COVID – 19 is a crisis forcibly changing India and pushing it towards digitalisation. While online classrooms, webinars, digital conferences, etc are becoming the norm, one wonders the fate of commercial legal contracts. Going forward, whether e-contracts will become the new mode of determination of rights, liabilities and obligations? How prepared is our legal system for such a challenge? This write up is an attempt to address these questions.
E-contracts in India
India is no stranger to digital agreements or e-contracts. In its endeavour to keep pace with the global momentum, Indian legislation, in the recent past, have accepted digitisation of the process of execution of contracts. Although e-contracts are recognised in India, and there are laws governing them, the prevalent approached towards the execution of contracts in India is still the traditional way of 'ink – signatures'.
What is an e-contract?
With an increase in e-commerce and online transactions, the number of contracts being executed electronically has seen exponential growth and the ongoing COVID -19 crisis will further increase the execution of contracts electronically. Electronic contracts or e-contracts are nothing but agreements entered into through an electronic form mostly through a software system as opposed to the traditional contracts documented on paper and signed in wet-ink.
Indian laws recognise various types of e-contracts such as contracts entered through an exchange of emails, clickwrap contracts, shrink wrap contracts, etc. The test and validity of an e-contract in India still encompass the pre-requisites of a contract as enumerated in the Indian Contract Act, 1872. It is pertinent to note that without an adequate legal framework, the implementation of e-contracts over traditional contracts may create an atmosphere of entropy. Further, the introduction of Section 65B to the Indian Evidence Act, 1872 and the enactment of the Information Technology Act, 2000 have enlarged the recognition of e-contracts under the law.
Recognition and Evidentiary value of e-contracts
Section 10 of the Indian Contract Act1 states what constitutes a valid contract. Some of the essential prerequisites of a valid contract under the Indian Contract Act are, offer, acceptance of offer, and consensus ad idem. Therefore, for an e-contract to be considered as a valid contract it must possess these elements. Further, Section 10A of the Information Technology Act2 gives special recognition to e-contracts. All communications electronically made leading to the formation of a contract gains special recognition under the Information Technology Act and also the Hon'ble Supreme Court in the case of Trimex International v. Vedanta Aluminium3 has held that even without there being the execution of a formal contract, the electronic communications if satisfying the requirements of Indian Contract Act, constitute a legally enforceable agreement.
Furthermore, Section 65B of the Indian Evidence Act, 1872 stipulates the evidentiary value of e-contracts. Sub-section 1 of the said section states that any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be a document and shall be admissible in any proceedings subject to the conditions mentioned in the said section.
Execution of e-contracts:
Unlike signing of traditional contracts documented on paper by affixing the signatures of the parties to the contract in wet – ink, e-contracts can be executed through various modes. In the current scenario, keeping focus more specifically on commercial contracts the safest and the most legally recognised method of entering into an electronic agreement can be made through the use of digital signatures. The rules made under the Information Technology Act enable obtaining of individual specific digital signatures. In the current scenario of safe distancing when one is reluctant to meet another, it would be convenient and wise to use special software along with digital signatures to sign and execute documents at the convenience of being at one's home. However, caution has to be exercised and it is pertinent to note that the Information Technology Act exempts certain contracts from being executed electronically, and those that are permitted also need to be signed and executed after exercising legal due diligence.
It is a point for consideration regarding payment of stamp duty as required under law and steps in this regard are now being actively taken by several state governments by way of opening online portals for payment of stamp duty. In the event such steps come to fruition then the entire process of signing and executing a contract electronically can be achieved adhering completely to the norms prevalent during this crisis.
Indian laws are not averse to the idea of e-contracts and the courts have consistently upheld the validity of e-contracts provided they satisfy the prerequisites of the Indian Contract Act. However, it is the rigid mind-set of the people that comes in the way of execution of e-contracts. It appears, however, that the current crisis will eventually force people into accepting contracts in electronic modes and our legal system has already set in motion the required laws for recognition and enforcement of such contracts. It would be safe to conclude that an era of e-contracts is going to take over the traditional mode of execution of a contract and willingly or unwillingly the COVID-19 crisis has pushed people even further towards the same.
1 Section 10: What agreements are contracts.—All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.
2 Section 10A: Validity of contracts formed through 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 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.
3 Trimex International FZE Limited, Dubai vs. Vedanta Aluminium Limited, India, (2010) 3 SCC 1
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.