The law of E-Contracts, their Legal Validity, and Stamping

Technology is magical, isn’t it? Besides just being an enabler of social networking and entertainment, it is the backbone for most commercial activities. Now technology has transmuted concepts like commerce into e-commerce and contracts into e-contracts. If you shop on Amazon, Flipkart, Snapdeal, or any e-commerce website, then you have already signed an e-contract. An e-contract, simply put, is an agreement that parties ‘draft’ and ‘sign’ in electronic form. But, what is the legal validity of e-contracts?

In this article, we will assess the validity of e-contracts by simply equating the principles of an enforceable pen-paper contract to an e-contract. We will also discuss the governance of these contracts under Indian laws. Lastly, we shall look at the requirement of stamping e-contracts considering it an important part of enforcement.

Bridging the gap between electronic contracts and traditional contracts

For an e-contract to be valid, it must primarily satisfy the pre-requisites as under the Indian Contract Act, 1872. Section 10 of the Act mentions those pre-requisites.

• Offer – The person making the offer can directly enter into a contract once the other person accepts the offer. On e-commerce websites, sellers display the goods and services which is an invitation to offer to us (“users”). An invitation to offer invites people to negotiate and make an offer themselves. We place an order asking for their acceptance to our offer. If they accept our order (“offer”), then contract formation takes place giving rise to contractual obligations.

• Unconditional Acceptance – E-commerce platforms generally do not afford the user any opportunity to negotiate the terms and conditions. Thus, they create a take it or leave it agreement. Until the user clicks on “I Agree”, he cannot commence the use of the website, giving unconditional acceptance.

• Lawful Consideration – Parties must execute an e-contract for a consideration. (section 2(d) of the Contract Act)

• Competency of parties – Section 11 and 12 of the Contract Act stipulates that parties to a contract be capable to enter into a contract. Any person who is a minor, or of unsound mind or disqualified by law from contracting, cannot enter into contracts. However, minors freely enter into contracts without any restrictions on e-commerce websites. Currently, there is no mechanism to take guardian’s consent electronically. E-contracts with minors without their guardian’s consent, puts a question mark on their validity.

Free Consent in E-Contracts

Free consent is another essential element to determine the validity of a contract. The consent must be free from coercion or duress (section 13). However, in browse wrap contracts and click wrap contracts, users give consent just by clicking on “I agree” checkboxes. They rarely read the terms of use or end user license agreement. These “take it or leave it” contracts don’t offer any bargaining power to the users. “Consensus ad idem” is only prevalent on paper and not in its essence due to consent fatigue. To counter this issue, Ministry of Consumer Affairs has enacted the Consumer Protection (E-commerce) Rules, 2020.

• Rule 4(9) of E-commerce Rules, 2020: “Every e-commerce entity shall only record the consent of a consumer for the purchase of any good or service offered on its platform where such consent is expressed through an explicit and affirmative action, and no such entity shall record such consent automatically, including in the form of pre-ticked checkboxes”.

Most of us know that agreements that are enforceable by law are contracts. Since the Contract Act doesn’t include electronic contracts, there is a certain degree of ambiguity with respect to its acceptance. But it is safe to conclude that if an e-contract satisfies the essential requirements of a traditional contract, it is valid.

Even though the Indian Contract Act, 1872 does not explicitly mention e-contracts, it does not prohibit them. In Trimex International Fze Ltd. vs. Vedanta Aluminium Ltd., the Supreme Court upheld the validity of the contract between the parties that they had unconditionally accepted through an exchange of e-mails.

Kinds of E-Contracts – Shrink Wrap Contracts

Such contracts are licensing agreements that exist on the plastic covering or in manuals that accompany software products. The terms and conditions of these agreements are imposed on the contracting parties and are non-negotiable. For instance, if the purchaser is not willing to abide by the terms, then he/she can return the software for a full refund. (Only if it is not used)

Now you might wonder what makes this contract binding on parties? Once the purchaser opens the plastic covering or starts to actually use the software, this action makes for acceptance of such terms and conditions. Hence, it binds parties with the terms and conditions.

Kinds of E-Contracts – Browse Wrap Contracts

Browse Wrap Contracts as the name suggests, takes place through browsing over the internet. It is a passive way of getting agreement to terms of website/App. The agreement will simply state in the footer or app menu that “by using the website/app, you accept and agree to be bound by the terms of the agreements”.

If you login to your Flipkart account, it explicitly mentions that by logging in, you agree to their terms of service. This is a classic example of Browse Wrap Contract. Even though the process seems fairly transparent there are risks looming around this form of contract. The first one is consent.

Since browsing the content available on the webpage is deemed as acceptance to the terms, it is a form of implied consent. It is off-track to the fact that express consent is becoming the legal standard. Secondly, there are high chances that a user might not read the agreement wholly and, later come arguing that he didn’t accept the terms because he didn’t know about them.

Kinds of E-Contracts – Click Wrap Contracts

They also provide links in the Website/App footer. However, the process by which users agree to the terms of these contracts is different. These contracts ask a user to agree to the terms within the website/ app. For example, as part of the registration or logging-in process, a user must actively click on “I Agree” to show consent to the terms and conditions envisioned therein. Click Wrap Contracts are generally preferred over Browse Wrap Contracts since there is active consent on the part of the user.

Execution of E-Contracts

Execution of any contract finds its basis in the classic principle of consensus ad idem. Parties entering into a contract should agree upon the same thing in the same sense. The traditional way of executing agreements requires parties to be present physically, affix their signature and pay the necessary stamp duty. But there are other ways too through parties can execute agreements, as permissible under the Indian law.

Section 3 and 3A of the IT Act envisage that users can authenticate electronic records through digital and electronic signatures. Hence, parties can sign e-contracts either through digital signatures, or electronic signatures.

Also read: The law on electronic signature in India

Formation of E-Contracts as per the Information Technology Act, 2000

First, of all, electronic records are legal. Hence, an electronic contract is legal. Section 4 of IT Act, provides for legal recognition of electronic record. It says that where any law requires information in written/ typewritten/ printed form, providing the information in electronic form would suffice.

Further, Section 10A of the IT Act specifically provides for validity of contracts formed through electronic means. It states that the communication of proposals, acceptance of proposals, and revocation of proposals in electronic form shall not be unenforceable solely because the parties performed it using electronice methods. Now let’s have a closer look at the contract formation process.

Originator and Addressee

There are two parties to an e-contract: Originator (Sameer) and Addressee (Pooja). The Act defines Originator under Section 2(1)(za) as a person who sends, stores, generates, and transmits any electronic message to any other person. It defines Addressee under Section 2(1)(b) as the person intended by the originator to receive the electronic message.

Note: We would be using e-mail address/ computer resources/ information systems interchangeably. Similarly, we shall be using offer/ email/ electronic record interchangeably.

Attribution of electronic records

Section 11 of IT Act, 2000 provides for the attribution of electronic records. An electronic record can be attributed to an originator (Sammer or Pooja)-

• where the originator himself sends an electronic message,

• or where an authorized person is acting on behalf of originator,

• or where the originator has programmed an information system for this purpose.

Acknowledgment of receipt

Section 12 of IT Act provides for methods using which a party (addressee) can give the acknowledgment of receipt of an electronic record (simply, the mode of acceptance). Where the originator and addressee have not agreed on a particular mode of communication, a party can give acknowledgment of receipt through any way of communication (automated or otherwise).

For instance: Sameer (originator) sends a message to Pooja and offers to buy her car.  Pooja (addressee) is on a vacation and has set an automated reply to the incoming messages on her Gmail. Sameer receives an automated reply. This reply means Pooja has acknowledged the receipt of Sameer’s message.

Acknowledgment through conduct: The addressee can also send acknowledgment through any conductsufficient to indicate to the originator that it has received the message. E.g. Pooja doesn’t send an acknowledgment to the above offer but shares pictures of her car.

No acknowledgment, no offer: With reference to Section 12(2) of the Act, if Sameer asks for receipt of an acknowledgment and says that the offer to buy the car will stand only if Pooja sends an acknowledgment but Pooja doesn’t send one, Sameer’s offer will be treated as if he never sent it.

If acknowledgement not received despite asking: With reference to Section 12(3) of the Act, if Sameer doesn’t say that the offer will stand only if Pooja sends an acknowledgement, nor says that he needs an acknowledgment within a certain period of time, then he can give notice to Pooja if she fails to acknowledge his offer. If Pooja doesn’t send an acknowledgment even after giving the notice, then the electronic record (offer)  should be treated as if Sameer never sent it.

Time and place of despatch and receipt of electronic record

Section 13 of the Act provides for the time and place of despatch and receipt of electronic records.

Time of Dispatch: With reference to Section 13(1) of the Act, if Sameer presses the “send” button at 01:00 p.m. and the e-mail reaches an information system that is out of her control, the time of despatch will be 12 noon.

Time of receipt: As per Section 13(2)(a)(i) of the Act, if Sameer places the offer on Pooja’s designated e-mail address (or information system), the time of receipt will be when the email reaches the designated e-mail address or information system. If Sameer doesn’t send the offer on the designated email address, then the time of receipt will be when Pooja accesses the offer. [Section 13(2)(a)(ii)]

If Pooja has not designated any address/ information system for the purpose of receiving offers/ electronic records, the time of receipt will be when the electronic record enters any of her information systems. [Section 13(2)(b) of the Act]

Jurisdiction: Section 13(3) of the Act states that the electronic record is deemed to be despatched at the place of the business of the originator and electronic record is deemed to be received at the place of business of the addressee. If the originator/ addressee has multiple places of business, then the despatch/ receipt will be at the principal place of business.

Further, if the originator/ addressee does not have a place of business, his usual place of residence will be the place of business.

Admissibility of E-Contracts in Courts

Section 3 of the Indian Evidence Act, 1872 includes electronic records as documentary evidence in the definition of “Evidence”. For an electronic record to be admissible as evidence in a court, it should meet the the conditions mentioned under Section 65B of the Evidence Act.

Regarding the authenticity of any electronic record signed using a digital signature, you should read this article. For authenticity of any electronic record signed using an electronic signature, you should read this article.

Enforcement of E-contract- Stamping

In India, states levy stamp duty under the Indian Stamp Act, 1899, and under various state legislations. E-contracts are not mentioned in the definition of an instrument [Section 2(14)] under the act. After the amendment in the Stamp Act by Finance Act, 2019, an “instrument” includes only electronic documents created for a transaction in a stock exchange or depository.

However, states like Maharashtra, Uttar Pradesh, Gujarat, and Karnataka have amended their stamp act to include electronic records as an instrument. E-agreement must be stamped before or at the time of execution (signature) of the e-document and not after the execution.

In case the parties don’t attach the proper stamp value to the contract, the contract will still be valid. However, the court will impose a penalty on the parties before going ahead with any suit.

This article was co-authored by Preksha Jain, a 5th-year student at CNLU, Patna and Rohit Ranjan Praveer.

---

Do subscribe to our Telegram channel for more resources and discussions on technology law and news. To receive weekly updates, don’t forget to subscribe to our Newsletter.