India: E-Contracts - Legal Validity And Jurisdiction

This article has been co-authored by the team of LexCounsel in collaboration with Mr. Manish Gupta, Head Legal, Usha International Limited

1              Validity of E-Contracts.

1.1         With the e-commerce boom and the growing trend of commercial transactions being concluded by way of internet, execution of contracts by electronic means has become quite prevalent. 

1.2          Like an ordinary paper contract, an electronic contract (or e-contract) is also primarily governed by the codified provisions of Indian Contract Act, 1872 ("ICA"), as applicable to contracts in general.  Therefore, an electronic contract also cannot be validly executed unless it satisfies all the essentials of a valid contract, such as (a) "Offer" and "Acceptance"; (b) Lawful consideration; (c) Lawful object; (d) Free consent; (e) Parties to be competent to contract; (f) Intention of parties to create legal relationship; (g) Certainty and possibility of performance; (h) Not be expressly declared to be void; and (j) Compliance with formalities under different laws governing the agreement. All other statutes applicable to an electronic contract are to be read in conjunction, and not in substitution, with the ICA. Therefore, in this context, if an electronic contract has been formed over a series of electronic communications where the essential elements of the contract (such as offer, acceptance, consideration etc.) are captured separately, then proper maintenance of  all such electronic records and emails becomes essential to prove the record of the contractual arrangement between the parties.

1.3          Electronic contracts/records have also found statutory recognition under the Information Technology Act, 2000 ("IT Act"). Amongst other things it specifically states that a contract shall not be deemed unenforceable, solely on the ground that electronic form/means were used for communication of proposals, acceptance of proposals, revocation of proposals or acceptances, as the case may. The IT Act also recognizes "digital signatures" or "electronic signatures" and validation of the authentication of electronic records by using such digital/electronic signatures. The contents of electronic records can also be proved in evidence by the parties in accordance with the provisions of the Indian Evidence Act, 1872.

1.4          Conclusion of contracts through electronic means, such as through e-mail communications (or execution of electronic contracts) have also been recognized by Indian courts from time to time. For instance, in the case of Trimex International FZE Limited, Dubai vs. Vendata Aluminum Ltd.¹, the Hon'ble Supreme Court of India held that the contract between the parties was unconditionally accepted through e-mails and was a valid contract which satisfied the requirements of the ICA.

2              Jurisdiction of Courts under E-Contracts.

2.1         Given the nature of e-contracts, one question which often comes to fore is – which court would have territorial jurisdiction to try disputes arising out of such e-contracts?

2.2          The Code of Civil Procedure, 1908 ("CPC") prescribes the manner of determining the jurisdiction of civil courts in India, based on two fundamental principles:

(i)             the place of residence of the defendant; and

(ii)            the place where the cause of action arises.

Subject to the above, while the parties remain free to determine the choice of courts to adjudicate their disputes, they can choose only such court(s) which is/are not barred from exercising jurisdiction, i.e. parties cannot confer jurisdiction upon a court which does not have jurisdiction to entertain their case.

2.3          Ordinarily, contracts contain a specific provision with respect to the place of execution thereof, and the courts of such a place would have territorial jurisdiction to entertain and try the disputes arising under such contracts if in accordance with the CPC as aforesaid.

2.4          However, since e-contracts are not physically signed/executed and are concluded in a virtual space, simply imposing the traditional principles of jurisdiction, applicable to physical contracts, to such transactions can prove to be challenging.  

2.5          The jurisdictional issues of e-contracts have, however, been addressed to an extent under the IT Act. Section 13 of the IT Act governs the provisions relating to time and place of dispatch and receipt of an electronic record, and addresses the issue of deemed jurisdiction in electronic contracts, as under:

(1)    "...Save as otherwise agreed to between the originator and the addressee, the despatch of an electronic record occurs when it enters a computer resource outside the control of the originator.

(2)    Save as otherwise agreed between the originator and the addressee, the time of receipt of an electronic record shall be determined as follows, namely:

(a)      if the addressee has designated a computer resource for the purpose of receiving electronic records,

(b)     if the addressee has not designated a computer resource along with specified timings, if any, receipt occurs when the electronic record enters the computer resource of the addressee.

(3)    Save as otherwise agreed to between the originator and the addressee, an electronic record is deemed to be dispatched at the place where the originator has his place of business, and is deemed to be received at the place where the addressee has his place of business.

(4)    The provisions of subsection (2) shall apply notwithstanding that the place where the computer resource is located may be different from the place where the electronic record is deemed to have been received under subsection (3).

(5)    For the purposes of this section:

(a)      if the originator or the addressee has more than one place of business, the principal place of business, shall be the place of business;

(b)     if the originator or the addressee does not have a place of business, his usual place of residence shall be deemed to be the place of business;

(c)     "usual place of residence", in relation to a body corporate, means the place where it is registered."

2.6          To further illustrate application of the aforesaid principles, we may refer to the case of PR Transport Agency vs. Union of India², wherein the Allahabad High Court had to decide the question of jurisdiction where the respondent had sent the letter of acceptance by an e-mail to the petitioner's e-mail address. Subsequently, the respondent sent another e-mail cancelling the e-auction in favour of the petitioner "due to some technical and unavoidable reasons". When the petitioner challenged this communication in the Allahabad High Court, the respondent raised an objection as to the "territorial jurisdiction" of the Court on the ground that no part of the cause of action had arisen within Uttar Pradesh (UP), and therefore, the Allahabad High Court (UP) had no jurisdiction to try the dispute. In the case, the principal place of business of the petitioner was in district Chandauli (UP), and the other place where the petitioner carried on business was Varansi, which is also in the State of UP. The Court, therefore, on the basis of section 13(3) of the IT Act, held that the acceptance of the tender by e-mail would be deemed to have been received by the petitioner at Varanasi/Chandauli, which are the only two places where the petitioner has his places of business. As both these places fell within the territorial jurisdiction of the Allahabad High Court, the Court assumed jurisdiction to try the dispute.

2.7          In view of the foregoing, the place of contract in an e-contract for the purposes of determining jurisdiction (i.e., the place where the cause of action arose) would be deemed to be where the originator has his place of business and where the addressee has his place of business. However, since Section 13 of the IT Act is subject to the mutual agreement of the contracting parties with respect to the agreed place of contract, it is recommended that all parties in their electronic contracts provide for a specific clause on jurisdiction.

3.         Concluding Remarks.

3.1.       The common legislative and judicial intent appears to be clear that any legally valid acts that are ordinarily performed would continue to be valid even if performed electronically or digitally, as long as such electronic/digital performance consists of all the attributes of legally valid contract, as may be prescribed under the applicable laws.

3.2.            That said, determination of territorial jurisdiction for e-contracts becomes complicated in the absence of geographical or national boundaries for execution and implementation of such contracts. While, the IT Act and judicial interpretations related to contracts in general, have to a certain extent clarified the jurisdictional aspect of e-contracts, in view of the aforesaid discussions, it is generally advisable to clearly specify both jurisdictional and governing law provisions in the e-contracts, to avoid future conflicts on jurisdictional or choice of law issues.  

(Please look out for our next newsletter where we would be examining the applicability of stamp duty on e-contracts).

Footnotes

1 (2010) 3 SCC 1

2 AIR 2006 All 23: 2006 (1) AWC 504

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.