E-contracts are contracts that are formed electronically. They can be communicated, executed, and negotiated electronically without the involvement of any physical means or transactions. Unfortunately, it is not legally defined but Section 10A of the Information Technology Act, 2000 validates it which says “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 utilizing electronic records, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”
Evolution Of Traditional Contracts To Electronic Contracts
Contracts have existed since immemorial, making them a crucial part of society. In ancient times there was no specific law for governing contracts, different parts of the world had different rules and most of the contracts were being executed on trust and morality. In India, the early history of contracts can be found in texts such as the Vedas and the Manusmriti.
In the medieval period, all religious groups had their own law of contract, Hindus had their own rules and Muslims were regulated through their regulations, when the British came to India they imposed English common law with the doctrine of equity justice & good conscience. In 1872, the First Law Commission carved out a proper and common law of contract for India, “ The Indian Contract Act, 1872”.
But all these development was limited to contracts executed through physical means, the rapid digitalization has formed a new form of contract called E-contracts, revolutionizing the way contractual agreements are formed globally. This transformation, propelled by advancements in technology, has ushered in a new era of efficiency and convenience, particularly notable in the context of India’s digital revolution.
Advantages Over Traditional
Electronic commerce allows for greater flexibility in the business environment in terms of location, time, space, distance, and money. Globally, 70% of reporting organizations have either invested in digital transformation strategies or plan to do so in the coming year. Regardless of your business’s current digital transformation stage, it’s critical to explore the advantages of online contracts and digital contract management early on.
E-contracts have been proven to be beneficial in so many ways, especially for business transactions, for example, when you work with international partners (and paper contracts would indeed be time-consuming and costly because of the geographical distance) or when you need to sign a large number of new contracts regularly.
Some of the advantages are;
- Forming and executing a traditional contract is said to be a very time-consuming process that may lead to canceling a job proposal or sales negotiation. E-contracts overcome this issue by enabling your prospects to instantly view and sign a proposal on a computer, smartphone, or tablet, or your e-commerce site. Sometimes, they may only need to click an “I agree” button to complete the transaction.
- In a traditional contract, parties must physically meet to inform each other or hire any middlemen to negotiate the contract’s terms and conditions, whereas in E-contracts, there are ready-to-use templates for numerous types of contracts which are easier. Parties simply need to fill in the basic details such as name, address, terms and conditions, and so on in these templates. When both parties digitally sign the contract, it is considered completed.
- In a traditional contract, the contract is written by a man which may lead to a high chance of making many errors and mistakes. But in E-Contracts, there are templates available that have been verified by lawyers and contain all of the necessary information that eliminates the possibility of any contract errors.
- In paper contracts, middlemen are involved, which raises the cost of contract execution. Not only are middlemen involved, but so are labor and material costs such as paper, printing, and so on. Whereas in E-Contract these expenses are eliminated.
- In a traditional contract, there is a high chance of the agreement being tampered like signatures being forged, etc. whereas in E-Contract, digital signatures are attached to digital contracts. This prevents any tampering with the contracts. Even if they try, the tampering will be detected and recorded.
The main advantage of e-contracts is that they are not paper-based and parties to the e-contract can enter into it even if the promisor and the promisee happen to be in different places, i.e., an in-person meeting is not required for signing the contract. Instead, the parties can enter into the contract through a digital signature. A digital signature is a valid digital replacement or alternative to a hand-written signature. It is defined under Section 2(1)(p) of the IT Act, 2000. Section 3 of the IT Act, 2000, provides for the authentication of electronic records by affixing recognized in India.
A Necessity For Future
Most of the contract is made for the future, unfortunately, we are living in that phase of human civilization where the future is fully unpredictable. Sometimes conflicts with parties or between countries and sometimes outbreaks of global pandemics.
Like
- In 2019, Covid pandemic
- In 2021, Suez-canal obstruction
- In 2022, Russia vs Ukraine War
- In 2024, Israel conflicts
In all of these incidents, the physical gathering came to a halt which means that paper-based contractual transactions became impossible and as a result, the commerce world had to face serious implications and losses. Because of these incidents number of contracts were affected, so to make contracts more efficient, we need to shift to advanced contracts called e-contracts.
The global shift towards sustainable development emphasizes minimizing environmental impact. By transitioning from paper-based contracts to e-contracts, not only are we reducing documentation, but we are also making a significant contribution to saving trees. This shift helps in lowering expenses related to printing and paper storage. Moreover, e-contracts save time by streamlining the process, allowing for quicker discussions and decision-making. This efficiency in turn improves the overall delivery of services and products, fostering a more eco-friendly and productive environment.
In our rapidly advancing technological era, heavily influenced by Artificial Intelligence relying on outdated paper-based contracts is no longer feasible. The current generation, often referred to as Gen-Z, thrives on speed and efficiency, demanding quick solutions and high productivity. This trend is only set to grow, further highlighting the indispensability of e-contracts. E-contracts offer streamlined processes, reduced environmental impact, and significant time savings, and staying up-to-date with these advancements is essential for maintaining relevance and fostering trust in legal transactions. As digitalization continues to evolve, the adoption of e-contracts will not just be an option but a necessity to keep up with the increasing expectations for efficiency and sustainability.
Case Laws Validating E-Contracts
Even in this technology-driven world we still don’t have specific legislation dealing with E-contracts and The Indian Contract Act, of 1872 which regulates paper-based contracts is too old to deal with the complexities of digital contracts. But instead of proper law, we have some provisions and precedents validating and governing electronic contracts, by the time we don’t have it we have to get by with them. Some of them are listed below:
- According to Section 10 of the Indian Contract Act, “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.” It means that even if a contractual transaction is made electronically if it fulfils the essentials of a valid contract then it is valid and binding.
- The Information Technology Act, of 2000 calls for the recognition of electronic records and approves a contract if it is communicated electronically. Digital Signature Certificates (DSC) are also legally valid and enforceable as per it.
- According to Section 63 of the Bharatiya Sakshaya Adhiniyam, 2023 any information maintained in an electronic form is destined to be termed as a document and is therefore admissible in the Court. Section 41(2) emphasizes that when a court needs to determine the authenticity of an electronic signature, the opinion of the Certifying Authority that issued the electronic signature certificate is crucial.
- Trimex International FZE Ltd. Dubai Vs Vedanta Aluminium Ltd: Communication that happened through e-mails constitutes a contract. In this case, the offer and its acceptance were exchanged via email. The Supreme Court of India acknowledged the legitimacy of electronic transactions and noted that once a contract is finalized, the creation and signing of a formal document by the parties would not impede its execution.
- Tamil Nadu Organic Private Ltd. and Others Vs State Bank of India: Contractual liabilities can arise by way of electronic means. The provisions of the IT Act were followed thoroughly and the High Court emphasized that contractual obligations can emerge through electronic means. It further examined the legitimacy and enforceability of such contracts, noting that Section 10A of the IT Act not only confirmed the validity of e-contracts but also facilitated the use of electronic records to finalize contracts.
- State of Punjab and Others Vs Amritsar Beverages Ltd. and Others: Admissibility of electronic contracts. The Supreme Court of India observed that Section 63 of the Evidence Act covers the admissibility of computer outputs in various formats such as paper, optical, and magnetic forms. Furthermore, it outlines the procedure for presenting electronic documents as evidence, as specified in Section 65-B of the Evidence Act.
- Rudder Vs Microsoft Corporation: Integrity of an Agreement entered through an electronic medium. An online “click-wrap” agreement was agreed upon without scrolling down through all pages of its terms and conditions before providing access to the services. The court held that the Member Agreement was enforceable stating that scrolling through several pages was similar to having to turn through several pages of a paper contract and failure to do so would create chaos in the marketplace.
Challenges And Considerations
Challenges related to E-contracts:
- Establishing the real identity of the parties and genuine consent can be a challenge as the procedures are executed digitally as the parties don’t get to see each other which could lead to fraud and disputes.
- The protection of confidential data related to contracts is essential as in today’s digital world there is a continuous threat from cyber breaches.
- The cross-border transactions that take place through E-contracts may have jurisdictional issues as different countries have diverse regulations and requirements.
- As the E-contracts are flexible and can be altered when needed, managing the amendments and terminations and keeping a record of them can be a tough game to win.
- E-contracts often involve parties who may be less familiar with digital transactions or who may be of less age than the age of consent. In these cases, protecting their rights can be difficult.
Some considerations for addressing the challenges:
- There is a dire need for specific legislation for digital contracts. Indian lawmakers should go through proper research covering the benefits, effects, and complexities and should frame legislation that could balance the interests of businesses, consumers, and the government, promoting trust and confidence.
- Technological solutions, such as cryptography and blockchain, play a significant role in ensuring security and integrity. Blockchain technology can revolutionize the enforcement and execution of contracts through self-executing smart contracts.
- Establishing standardized digital signature frameworks and trusted certification authorities enhances the reliability and recognition of electronic signatures. These authorities play a crucial role in verifying the authenticity of electronic signatures and fostering trust in e-contracts.
- If the proper legislation is not possible now for governing electronic contracts, the Indian government can also introduce some specific provisions to address the unique challenges and requirements of e-contracts.
- The legislators should also make the Indian Contract Act, 1872 flexible and strengthen it so the Act must be regularly updated to incorporate emerging technologies and ensure the relevance of its provisions in the digital era.
Conclusion
In conclusion, E-contracts have revolutionized the way contractual agreements are formed globally. The shift from traditional to electronic contracts will soon become a norm and the upcoming era will transform people’s lives for the better. With rapid digitization and globalization E-contracts with their benefits of convenience, efficiency, global reach, etc can potentially transform the legal landscape. Although E-contracts present challenges but addressing them can ensure the relevance and reliability of E-contracts in the continuously changing digital era. As commerce will have an extensive effect with this digital transformation and so do the legal world, people from businesses and legal professionals should come to action and embrace E-contracts and help to make it accessible and less complex so that a large population can benefit from it. E-contracts symbolize a groundbreaking shift, revolutionizing the contractual landscape by fostering efficiency, security, and sustainability in the digital age.
REFERENCES
- Indian Contract Act, 1872, §10.
- Information Technology Act, 2000, §10 A; §2(1)(p); §3.
- Bharatiya Sakshaya Adhiniyam , 2023, §63; §41(2).
- Soyab Khan, E-CONTRACTS IN INDIA: THE LEGAL FRAMEWORK, ISSUES, AND CHALLENGES, 2023, V1I116.pdf (iledu.in).
- Siddharth Sengupta, Validity of E-Contracts in India and Jurisdictional Issues in Their Enforcement, Legal Services India E-Journal, Validity of E-Contracts in India and Jurisdictional Issues in Their Enforcement (legalserviceindia.com).
- Jalaj Tokas, Analyzing the Validity E-Contracts, 2021, Law Insider, Analyzing the Validity E-Contracts – LAW INSIDER INDIA- INSIGHT OF LAW (SUPREME COURT, HIGH COURT AND JUDICIARY.
Author: Ishani Gupta, 1st year student at ILC, Faculty of Law, University of Delhi
