With recent technological developments, there is an immense change in the standard of living of people. Thus, communication is not anymore limited to geographical boundaries. Now, information is transferred much widely and quickly than ever before. Electronic commerce has made its way and many problems are solved through the use of e-commerce.
Electronic commerce is a means of the transaction of business electronically. It is associated with the buying and selling of information, products, and services over computerized communication networks.
Today markets have changed their faces. Physical markets are now becoming obsolete as the consumers are now shifting to the digital market space. With the emergence and steady growth of e-commerce, there is also a quick elevation in the use of e-contracts and digital signatures.
Electronic contracts are the contracts that take place without meeting the parties of the contract, but electronically. Those contracts are very much alike the former paper-based contracts but here the transactions are carried out electronically.
The concept of e-contract is still not transparent, it faces a lot of challenges. The Indian Contract Act, 1872 gives statutory recognition to the common contractual rules that a party needs to oblige while forming or entering into a contract. It does not lay down the rights and duties which the law will enforce, rather it deals with the limiting principles, subject to which parties may create rights and duties for themselves.
Likewise, digital signatures are a completely modern substitute for validating and authenticating documents with pen and paper. It uses an advanced and progressive mathematical approach to examine the authenticity and integrity of digital messages and documents. It guarantees that the contents of a message or a document are not altered en route and helps us to overcome and also control the problems of impersonation and tampering in digital communications. Digital signatures also provide additional information such as the origin of the message, status, and consent by the signer.
The Indian Contract Act, 1872 deals with the principal standard of contracts, its essential elements, the general proposition for the formation of contracts, and its performance. It also stipulates the remedies available in the Court of Law for the infringement of the contract against a person who fails to oblige and perform his/her liabilities created under it.
The Indian Contract Act, 1872 (ICA) defines the term “contract” under §2(h) as an agreement between two or more parties that engenders liability that is enforceable by law.
With the growth and the advent of e-commerce, e-contracts have gained popularity over a great number. An online contract or an electronic contract is a model document, signed and implemented remotely, typically over the Internet. The online contract is functionally fairly similar and is formulated in the same manner as the conventional paper-based agreement is formulated.
For instance, in the case of an e-contract, the vendor who plans and wants to sell their goods, presents their products, pricing, and terms and conditions of the purchase to the prospective customers. In turn, buyers wanting to purchase the products may either click on the ‘I agree’ or ‘Click to agree’ option to indicate acceptance of the terms submitted by the seller or may sign electronically. When the conditions are acknowledged and accepted, the payment has been made; the transaction can be concluded and the contract can be considered as completed.
Kinds of E- Contracts
Electronic Contracts can be categorized mainly into three different forms, i.e., shrink-wrap agreements, click or web-wrap agreements, and browse-wrap agreements. We generally witness, use and experience these kinds of e-contracts on regular basis in our daily lives.
Further, e-contracts also incorporate electronic employment agreements, contractor agreements, consultant agreements, resale and distribution agreements, non-disclosure agreements, software development and licensing agreements, and source code escrow agreements, and many more.
In Trimex International FZE vs. Vedanta Aluminium Limited , the Hon’ble Supreme Court of India ruled that the terms of the contract that had been discussed over an e-mail had represented a legal contract and were thus were enforceable. Here, even though they were not electronically signed and registered, the Supreme Court acknowledged the legitimacy of electronic contracts.
- Shrink Wrap Agreements: Shrinkwrap agreements are licensing agreements under which the terms and conditions of the contracts apply to the parties to the contract. These agreements are normally found in plastic-wrapped manuals that come along with the software products that are bought by the consumers.
In easier terms, Shrink-wrap agreements are those agreements that the users give consent to at the time of installing software into their digital devices. These agreements protect the manufactures of the products by indemnifying them for copyright or intellectual property rights violation.
In India, we do not have a stable legal opinion or precedent for the legitimization of the shrink-wrap agreements.
In CompuServe Inc v. Patterson, the issue was that if the home country of the Internet service provider may exercise authority over a non-state author of the software that subscribes to the Internet service provider and earns a fee for software sold through the Internet service provider.
United States District Court
The United States District Court for the Southern District of Ohio upheld that the state can exercise its jurisdiction over a software author who markets his software via the internet service providers based in the forum state .
- Click Wrap or Web Wrap Agreements: Click or web wrap agreements are web-based agreements that require the permission or consent of the user by clicking the “I agree” or “I accept” button on the screen. In this agreement, consumers are usually compelled to adhere to the contractual terms for the use of the specific program or software. The users who do not adhere or those who disagree to the terms and conditions of the agreement are not be allowed to use or order the commodity upon cancelation or refusing.
However, there a few measures to ensure that the contractual terms are obligatory on the parties to the contract.
- The customer agreement or the terms and conditions ought to be disclose particularly to the parties involve in the contract. By simply adding a link to the terms on the website without drawing any notice shall not be regard as an implication to the consumer. Therefore, if the customer chooses to use the website after the intimation of the terms, the consent for the contract shall be deemed.
- The terms of the agreement cannot be alter if the consumer has given his/her consent to a specific relevant action.
- The modifications made to the conditions of the contract must be state clearly to the customer and new consent to the alteration of the terms of the agreement must be obtained. In the event, if the customer does not consent to the changes, he/she has the opportunity to leave the website at that very moment.
The very first case that upheld the validity of the Click Wrap Agreements was Hotmail Corporation v. Van $ Money Pie Inc. Here, Hotmail had brought a lawsuit against the clients who delivered spam messages and forged emails to make things appear that spam messages stemmed from the Hotmail domains. Hotmail alleged that each user had violated the terms of the service agreement that stated that each person must consent before opening an email account. The US Federal court ruled that Hotmail was likely to succeed in infringement of contract allegations. It was held by the court that the terms of a service contract in Click Wrap format would be enforceable in court.
- Browse Wrap Agreements: Browse Wrap agreements intend to be binding upon two or more parties through the use of a particular website. In the case of browsewrap agreements, a regular user of a specific website is deem to accept the terms and conditions and other policies of the website for continuous and hassle-free use .
While these electronic contracts have been popular in our everyday experiences and lives, there are no precise legal precedents on the legality and implementation of shrink-wrap and click-wrap agreements in India. Nonetheless, countries such as the United States have experiment with these online contracts, and have ruled that, as long as the basic rules of the contract are not breach, shrink-wrap and click-wrap agreements are enforceable in the court of law way long back.
The validity of E- Contracts in India
The Indian Contract 1872 acknowledges the conventional paper-based agreements, as well as the oral contracts. But all the agreements should have been made with the free will and voluntary consent of the contracting parties,, who are competent to contract, for both the lawful consideration and lawful object,. Then, such contracts would be consider to be valid and enforceable by law.
Free consent is perceive to be one of the core features of a legal contract. Generally, there is no provision for negotiation or bargaining in e-contracts. The choice to either “take or leave” the transaction is always open to the customers.
In the case of LIC India vs. Consumer Education and Research Centre, the Hon’ble Supreme Court of India had held that in dott line contracts there would be no occasion for a weaker party to bargain or
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.
Information Technology Act
According to §10 A of the Information Technology Act, 2000, electronic contracts are legally binding upon the contracting parties as well as are enforceable by the law. It states that “the validity of contracts formed through electronic means; wherein a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are express in electronic form or using an electronic record, such contract shall not be deem to be unenforceable solely on the ground that such electronic form or means was use for that purpose”. The only essential requirement to validate an electronic contract is the adherence to the necessary pre-requisites laid under the provisions of the Indian Contract Act, 1872.
Indian Evidence Act
Furthermore, the evidentiary value of electronic contracts and documents are acknowledge under the § 65A of the Indian Evidence Act, 1872. Also, the procedure for furnishing electronic documents as evidence is provide under Section 65-B of the Indian Evidence Act, 1872. According to § 65-B of the Indian Evidence Act, 1872,
any material found in an electronic record create by a computer in written, preserve, or copy form shall be regard as document and
may be admissible as evidence in any proceeding without any further proof of the original document.
Howbeit, the admissibility of such documents as the evidence in the court of law is conditional to the requirements laid under the § 65 B of the Indian Evidence Act. The electronic document or e-mail is required to be produced by a device or a computer that is expected to be used regularly by a person with legitimate ownership over the system at the time of production; the document or e-mail should be processed or retrieved during the usual course of its operations; the information shall be entered into the system regularly; the output computer or
device should be in a proper working state and did not affect the accuracy of the entered data into it.
Hence, it can be said for as long as the electronic contracts align with the provisions laid under the Indian Contract Act,
1872 and the parties are at consensus-id-idem, then such contracts are legally enforceable.
Execution of Electronic Contracts
The electronic contracts can be enter into and execute by any means of communication using e-mails, fax, or through any means that uses the internet as their mode of communication like What’s App, etc. Nonetheless, for the e-contracts to be valid,
the parties to the contract need to comply with the necessary pre-requisite laid down under the Indian Contract Act, 1872. The essential elements for an electronic contract are similar to that of the conventional contracts and they are:
- Offer and Unconditional Acceptance: The offer and unconditional acceptance of the electronic contract can be made through e-mails, fax. In this day and age, it can be done over Whats App too.
An offer is accept only when the acceptance is communicate, and the communication acceptance must be make to the offeror. Communication of acceptance made to any third party does not create any contract between the parties. The same is also applicable to an e-contract.
- Lawful Object and Lawful Consideration: A contract is enforceable by law only if it is make for a lawful purpose and lawful consideration. It must not defeat any provision of law and must not be fraudulent in nature.
- The capacity of Parties and Free Consent: The parties entering into the e-contracts must be competent to contract as per § 11 and § 12 of the Indian Contract Act. Moreover, the consent of the parties must be free and voluntary without any coercion, undue influence, fraud, and misrepresentation,.
Above all, unless and until an inference can be drawn from the contract that the parties are legal bound only by a formal contract,
the legitimacy of the agreement will not be question or compromise by the lack of formality. Therefore, once the parties are at consensus-ad-idem, the formal execution of the contract is secondary. Thus, once an offer is accept through modes of communication such as
e-mail, internet and fax then a valid contract is form unless otherwise specifically provide by law in force in India.
By the same token, certain documents cannot be authenticate electronically.
The sub-section (4) of § 1 of the Information Technology Act states that nothing in the IT Act applies to documents stipulated under Schedule-I. The documents specified under Schedule-I are as follows:
- A negotiable instrument (other than a cheque) as defined in Section 13 of the Negotiable Instruments Act, 1881
- A power of attorney as defined in Section 1A of the Power of Attorney Act, 1882
- A trust deed as defined under Section 3 of the Indian Trusts Act, 1882
- A Will as defined under the Indian Succession Act, 1925 and includes any other testamentary deposition.
- Any contract for the sale or conveyance of immovable property or any interest in such property.
Hence, the aforemention documents might be execute electronically in compliance with the procedure laid down in The Information Technology Act,
but they cannot be treat as validly execute following the provisions of the same.
Stamp duty on Electronic Contracts
With the evolution in technology, there has been an evolution in business too. Nowadays, business transactions and agreements are often conduct online to save time and expenses. However, this also raises questions over the enforceability of e-agreements in courts and the effect of stamp duty on those agreements. In India, stamp duty is levied under the Indian Stamp Act, 1899 as well as
under various legislation enacted by different states of India for the same purpose.
An instrument is chargeable to stamp duty upon execution. Therefore, any instrument under which rights are create or transfer must be stamp under the relevant laws on stamp duty, yet there is no particular provision under the Stamp Act that expressly deals with electronic documents and/or
stamp duty payable on the execution of e-contracts.
Therefore, as far as the provisions under the Stamp Act is concerned,
two things are essentially require for the charges of stamp duty and they are:
- There must be an instrument as stated in Schedule I of the Stamp Act.
- The instrument shall be execute.
It may seem that the term “document” in clause (a) of the § 2(14) of the Stamp Act does not include electronic documents, however,
such interpretation will not be in accordant to the spirit of the law because the Information Technology Act has already accorded legal recognition to the electronic records. Therefore, the word “document” shall also incorporate electronic documents.
Besides, the term Execution concerning the instruments means “signed” and “signature.” Therefore, it can be inferr that electronic contracts validated
by the digital signatures following the standards laid down in The Information Technology Act, 2000 are validly execute and are liable for payment of the stamp duty.
Digital signatures are a completely modern substitute for validating and authenticating documents with pen and paper. It uses an advanced and progressive mathematical approach to examine the authenticity and integrity of digital messages and documents. It guarantees that the contents of a message or a document are not alter in transit and
helps us to overcome and also control the problems of impersonation and tampering in digital communications. Digital signatures also provide additional information such as the origin, identity, and status of the electronic documents, transactions, or
digital messages and also, they can be use to acknowledge the inform consent by the signer,.
In Jagdish Mandal v. State of Orrisa and Others, the Hon’ble Court had held that when the petitioner did not affix his digital signature on the online tender, it means that the tender was not submitted
by the petitioner because in the absence of signature the authenticity of the document could not be establish.
Importance of Digital Signatures
Putting it more easily, digital signatures can be called our electronic fingerprints. It helps us sign a document electronically and also verifies the signatory. Security is the biggest advantage of digital signatures. Protection features included in digital signatures guarantee that the record is not manipulate or
altered and that the signatures are valid. Besides,
Digital signatures have some other added benefits too.
- Time and Cost Savings: Digital Signatures aids us in saving our time and expenses by validating the electronic documents and contracts with just a click of a button. There is a huge saving in ink, paper, printing, scanning, shipping, or travel expenses. There are also savings in other indirect costs such as filing, rekeying data, archiving, or tracking.
- Workflow efficiency: With much fewer delays and hindrances, digital signatures enable maximum workflow performance. Managing and tracking records is make simpler, with less energy and time invest. Such features of digital signatures accelerate business operations and transactions.
- Better customer experience: Digital signatures include the flexibility of signing essential documents anywhere the client or an individual who has to sign is situated. There is no need for anyone to rush to the person physically for signatures. It makes the customer services and experience user-friendly.
- Furnishes greater security: When someone speaks of signatures, authenticity and security are a major concern and utmost priority. Digital signatures minimize the possibility of duplication, alteration, or manipulation of the documents. It guarantees that the signatures are genuine, authentic, and valid. Signatories are issue with security PINs, passwords, and codes that can validate and verify their identities and authorize their signatures.
- Holds Future Validity: Digital Signatures hold legal validity, but besides, they are also valid for future uses. i.e., they hold future validity. Digital signatures are still valid for the future. ETSI PDF Advanced Signatures (PAdES) with its eIDAS specifications are valid in the future with its long-term signature formats. If there were far-reaching technical advances, digital signatures would still be valid in the future.
- Environmentally Friendly: As corporations and business enterprises are becoming more aware of their position in sustainability, digital signatures are a step forward in their attempts to minimize waste and to be environmentally friendly.
Legal Aspects of Digital Signatures
In India, the legal framework of digital signature was implement by the Information Technology Act, 2000. It was strengthen by a hybrid concept of electronic signature build on the UNCITRAL Model Law on Electronic Signatures 2001. The model is based on a “neutral approach”. This means that the law will remain neutral since with changing times it would not be feasible for
the lawmakers to change and make amendments to the existing laws with changing technology.
According to Article 7 of the UNCITRAL Model, there ought to be a signature of a person while contracting using
the electronic means, for which any technology can be used. But it has to be ensure that the sender can be identify and
he has given his consent to the message.
By the same token, § 3 of the Information Technology Act lays out provisions for the authentication of electronic documents. It says that electronic documents can be sign through digital signatures. Points out the technical specifications for digital signatures. It specifies the use of an asymmetric crypto scheme and hash function to authenticate electronic documents. This authentication ensures that the message of the document does not tamper, also confirms the sender’s identity making it non-repudiable. Above all, the Central Government is the sole authority to declare any technique as a reliable electronic signature. It is its discretion to add or remove any technique from the electronic authentication technique.
Thus, with technological advancement, the use of digital signatures instead of traditional signatures has increased manifolds. The Information Technology Act, 2000 addresses the principle of Digital Signature, the authority to grant a digital signature certificate,
and the situations involving the affixing of a digital signature.
Obtaining Digital Signature
Digital Signature Certificate (DSC) is a tool to prove the authenticity and validity of an electronic document. It can be use electronically to prove the identity of a person,
to allow access to information a person, or to validate and sign certain documents digitally.
The Central Government of India has appointed a Controller of Certifying Authorities who grants a license to
the Certifying Authorities to issue digital signature certificates to the subscriber.
The Digital Signature Certificate can be obtain by a person by following a few simple steps. At first, the person who wishes to obtain a DSC has to log in to the website of the Certifying Authority licensed to issue Digital Certificates in India. Then, the person needs to fill in the required and necessary details that are asked for. After filing the details,
he/she has to provide the supporting documentation as proof of identity and address that must be attested by an attesting officer.
Following which a demand draft or a cheque must be drawn towards payment for application of DSC in the name of the Local Registration Authority where the person is going to apply for verification. Finally, after fulfilling all the requisites, we need to enclose all the required documents in an envelope and address the same to the Local Registration Authority (LRA) and
post it to the designated address of the LRA for further processing. On completion of the steps by filling in the DSC Form and providing necessary documents and
payment, we complete the application process for your Digital Signature Certificate.
Technology has changed the world we live in. We are ONLINE, in one way or the other, all day long. Our phones and computers have become the reflections of our personalities, our interests, and our identities. They hold so much information in that tiny box that is extremely important to us.
It is an age of Information and Technology. No country can progress if it lacks behind in technology. Luckily, India has achieved a lot in this field, but still needs more improvement in this field. There would always be a thin line difference between the pen and paper-based contracts and e-contracts. Electronic contracts indeed ease our inconvenience,
but how do we avoid mistakes caused due to human error in the programming software. How does a layman know about the error in software or who bears the risk of such inevitable errors? Here the Judiciary needs to adopt a pragmatic view to allocate the risk to the parties involved in the e-contracts.
Also, the increased online transactions today need stronger security protection than passwords, security PINS, or digital signatures. If our Government encourages and allows multiple methods of authentication,
it would be really helpful for people to protect themselves from online fraud. Multiple methods of authentications can include the use of fingerprints or
getting any identity proof of a person with password-based online transactions. This will allow a quick recognition of people which would help to curb online fraud and facilitate easier online purchases. Further, it would also intensify the online protection of consumers,
as even today identifying the true identity of a person online sitting behind a screen is still a delusion.