E- Contracts and the Law

Introduction

Contracts are a most basic document for any commercial transactions. With the growth of the business in virtual space, they are now executed in e-formats. The principal laws governing rights and obligations under the contracts are the Indian Contract Act, 1872 (“Contract Act”) and the Specific Relief Act, 1963 for specific performance of the contracts. Within the charter of the Act, parties are free to contract on any terms, they choose. The contracting parties themselves decide the rights and duties. E-Contract now provides for execution of the contract within the virtual space itself saving valuable time. Affixation of the digital signature further helps in authentication of an electronic copy of the contract. E-contracts are now recognised across the globe. With the execution of e-contracts, the Information Technology Act (“IT Act”) comes into play alongside the principal Acts.

A. Laws Governing E-Contracts

The following provisions come into play for interpretation of E-contracts. It is important to read the IT Act and the Contract Act in true conjunction. Types of e-contracts are browse wrap, shrink wrap and click wrap. Like a physical contract, an electronic contract also requires to satisfy the following necessary ingredients:

  1. Essentials of a Contract:There are few essential preliminary steps before formalising a contract, which includes offer, acceptance, consideration, and lawful object. An offer needs to be made in many transactions to translate into a contract by its acceptance. Let me illustrate with a case of e-commerce. The consumer ‘browses’ the available goods and services displayed on the merchant’s website and then chooses what he would like to purchase. The offer is not made by website by displaying the items for sale at a particular price. This is actually an invitation to offer and hence is revocable at any time up to the time its acceptance. The customer on placing the products in the virtual ‘basket’ or ‘shopping cart’ for payment makes the offer. The offer needs to be accepted as stated earlier; the acceptance is usually undertaken by the business after the offer has been made by the consumer in relation with the invitation to offer. An offer is revocable at any time until the acceptance is made. Offers and acceptances can be exchanged entirely by e-mail, or can be combined with paper documents, faxes, telephonic discussions etc. Any contract to be enforceable by law must have lawful consideration i.e. when both parties give and receive something in return. There should be an intention to create legal relations while entering into a contract. If there is no intention on behalf of the parties to create legal relationships, then no contract is possible between them. Further, the parties must be competent to contract. Contracts by minors, lunatics etc are void. There must be free and genuine consent. Consent is said to be free when there is an absence of coercion, misrepresentation, undue influence or fraud. Usually, in online contracts, especially when there is no active real-time interaction between the contracting parties, e.g., between a website and the customer who buys through such a site, the click-through procedure ensures free and genuine consent. The object of the contract must be lawful. A valid contract presupposes a lawful object. There must be certainty and possibility of performance a contract, to be enforceable, must not be vague or uncertain and there must be a possibility of performance. A contract, which is impossible to perform, cannot be enforced, e.g., where a website promises to sell land on the moon.
  1. Relevant Provisions of the IT Act: The essential points to be remembered for e-contracts under the IT Act are discussed herein. Section 11 of the IT Act provides for attribution of electronic records to the originator, if it was sent by the originator himself or by a person who had the authority to act on behalf of the originator in respect of that electronic record or by an information system programmed by or on behalf of the originator to operate automatically.

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Section 12 provides for the acknowledgement of receipt.

(1) Where the originator has not stipulated that the acknowledgement of receipt of electronic record be given in a particular form or by a particular method like-

  • Any communication by the addressee, automated or otherwise; or
  • Any conduct of the addressee, sufficient to indicate to the originator that the electronic record has been received.

(2) Where the originator has stipulated that the electronic record shall be binding only on receipt of an acknowledgement of such electronic record by him, then, unless acknowledgement has been so received, the electronic record shall be deemed to have been never sent by the originator.

(3) Where the originator has not stipulated that the electronic record shall be binding only on receipt of such acknowledgement, and the acknowledgement has not been received by the originator within the time specified or agreed or, if no time has been specified or agreed to within a reasonable time, then, the originator may give notice to the addressee stating that no acknowledgement has been received by him and specifying a reasonable time by which the acknowledgement must be received by him and if no acknowledgement is received within the aforesaid time limit he may after giving notice to the addressee, treat the electronic record as though it has never been sent.

Section 13 of the IT Act provides for time and place of dispatch and receipt of electronic record.

  • Subject to what has been agreed between the originator and the addressee, the dispatch of an electronic record occurs when it enters a computer resource outside the control of the originator.
  • Subject to agreement between the originator and the addressee, the time of receipt of an electronic record shall be determined as follows, namely: -if the addressee has designated a computer resource for the purpose of receiving electronic records, receipt occurs at the time when the electronic record enters the designated computer resource; or otherwise receipt occurs at the time when the electronic record is retrieved by the addressee. If the addressee has not designated a computer resource along with specified timings receipt occurs when the electronic record enters the computer resource of the addressee.

(3) Subject to agreement between the originator and the addressee, dispatch of an electronic record is deemed to be the place where the originator has his place of business, and receipt is at the place, where the addressee has his place of business.

(4) The provisions of sub-section (2) shall apply notwithstanding that the place where the computer resource is located may be different from the place where the electronic record is deemed to have been received under sub-section (3).

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According to section 2(1)(b) of the IT Act, Addressee means a person who is intended by the originator to receive the electronic record but does not include any intermediary.

B. Jurisdiction for E-Contracts

E-Contract can give rise to issues of jurisdiction while pursuing any issue related to e-contracts. In Casio India Co. Ltd. vs. Ashita Tele Services Pvt. Ltd. [2003 27PTC 265 Delhi], the Delhi High Court held that once the website is accessed from Delhi, it is enough to invoke the territorial jurisdiction of Delhi. The Allahabad High Court with respect to the formation of electronic contracts gave a landmark judgment. P.R. Transport Agency vs. Union of India & others AIR 2006 All23. Background of the case: Bharat Coking Coal Ltd (BCC) held an e-auction for coal in different lots. P.R. Transport Agency’s (PRTA) bid was accepted for 4000 metric tonnes of coal from Dobari Colliery. The acceptance letter was issued on 19th July 2005 by e-mail to PRTA’s e-mail address. Acting upon this acceptance, PRTA deposited the full amount of Rs. 81.12 lakh through a cheque in favour of BCC. This cheque was accepted and encashed by BCC. BCC did not deliver the coal to PRTA. Instead, it e-mailed PRTA saying that the sale, as well as the e-auction in favour of PRTA, stood cancelled “due to some technical and unavoidable reasons”. The only reason for this cancellation was that there was some another person whose bid for the same coal was slightly higher than that of PRTA. Due to some flaw in the computer or its programme or feeding of data, the higher bid had not been considered earlier. This communication was challenged by PRTA in the High Court of Allahabad. BCC objected to the “territorial jurisdiction” of the Court on the grounds that no part of the cause of action had arisen within U.P. Anticipating the difficulties likely to arise from this, the IT Act in Section 13 (3) as aforesaid provides was read. Thus, the acceptance of the tender, communicated by the respondents to the petitioner by e-mail, will be deemed to be received by the petitioner at Varanasi/Chandauli, which are the only two places where the petitioner has his place of business. In view of the facts mentioned in the supplementary affidavit, read with IT Act, the acceptance having been received by the petitioner at Chandauli/Varanasi, the contract became complete by receipt of such acceptance at Varanasi/Chandauli, both of which places are within the territorial jurisdiction of this Court. Therefore, a part of the cause of action having arisen in U.P., this Court has territorial jurisdiction to entertain the writ petition. Further, the court held:

“…..However, it has to be examined whether the “ouster’ Clause (No. 10.5) of the tender agreement has the effect of excluding the writ jurisdiction of this Court. Jurisdiction of civil courts is created by statute and cannot be created or conferred by the consent of the parties upon a court, which has not been granted territorial or pecuniary, or other (subject matter related) jurisdiction by statute. Under Section 28 of the Indian Contract Act, 1872, the parties by their agreement are not permitted to totally exclude the jurisdiction of civil courts which has been created by statute, However, where several civil courts have territorial jurisdiction in respect of a suit, parties may by agreement confine themselves to any one or more of such civil courts and such an agreement would not be violative of Section 28 of the Contract Act. The above principles apply to civil suits and civil courts. …….We, therefore, hold that the ouster clauses can oust a territorial jurisdiction only of civil courts and not of the High Court in respect of however under Article 226 of the Constitution of India, provided such power exists in the High Court on account of part of cause of action having arisen with its territorial jurisdiction.”


Conclusion
Thus, interpretation of E-Contracts is an interplay of the principal Acts read with intention of the parties.

© This article was created for circulation in Achromic Point Newsletter and is re-published here.

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