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Validity of E-Contracts in India and Jurisdictional Issues in Their Enforcement

The internet is a medium of communication that has no boundaries in the twenty-first century. Transactions no more are limited to a nation's geographical borders. Transactions are being negotiated and completed online thanks to websites like Alibaba, Indiamart, and others. Furthermore, physical presence is not required to enter and sign the contract. As a result of this, the notion of E-Contracts arose.

These cross-border transactions, however, have created legal difficulties that have perplexed courts and experts to this day. These E-Contracts wreak havoc on regulatory, jurisdictional, and taxing systems, causing uncertainty. Furthermore, no single body or treaty has jurisdiction over the internet, making it impossible to implement court judgments given in a different nation.

Validity Of E-Contracts In India

In India, all contracts, including e-contracts or online contracts, are governed by the Indian Contract Act, 1872 (further referred to as ICA). The essentials of a valid contract, as per the Act are:
  • There should be an offer and acceptance thereof.
  • There should be a consideration such as payment in cash
  • There should be mutual agreement between the parties.
  • There should be free consent of the parties.
  • Parties must be competent to enter into contract i.e., should be above 18 and be of sound mind etc.
  • There should be lawful consideration and lawful objects.
  • The contract must be enforceable by the law.[1]
There are, however, no chief laws or rules that govern e-contracts specifically. However, electronic documents, under which e-contracts fall, are governed by some provisions of the Information Technology Act, 2000 (further referred to as IT Act). These provisions are relatively more specific to e-contracts than the Indian Contract Act.

According to Section 4 of the IT Act, an electronic form of any document would be treated in the same manner as its printed or written form. Hence, being a type of electronic document, an e-contract, essentially, would be treated as a written contract, provided that the electronic version fulfils all the essentials as stated above. Section 10A lays this down and expressly gives validity to e-contracts. It 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 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."

However, Section 14 of the IT Act excludes some types of documents from the jurisdiction of the Act; hence, these documents have to be mandatorily executed in physical form only. These are:

"A negotiable instrument
Power of Attorney
Trust deed
A Will
Contract for sale of immovable property or interest in the property"[2]

Jurisdictional Issues With Enforcement

The internet, having no precise boundaries, makes it particularly difficult to determine which country's courts will have jurisdiction in inter-State contractual disputes. The contract laws of countries differ greatly, and hence, simply having the case tried in a different jurisdiction can change the outcome enormously. Hence, unfortunately, despite it being difficult to determine the jurisdiction of courts, it is of utmost importance.

The parties to a contract may be of different nationalities; they may be of the same nationality but the subject-matter of the contract might be in a different nation; or the contract may be signed in a jurisdiction which has absolutely no relation to the nation(s) where the parties live or where the subject matter exists. These kinds of complicated situations arise very often in e-contracts as there is an enormous scope for interaction between people or entities belonging to different parts of the world, and them entering into an agreement.

Typically, a well-drafted e-contract also carefully lays down precisely the courts of which country shall have the jurisdiction to decide disputes arising out of it. If the parties opt for arbitration, the arbitration clause of the contract expressly lays down the seat, venue and place of arbitration, which are otherwise extremely difficult to determine individually. However, more often than not, the courts themselves are left out to determine whether or not they have jurisdiction.

Indian courts have often followed principles established in the U.S. Supreme Court and thus to get a bigger picture of the application of these principles, we should refer to cases in the U.S. as well. The positions in the USA and India in relation to the jurisdictional issues in the enforcement of e-contracts are stated below.

Position in the U.S.
Test of Purposeful Availment
This test was laid down in the case of International Shoe Co. v. Washington[3] by the Supreme Court of U.S.A. to find out if the courts of a particular state have jurisdiction in such types of complicated disputes involving e-contracts, as mentioned above.

For a court to have jurisdiction, the following must be satisfied according to this test:
  • The plaintiff must prove that there was sufficient "minimum contact" between the defendant and the forum state.
  • The defendant's website specifically targeted the forum state and its population
  • The physical presence of the defendant is not necessary in the forum state to invoke jurisdiction of the forum court, as held by the U.S. Supreme Court in Burger King Corp. v. Ridzewicz.[4] Also, the Court of Appeals in Neogen Corp. v. Neo Gen Screening, Inc.[5] that purposeful availment would be satisfied if it could just be established that the defendant's website was interactive enough that it would imply that it intended to specifically interact with the forum state.

Test of Zippo Sliding Scale
This test was established in the Supreme Court of U.S.A. in the case of Zippo Mfg. Co. v. Zippo Dot Com, Inc.[6] to resolve the same confusion in relation to whether or not a court of a particular state has the jurisdiction over a dispute arising out of e-contracts.

For a court to have jurisdiction:
"Minimum contact" between the forum state and the defendant is necessary.
The dispute (or the claim) must arise out of that contract.
Jurisdiction must be exercised reasonably by the forum state.
The Zippo Sliding Scale Test was a relatively old test, formed in the early days of the internet. It caused a lot of confusion in the later periods and turned out to be impractical for modern-age internet jurisdiction problems. Thus, the Effects test was formed, to replace this test in the modern age.

The Effects Test or Calder Test
The simplest test of all, and the most modern, the Effects Test was laid down in the case Calder v. Jones[7] in the Supreme Court of U.S.A. It simply said that the forum court shall have jurisdiction if it can be established that the injury or effect due to the defendant's website can be felt in the forum state.
Presently, a combination of all three tests is used by the courts of U.S.A.

Position in India
The Civil Courts of India have jurisdiction to try all kinds of civil disputes, unless expressly prohibited by Section 9 of the Code of Civil Procedure, 1908. Hence, disputes arising out of e-contracts can be tried just like other suits, without any special amendments to the law. From Section 20 of the same Act, two fundamental principles have been established to determine whether a court has jurisdiction. A court has jurisdiction if:
  • It is located where the defendant resides or carries out his/her business, or
  • It is located where the cause of action arose.

In the case of Independent News Service Pvt. Ltd. Vs India Broadcast Live LLC and Ors.[8], the Delhi High Court made a very important observation on jurisdiction of courts on internet-related issues. It held that a court of a place where the customers or target audience of the website is located can exercise jurisdiction on the matter even if the defendant neither resides nor carries out his/her business there. Physical presence of the defendant is irrelevant in deciding jurisdiction.

After taking inspiration from the new developments in the law related to internet jurisdiction in U.S.A., the Delhi High Court made some landmark observations in the landmark case of Banyan Tree Holding (P) Limited v. A. Murali Krishna Reddy and Anr.[9] It held that it must be proved that the creator of the website intended to do a transaction with the plaintiff and this resulted in injury to him/her.

To invoke Section 20 of the Civil Procedure Code, the plaintiff must prove that the website specifically targeted the forum state which led to legal injury to the plaintiff. Merely accessing the website is not sufficient interaction to confer jurisdiction to the forum court.

The internet has no international treaty or body governing it. Unlike Intellectual Property law for example, the internet-laws of countries vary considerably and, more significantly, in cases transcending national boundaries, it is very difficult to find out which country shall have jurisdiction over the case; nevermind the enormous scope of parallel proceedings in different jurisdictions.

Even the national laws do not deal with these issues properly and it is left up to the judges to do some serious innovation; this kind of situation is common even in the countries with massive IT sectors like U.S.A and India, as we examined above. The judge-made law is obviously not comprehensive enough to perfectly cover the diversity of internet-related issues and thus must be applied on a case-by-case basis.

There is an urgent requirement of legislations that deal with cross-border internet-related disputes in almost all nations. An ideal scenario would be the formation of an international treaty that proposes uniform internet laws in all nations, comprehensively dealing with cross-border disputes; but that is perhaps just a utopia for now.

  1. Ajay Birbal, 'Jurisdiction issue in technology contract' (iPleaders Blog, 3 December 2020) accessed 20 May 2022.
  2. Ibid.
  3. 326 US 310 (1945).
  4. 471 US 462 (1985).
  5. 109 F Supp 2d 724 (2000).
  6. 952 F Supp 1119 (1997).
  7. 465 US 783 (1984).
  8. MIPR 2007 (2) 396.
  9. 2008 (38) PTC 288 (Del).

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