India: Happily ‘Click’ After – The Real Story Of E-Contracts

Last Updated: 11 March 2015
Article by Suneeth Katarki and Ashi Bhat

1. Introduction:

India is no longer identified by its elephants and snake charmers. This is not because of the dwindling number of elephants or the almost extinct species of snake charmers, in India but because the reason India shines is no longer found in the jungle, unless you consider the Internet a virtual jungle!

India has the third largest number of Internet users, with a growth rate of 14%.1 The total number of Internet subscribers in India has increased from 238.71 million at the end of December 2013 to 251.59 million at the end of March 2014. That's a quarterly growth of 5.40%!2

That's twice as fast as the US and four times the pace China is setting vis-a-vie Internet usage. These numbers are especially great when they translate into revenue. India's $3 billion e-commerce market is predicted to reach more than $19 billion in five years.3 Further afield, the Internet and Mobile Association of India (IAMAI) reports that the total value of ecommerce transactions is expected to reach a minimum of $70 billion by 2024-254. India is said to have witnessed an incredible growth of 150% from the year 2009 to 20125.

The good times may however be beleaguered by the lack of adequate laws and problems in their nascent stages, if no substantial steps are taken right away. This article seeks to shed light on the monster under the bed before it chases the dream away.

The question posing a major threat against the e-commerce dream is whether the contracts consummated online are valid and enforceable. The (Indian) Contract Act, 1872 ('Contract Act') contains the general principles for all contracts in India. In order for any agreement to be valid there needs to be a valid offer, acceptance and consideration between competent parties. Strictly speaking the matter of existence of these aspects in any contract is a question of fact to be decided on a case to case basis. This remains true even for contracts concluded online. However when it comes to the e-contracts, the basic issue of consent draws the most flak. It becomes imperative to determine if the consent of the parties was freely, correctly and validly provided, to understand if the e-contract is enforceable and valid in the eyes of law.

2. Consensus-ad-idem:

The first issue we seek to examine is as regards to the procurement of consent to a standard form of contract. Click-wrap agreements entered into by users online generally require the user to click against the 'I agree' tab to confirm his/her acceptance. There is no room for negotiation between the parties; in fact almost always the act of clicking on the 'I Agree' tab is nothing but a formality to enable the user to proceed with the purchase of the goods or services. The contracts are standard and fixed. The adherent has no option to bargain on the terms. These kinds of contract are 'adhesion contracts'. Whilst there is no judicial pronouncements on validity of click wrap agreement in India, one can look at the judicial pronouncements relating to 'adhesion contracts' in India for some enlightenment.

The term 'adhesion contract' has been defined under the Black's Law Dictionary as "a standardized contract form offered to consumers of goods and services on essentially 'take it or leave it' basis without affording consumer realistic opportunity to bargain and under such conditions that consumer cannot obtain desired product or services except by acquiescing in form contract. Distinctive feature of adhesion contract is that weaker party has no realistic choice as to its terms. Not every such contract is unconscionable."

The courts in India have generally looked unfavourably on such contracts by holding them unconscionable.6 However such categorization of adhesion contracts as unconscionable is not automatic and depends from case to case and clause to clause. The Supreme Court has in Central Inland Water Corporation Limited and Anr. v. Brojo Nath Ganguly and Anr.,7 referred to the position of American law as stated in "Reinstatement of the Law- Second" as adopted and promulgated by the American Law Institute, Volume II xx which deals with the law of contracts, in comments to Section 208 at page 107:

"Like the obligation of good faith and fair dealing (S 205), the policy against unconscionable contracts or terms applies to a wide variety of types of conduct. The determination that a contract or term is or is not unconscionable is made in the light of its setting, purpose and effect. Relevant factors include weaknesses in the contracting process like those involved in more specific rules as to contractual capacity, fraud and other invalidating causes; the policy also overlaps with rules which render particular bargains or terms unenforceable on grounds of public policy. Policing against unconscionable contracts or terms has sometimes been accomplished by adverse construction of language, by manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract'. Uniform Commercial Code $ 2-302 Comment 1.... A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, or even because the inequality results in an allocation of risks to the weaker party. But gross inequality of bargaining power, together with terms unreasonably favourable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms."

In re Central Inland Water Corporation Limited, the Supreme Court distinguished unconscionable adhesion contracts from the valid adhesion contracts on the basis of the terms contained in the standard agreement. The Supreme Court also observed that the more standardized the agreement and the less a party could bargain meaningfully, the more susceptible the contract or a term would be to a claim of unconscionability. An exhaustive list of what can be construed as unconscionable has not been provided in the Central Inland Water Corporation Limited matter. However, the Supreme Court has opined that the test of fairness and reasonability has to be applied in each case to determine if the contract was unconscionable. The principle is to be applied where the adherent had no meaningful choice but to give assent to a contract in a prescribed or standard form, or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form of rules may be. Therefore, it appears that in order for a click wrap agreement to be valid care must be taken to ensure that the standard terms are neither too onerous nor too lopsided in favour of the product supplier or service provider.

3. Consent – how given:

Another question as regards to e-contract that has flies hovering around it is relating to the application of the signature on an electronic record. Whilst the Contract Act does not require that the written contracts must be signed specifically; for any contract to become valid and enforceable, each party is required to confirm its acceptance in some manner. Acceptance must be signified by some act agreed on by the parties or from which the law raises the presumption of acceptance. The most common methodologies adopted for execution of e-contracts are: a) by exchange of emails; b) click wrap or shrink wrap; and c) by affixing digital signature.

Except for affixation of digital signature, as on the date of publication of this paper no other type of signature on an electronic record is recognized under the Information Technology Act 2002.

The Indian Penal Code, the Indian Evidence Act, 1872, the Banker's Book of Evidence Act 1891 and the Reserve Bank of India Act, 1934 also contain provisions only in relation to such electronic contracts which contain digital signature. Thus the question that bares its fangs is whether an agreement which uses other modes of signature, like a click wrap or a shrink wrap agreement, valid under the eyes of law? Whilst the question relating to the validity of such forms of agreements has not been adjudicated upon by the Indian courts, yet; in the US a plethora of judicial pronouncements8 confirm that by consenting to an agreement by clicking on or checking against an 'I agree' tab, the user is essentially confirming his assent to the content of the document and thus should be held accountable by the text of the document. The Indian courts too may take a similar view since technology permits one to demonstrably show and prove at any later point that a person had indeed agreed to a set of terms by clicking on the 'I agree' button. Also since in India consent is not required to be given in any specific form, such manner of giving consent, i.e., by clicking on an 'I Agree' tab, could be argued to be valid consent.

4. Stamping of the e-contracts:

Another issue regarding the e-contracts relates to stamping of an e-contract. As per the Indian Stamp Act, 1899 ("Indian Stamp Act"), no instrument will be permitted to be submitted as evidence in a court of law in India unless it is duly stamped. The term 'instrument' has been defined under the Karnataka Stamp Act, 1957 ("Karnataka Stamp Act") as 'every document and record created or maintained in or by an electronic storage and retrieval device or media by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded'. The Bombay Stamp Act, 1958 has by an amendment in 2005 included 'electronic records' into the definition of the term instrument. Therefore the intention of the legislature clearly is that all electronic records, which would include click wrap agreements within their purview, should also be stamped. However, a mere instrument does not become subject to stamp duty. Section 3 of the Indian Stamp Act, Karnataka Stamp Act and the stamp legislations of several other States in India specify that an instrument to be chargeable with stamp duty must be "executed". Section 2(12) of the Indian Stamp Act defines the terms "executed" and "execution" in reference to instruments as "signed" and "signature". Therefore, it can be argued that an instrument is only chargeable with stamp duty if it is signed or bears a signature.

Courts have also held that a document which is not signed is not liable to stamp duty9. Accordingly, a document which is in a physical form needs a person's signature for it to be considered executed and therefore will be subject to stamp duty. However, as discussed earlier an electronic record can be duly signed only by affixing a digital signature and inasmuch as clicking on an 'I Agree' tab is not a valid electronic signature under the IT Act, click-wrap agreements are not 'signed' and therefore deemed executed. Hence, a click-wrap agreement is not an 'instrument' liable to stamp duty in terms of the Indian Stamp Act or any other similarly-worded stamp legislation for the time being in force in India.

5. Other Issues:

Apart from the issues detailed above there is the problem of minors entering into the click wrap agreements online. Whilst a product supplier/service provider requests the user to confirm their age or status before the execution of a contract, the veracity of such statement cannot be ascertained. This problem essentially takes birth from the fact that the parties online are remotely situated and cannot see or verify the details of the other physically, which has often led to another problem – identity theft. It is very easy to hack or create an account in the name of any third party and enter into transactions. These issues need to be tackled by setting up stronger vigilance laws.

Another question that bares its fangs with respect to e-contracts is that of jurisdiction of court. How is it to be determined where exactly a cause of action has arisen when everything floats in the virtual space?

In India, the issue of jurisdiction in ecommerce disputes has received some direction recently. The Delhi High Court has in the matter of World Wrestling Entertainment, Inc. v. Reshma Collection,10 held that the principle governing the determination of jurisdiction in case of contracts concluded over telephone would apply with equal vigor to contracts executed over the Internet also. Relying on the tests propounded by the Supreme Court in Bhagwan Goverdhandas Kedia v. Girdharilal Parshottamdas & Co.,11 the Division Bench stated a website which sells various goods and services provides not an offer but an invitation to an offer to its customer, just as a menu in a restaurant. The invitation, if taken up by a customer in a particular State in India (for sake of ease of reference hereinafter referred to as "Customers' State"), becomes an offer made by the customer at such Customers' State for purchasing the goods "advertised" on the website. When, through the mode of the software and the browser, the transaction is confirmed and payment is made to the website operator, the operator of the website accepts the offer of the customer at such Customers' State. Since the transaction between the two takes place instantaneously, the acceptance by the operator of the website is instantaneously communicated to its customer through the Internet at the Customers' State. Therefore, in such a case, part of the cause of action would arise at the Customers' State also.

In view of the above judgment, a possible solution could be expressly providing the governing law and jurisdiction of court under the agreement, to avoid confusion. It is a settled principle of law that in the event there are 2 or more courts, which will have appropriate jurisdiction in a matter, the parties can oust the jurisdiction of others in favour of one.12 However, this problem becomes acute in cases where there is an international element. The US courts do not permit a party to contract out of US laws if the agreement relates to sale of or provision of goods and services, provided to an ordinary retail US consumer. Such provisions have been held to be unconscionable by the US courts. It is possible that where the services are being provided from out of India, ousting the jurisdiction of Indian courts be held to be against the public policy.

6. Conclusion:

The number of click wrap and shrink-wrap agreements executed today in India are mind-boggling. But astounding still is the revenue generated by means of such contracts. In light of the fact that the India story has now begun to captivate the world once again, it is a matter of the hour that adequate laws are put in place relating to click wrap agreements at the earliest to ensure that this sweet dream does not become too riddled with the aforementioned problems and turn into a nightmare.

In the meanwhile the players in ecommerce sector must ensure that the terms and conditions of their click wrap agreements are drafted in a manner that can muster the test of reasonableness and fairness, whilst protecting their interests and concerns.

Footnotes

1 As per the data by International Telecommunication Union (ITU), United Nations Population Division, Internet & Mobile Association of India (IAMAI), World Bank as viewed www.InternetLiveStats.com.

2 As per the Information Note to Press issued by the Telecom Regulatory Authority in India dated July 30, 2014, available at http://www.trai.gov.in/WriteReadData/WhatsNew/Documents/quarterly%20press%20release%20-final.pdf

3 As per the facts reported on the CMO Council India at http://www.cmocouncil.org/india/internet-marketing.php#

4 As per the facts reported on the CMO Council India at http://www.cmocouncil.org/india/internet-marketing.php#

5 KPMG in its report titled 'e-Commerce Rhetoric, Reality and Opportunity' available at https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG-IAMAI-ES.pdf

6 See LIC of India and Anr. v. Consumer Education & Research center and Ors. AIR 1995 SC 1811; and Rakesh Chand and others v. State of Himachal Pradesh and others, [CWP (T) No. 781/2008, Decided on June 15, 2010].

7 1986 SC 1571

8 Hotmail Corp. v. Van$ Money Pie Inc. (No. C-98 JW PVT ENE, C 98-20064 JW, 1998 WL 388389 (N.D. Cal., 1998); Groff v. America Online, Inc, File No C.A. No PC 97-0031 1998 WL 307001 (R.I.Superior Ct 1998); i.LAN Systems, Inc. v. Netscout Service Legal Corp 183 F. Supp. 2d 328 (D. Mass. 2002)

9 Zirka v. Sohiu, AIR 1923 Lah 242; CCRA v. State Bank of India, (1976) 2 MLJ 275

10 2014 (60) PTC 452 (Del)

11 AIR 1966 SC 543. Also see Banyan Tree Holding Private Limited v. A. Murali Krishna Reddy, 2010 (42) PTC 361 (Del).

12 See Swastik Gases P. Ltd. V. Indian Oil Corporation Ltd (2013) 9 SCC 32.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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