, and chose not to reject it, shrimp wrap would be treated as valid. 
  • Click-Wrap: These contracts are fairly common on the web. Before purchasing merchandise, a service, or even surfing on a website, netizens may come across a dialogue box displaying terms and conditions, that after being read can be assented to, through the “I Agree” option, or dissented to, through the “I disagree” option. In the case of Hotmail Corp. v. Van $ Money Pie Inc., the defendants violated the click-wrap agreement and sent pornographic content to the user, to which the court granted the injunction. These contracts can also be classified further into two categories:
  • Type and Click: In such contracts, the user is required to type, “I agree” and submit her response 
  • Icon Clicking: In such contracts, the user is already provided with two clickable options of “I Agree” and “I disagree”, from which she merely needs to choose. 
  • Browse-Wrap/ Web-Wrap: In such contracts, browsing through a particular website to purchase their services or goods, or merely use these services, shall be considered to be a contract. 

Are E-Contracts Standard Forms of Contracts? 

To answer this question short and crisp, yes, most e-contracts such a click-wrap and shrink-wrap are standard forms of contracts. In such cases, the user has no autonomy to dictate terms and is only at the disposal of either accepting or rejecting the terms. Moreover, every user is subject to the same standardized terms and conditions, which, in the absence of legal regulations, may also be discriminatory and aversive to user rights. The most recent example of this is the Whatsapp Privacy Policy Update, 2021 which renders WhatsApp users with only the choice of agreeing to the update, or not being able to utilize the services of WhatsApp.  

Validity of E-Contracts 

As far as the validity of e-contracts is concerned, the Information Technology Act, 2000 is the statute dealing with the same. This act is based on UNCITRAL Model Law on Electronic Commerce, 1996, and aims to provide legal recognition to transactions carried out through the means of the internet. Section 10A of the IT Act, 2000 states that “wherein, a contract formation, the communication of proposals, acceptance of proposals, the revocation of proposals and acceptances, as the case may be, is expressed in the electronic form, or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”, this provision corresponds with Section 3 of the Indian Contract Act. Moreover, the Indian Evidence Act, 1872, also lays down provisions for the recognition of electronic records as evidence. Therefore, even though devoid of a formal definition, e-contracts are recognized as valid under Indian law. The case of Trimex International FZE Ltd. v. Vedanta Aluminum Ltd. recognized that e-mail exchanges between parties regarding mutual obligations constitute a contract.

Whether a contract is traditional in nature or over the internet, it needs to satisfy some pre-requisites of a valid contract, mentioned under the Indian Contract Act, 1872, which are the following: 

  • Offer: In a traditional contract, the offeror has to make an offer, as the very first leg of a valid contract. In the case of e-contracts, the user browses through the website and chooses a product or service of his liking. This practice loosely constitutes an offer. 
  • Acceptance: Once an offer is made, it has to be accepted to constitute a promise. A non-acceptance even in the case of e-contracts shall not make them valid. In case of electronic mode, acceptance is complete as against the offeror, when the electronic mode is dispatched and enters into the program of the offeree, to be outside the control of the originator. Similarly, acceptance is complete as against the offeree, when it enters an information system designated by the offeror for this purpose. In the case of Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co., the Supreme Court held that Section 4 of the India Contract Act is only applicable in non-instantaneous forms of contract such as an email and not instantaneous forms such as a click-wrap contract. In the case of instantaneous forms of contracts, the contract is concluded when the offeror receives the acceptance, rather than when it is put in course of transmission so as to be out of the power of one party. 
  • Lawful Consideration: For the formation of a valid contract on the electronic mode, there should be a valid consideration. 
  • Free consent: Consent is said to be free when it is not caused by coercion, misrepresentation, undue influence, or fraud. In the case of e-contracts, wherein there is no face-to-face interaction and even any sort of active communication in some cases. Therefore, the “click-through procedure” displayed while users surf through the website, ensures free consent. 
  • Competency of Parties: Only parties that are competent to enter into a contract, under the Indian Contract Act, can form a valid contract. More often, a minor may click “I agree” options of a click-wrap contract on the internet. According to the India Contract Act, an agreement entered into by a minor is void. The legal fraternity has so far been silent upon this issue of competency of e-contracts. 

Challenges accorded with E-Contracts 

The most contentious issue accorded to e-contracts is that of jurisdiction, traditionally a court of law can exercise territorial, subject-matter, or pecuniary jurisdiction. In the case of e-contracts, since the contract has basically been entered into over the web, the matter of territorial jurisdiction, stands questionable. If a user from India has clicked on the “I Agree” option of a website based in the US, what territorial jurisdiction would matters of this contract has? Or, if a user based in India enters into a contract through an email, with an individual, based in the US; what would be the territorial jurisdiction in this case? The Delhi High Court, in the case of Casio India Co.Ltd. v Ashita Tele Systems Pvt Ltd, held that if a website is accessible from Delhi, then territorial jurisdiction can be invoked.  However, in the case of India TV Independent News Service Pvt Ltd. v. India Broadcast Live LLC, it was held that since a particular website is accessible from a place, does not render a reason enough for the contract to fall under the jurisdiction of that place. 

Conclusion

Electronic contracts have facilitated communication and business around the world since they pose no boundary restrictions, however lack of proper guidelines have also aggravated ambiguity. The confusion around the time and place (jurisdiction) of when and where has an electronic contract concluded, still lies unanswered. Hence, the government has to step-up and take necessary action to regulate and facilitate e-commerce for consumer interests. 

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