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Legal Issues involved in Electronic Contracts


Electronic contracts or e-contracts are nothing but agreements entered in electronic form, often through a software framework, as opposed to conventional contracts documented on paper and signed in ink. Indian laws accept different forms of e-contracts, such as e-mail transfers, clickwrap contracts, shrink wrap contracts, etc. The test and validity of an e-contract in India still needs to cover the pre-requisites of the contract as set out in the Indian Contract Act, 1872.

The Information Technology Act 2000[1] also governs and recognizes the formation and execution of the electronic contracts. Most of the organizations nowadays, conduct business online and their legal agreements are also made online mostly, especially after the COVID-19 pandemic there has been a sudden rise in the formation of e-contracts. But since it�s a new concept, there are certain legal issues that are faced by many, some of these are discussed below.

Laws Governing Electronic-Contracts

The basic condition of a contract being made that is an offer and acceptance is governed by the Indian Contract Act, 1872. According to this, electronic contracts are as valid as written contracts but there is one condition that they need to fulfill, that is they should possess all the essentials of a valid contract. Apart from this, the provisions of the Information Technology Act, 2000 gives legal recognition to an Electronic Contract.

This can be inferred from Section 10-A of the Act which states �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."

Various Forms of Electronic Contracts in India

There are various ways through which a person can enter in electronic contract in India. The first and the most common form is through an exchange of e-mail, where there is an offer made and another party accepts it. The second form is that of online agreements which consist of:

Browse Wrap Agreement:

This is the most basic type of agreement which all of us see almost daily, when we use a website which pop ups the message that by �By continuing your use of these services, you agree to the terms and conditions� or �By signing up I agree to the terms of use.

Shrink Wrap Agreement:

Shrink-wrap agreements are basically licensing agreements for software. The name derives from the shrink wrap packaging of the CD-ROMs in which software used to be distributed. Nowadays, we see this type of agreement before installing of a software.

Click Wrap Agreement:

As the name suggests these are the kind of agreement for which we have to click in a tick-box usually to continue the use of a website or an app. It gives us the terms and conditions which we need to follow and accept before further usage of the app or website.

Legal Issues Involved in Electronic Contracts

First and foremost, electronic contracts can take many forms. For example, an email conversation with a clear offer and acceptance may be considered a binding contract. This means that the terms of the contract are set out in e-mail communications, messages, offers made, etc. between the customer and the supplier. It�s not necessary for an electronic-contract to contain many elements, just an offer and acceptance can be taken to the court for legal claims.

Apart from this, there are many other factors like we cannot see the person physically, if the electronic-contract is made sitting in two different states, which state�s law will govern the if any legal issue arises, there are certain limitations of an electronic-contracts, if there is free will or not, the digital signature was done by the person with whom the agreement is to be made or not as we cannot see the other party while forming an e-contract.

Place of Formation an Electronic-Contract & the Area of Jurisdiction in Case of Breach

According to � 13(3) of the IT Act, 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 except as otherwise agreed to between the originator and the addressee.

In the traditional form of agreement, where both the parties form a contract that place is considered to be the area for jurisdiction, as while forming a traditional form of contract, the parties need to be in the same place. Whereas, the electronic contract can be made while sitting in different cities and states.

If a legal issue arises or there is a breach of contract it is up to the parties that either they can choose one of the states from where they made the contract OR they can choose a third city for the jurisdiction. However, there is one exception to this rule which is given in CPC, providing only for two possible places of jurisdictions to institute a claim.

Admissibility of Electronic-Contracts as Evidence in Courts

The Indian Evidence Act, 1872 was also amended to include various kinds of electronic contracts. After the amendment according to the Evidence Act, electronic records, electronic agreements and electronic contracts are admissible in evidence.

In the case of State of Punjab and Ors. Vs. Amritsar Beverages Ltd. and Ors., the Supreme Court observed Section 63 of the Indian Evidence Act makes various media like paper, optical or magnetic forms admissible in courts. Section 65-B of the Indian Evidence Act also provides with information contained in digital form in electronic record is admissible in court without procuring the original document. But admissibility of the same is subject to various conditions prescribed under section 65-B of the Evidence Act.

Even though the electronic contracts are the type of contracts that are being used the most nowadays, there are many loopholes and issues related to it which even after so many amendments and acts are not resolved. In my opinion there should be some laws that govern on if the contracts were not signed with free consent or if the signature which is also in electronic form was not done by the signatory, what should be done, as a of there are no such provisions which provide us with this kind of problem.

Also, as there is further advancement of technologies with time, the laws will become redundant and more problems will arise. They need to upgraded from time to time to keep up with such advancements. The IT Act does provide us with various laws but there are multiple loopholes present which need to fixed. With the lockdowns and sudden upsurge in formation of electronic contracts, I sincerely hope that government looks into these small loopholes and work on it.

  1. The bill was passed in the budget session of 2000 and signed by President K. R. Narayanan on 9 May 2000. The bill was finalized by a group of officials headed by then Minister of Information Technology Pramod Mahajan

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