E-CONTRACTS IN INDIA

Electronic Contract refers to a contract that takes place through e-commerce, often without the parties meeting each other. It refers to commercial transactions conducted and concluded electronically. A customer drawing money from an ATM machine is an example of electronic contract. Another instance of e-contract is when a person orders some product from an online shopping website. Globalization and diffusion of technology has accelerated the presence of e-commerce companies throughout the world. Online auctions are also gaining popularity whereby buying and selling takes place through bidding using the Internet.

In this post, we outline the various types of contracts and legal issues with enforcement of such contracts.

Types of E-Contracts

Three common kinds of electronic contract are browse wrap, shrink wrap and click wrap contracts.

  • A browse wrap agreement is intended to be binding on the contracting party by the use of the website. Such contracts are usually used by websites wherein the continued use of a website by a user is deemed to be acceptance of its revised terms of use and other policies.
  • A shrink wrap contract is a license agreement where the terms and conditions of the contract are enforced upon the consumer as soon as he opens the package. Such contracts can be generally observed in the case of buying of software products. The license agreement indemnifies the user for any copyright or intellectual property rights violation of the manufacturer as soon as the buyer opens the pack (containing the software product).
  • Click wrap or click through agreements require the user to manifest his consent or assent to the terms and conditions governing the licensed usage of the software by clicking “ok” or “I agree” button on the dialog box. A user may choose to disagree or reject the terms by clicking cancel or closing the window. Such a user will not be able to buy or use the service upon rejection. One regularly comes across such a type of contract during online transactions, while downloading software or creating an e-mail account. Unlike the shrink wrap agreements where the terms of the agreement are hidden inside the box, in case of click wrap agreements, all the terms and conditions are accessible prior to acceptance, either in the same window or through a hyperlink.

In India, there are no concrete judicial precedents on the validity of shrink-wrap and click wrap agreements. However, courts in other countries have dealt with such type of agreements.

In the US, the courts have held that shrink wrap agreements are enforceable as long as they do not violate the general principles of contract law and that even though the specific terms of bargain were not disclosed until after the sale, the contract had been validly formed by the purchaser’s conduct.

Similarly, Click Wrap contracts are also enforceable in the US.[1] The Appellate Division of Superior Court of New Jersey held that a valid and binding contract is entered into by the plaintiff by clicking the “I Agree” option and that the former is bound by the resultant contract.

Validity of E-contracts

Along with traditional agreements the Indian Contract Act, 1872 has also accorded recognition to oral contracts provided they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. Thus, nothing in the Indian Contract Act prohibits the enforceability of electronic agreements if such agreements possess all the essentials of a valid contract.

Free consent is a quintessential characteristic of a valid contract. Generally there is no scope for negotiations on E-Contracts and it is usually a ‘take it or leave it’ transaction. Indian courts have dealt with instances where the terms of contract were negotiated between parties wherein one party to the contract was in an unfair dominant position and have held unfair contracts as void.

In the case of LIC India v. Consumer Education and Research Center the Supreme Court held that “In dotted line contracts there would be no occasion for a weaker party to bargain as to assume to have equal bargaining power. He has either to accept or leave the service or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forgo the service forever.

The focal point is the bargaining power of the parties, for instance wherein a person accepts unfair terms of contracts to obtain goods or services or means of livelihood. However, the courts would not intervene in situations where the parties are at equal or almost equal bargaining positions. Thus, if a consumer was to take the defense of an E-Contract being unreasonable and the existence of disparity in the negotiating power of the parties, he shall also have to prove that the services or goods sought by him under the E-Contract were of absolute necessity and also that he had no other means for availing the goods or services.

Execution of E-contracts

In India there is no regulation to govern E-Contracts. Recognition and regulation to E-Contracts is provided by some of the provisions of the Information Technology Act, 2000 and the Indian Evidence Act, 1872. The I.T. Act contains detailed provisions for attribution, acknowledgement and dispatch of electronic records and secured electronic procedures. The recent amendments to Maharashtra Stamp Act provide that the term ‘document’ includes an electronic record.

The IT Act recognizes that communication of proposals, acceptance of proposals, revocation of proposals and acceptances, as the case may be, could be expressed in electronic form or by means of an electronic record, and shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.

Further recognition is accorded under the Indian Evidence Act, whereby the term document includes computer output that is 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 (hereinafter referred to as the computer output). Such information in conformity with the conditions of Section 65B shall be admissible in any proceedings, without further proof or production of the original, as evidence of any contents of the original or any fact stated therein of which direct evidence would be admissible.

Electronic signatures

The Information Technology (Amendment) Act, 2008 substituted the term ‘digital signature’ with the term ‘electronic signature’. A digital signature is technology specific and is irreversibly unique to both the document and the signer. However, an electronic signature is technology neutral and generic in nature. There is no standard for electronic signature. It can be a typed name or digitized image of hand written signature. The substitution of the term ‘digital signature’ with ‘electronic signature’ is meant to broaden the spectrum of E-contracts in an e-commerce world. It is pertinent to note that other counties like the U.S. have also enacted suitable legislation to provide that a signature may not be denied legal effect solely because it is in electronic form or because it does not follow the prescribed technological process.

Recognizing the change in the execution of commercial transactions the Supreme Court disregarded the argument that exchanges over e-mail did not qualify as contracts and held that “Once the contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initialed by the parties would not affect either the acceptance of the contract so entered into or implementation thereof, even if the formal contract has never been initialed.[2] Thus, a corollary may be drawn that e-mails conveying clear intention of parties to enter into a contract can be treated as a binding contract.

Maharashtra Stamp Act

Section 3 of the Maharashtra Stamp Act provides that every instrument mentioned in Schedule I to the Act is chargeable with Stamp duty. This implies that stamp duty is also payable on contracts entered in electronic form if such instrument is listed in Schedule I.

The term ‘execution’[3] in the aforementioned Act is used to mean ‘signed’ and ‘signature’. Explanation to this section provides that the term ‘signed’ and ‘signature’ include attribution to electronic record as per section 11 of the Information Technology Act. The term signed with reference to a person who is unable to write his name includes ‘mark’. [4] Thus, an instrument can be validly executed in electronic form.

Further, the Maharashtra E – Registration and E-Filing Rules, 2013 facilitates online payment of stamp duty and registration fees. The Rules also make appending of electronic signature or biometric thumb print mandatory, thereby further giving recognition and legal validity to e-contracts.

Further Stamping Requirements

One of the important documents evidencing an online transaction is the receipt, provided by the online vendor to the customer at the end of a transaction.

Receipt, as per the Indian Stamp Act, 1899, includes any note, memorandum or writing, whereby any money, or any bill of exchange, cheque or promissory note is acknowledged to have been received.

Whereas the Maharashtra Stamp Act, has no requirement for stamping a receipt, the Indian Stamp Act, 1899 mandates that a receipt for any money or other property, the amount or value of which exceeds INR 5000 (Rupees Five Thousand) shall be stamped. Hence, although the entire transaction is conducted online, without the signing of any document between the seller and the buyer, it is essential to have the receipt, which evidences the entire transaction, stamped.

Difficulties

While there have been large strides in bringing the legal frame work up to speed with new technology and resultant transactions through E-Contracts, it can be said that the legal frame work pertaining to E-Contracts in India is still in the nascent stages as compared to other countries. E-Contracts like Click Wrap, Browse Wrap and Shrink Wrap need to be specifically recognized and an efficient frame work to regulate them needs to be provided which would consequentially eliminate many ambiguities and blind spots encountered by parties while entering into contractual relationships through these type of agreements.

Typically, most e-contracts such NDAs which are executed and scanned to the other party as well as click wrap agreements on e-commerce websites containing “electronic signatures” may be rendered unenforceable on account of the series of judgments read with stamp laws in this regard. Difficulties are encountered when courts refuse to give effect to terms of such e-contracts including arbitration agreements contained therein. In a recent Bombay High Court decision, the Hon’ble Bombay High Court held that interim measures under section 9 of the Arbitration and Conciliation Act cannot be granted if the agreement, from which the dispute arises, is chargeable with stamp duty but is unstamped or insufficiently stamped. Similarly, recent amendments to the stamp laws (as of 24th April 2015)  have increased the maximum penalty for non-stamping to 4 times as compared to double the stamp duty payable earlier.

However, the recent Supreme Court judgment[5] on this point disregarding formalities for formation of a valid contract, gives some respite to stakeholders in the e-commerce sphere.

[1] Hotmail Corporation v/s Van Money Pie Inc., 1998 WL 388389 (N.D.Cal.)

[2] Trimex International FZE vs Vedanta Aluminum Limited, India

[3] Section 2(i) of the Maharashtra Stamp Act

[4] Section 3 (56) of General Clauses Act, 1897.

[5] Trimex International FZE vs Vedanta Aluminum Limited, India

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