Information is transmitted and received widely and more rapidly than ever before. Electronic commerce offers flexibility to the business environment in terms of place, time, space, distance, and payment. It is a means of transacting business electronically, usually, over the Internet.  With the growth of e-commerce, there is a rapid advancement in the use of e-contracts. But the electronic contracts poses a lot of challenges at three levels, namely conceptual, logical and implementation. In our article, we have discussed the scope, nature and legality and various other issues related to e-contracts.

In 1996, the United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Electronic Commerce to bring uniformity in the law in different countries. Based on this, India enacted the Information Technology Act, 2000. Subsequently, in 2001, as an addition to the existing Model Law, a Model Law on Electronic Signatures was adopted by the General Assembly of UNICTRAL. Article 2 (a) of the Model Law defines electronic signatures. 

The Model Law has further examined various electronic signature techniques being used, and has broadly recognised two categories of electronic signatures-

• Digital Signatures relying on public-key cryptography; and
• Electronic Signatures relying on techniques other than public-key cryptography.

What is an Online Contract?

(a) Similar to paper-based contract

With the advance use of the internet and electronic commerce, online contracts have assumed importance.  An online contract or an electronic contract is an agreement modelled, signed and executed electronically, usually over the internet.  An Online contract is conceptually very similar and is drafted in the same manner in which a traditional paper-based contract is drafted.

(b) Acceptance of offer

In case of an online contract, the seller who intends to sell their products, present their products, prices and terms for buying such products to the prospective buyers. In turn, the buyers who are interested in buying the products either consider or click on the ‘I Agree’ or ‘Click to Agree’ option for indicating the acceptance of the terms presented by the seller or they can sign electronically.  Once the terms are accepted and the payment is made, the transaction can be completed. Communication is basically made between two computers through servers. 

Types of Online Contract

Online contracts can be of three types mainly i.e. shrink-wrap agreements, click or web-wrap agreements and browse-wrap agreements. In our everyday life, we usually witness these types of online contracts.  

1. Shrink-wrap agreements

They are usually the licensed agreement applicable in case of software products buying. In the case of shrink-wrap agreements, with the opening of the packaging of the software product, the terms and conditions to access such software product are enforced upon the person who buys it. Shrink-wrap agreements are simply those which are accepted by the user at the time of installation of software from a CD-ROM, for example, Nokia pc-suite. Sometimes additional terms can be observed only after loading the product on the computer and then if the buyer does not agree to those additional terms, then he has an option of returning the software product.

As soon as the purchaser tears the packaging or the cover for accessing the software product, the shrink-wrap agreement gives protection by indemnifying the manufacturer of the product for any copyright or intellectual property rights violation. Though, in India, there is no stable judicial decision or precedent on the validity of shrink-wrap agreements.

2. Clickwrap agreements

They are web-based agreements that require the assent or consent of the user by way of clicking the “I Agree’ or “I Accept” or “Ok” button on the dialogue box. In clickwrap agreements, the user basically has to agree to the terms and conditions for usage of the particular software. Users who disagree to the terms and conditions will not be able to use or buy the product upon cancellation or rejection. A person witnesses web-wrap agreements almost regularly. The terms and conditions for usage are exposed to the users prior to acceptance. For the agreement of an online shopping site etc.

3. Browse wrap

An agreement made intended to be binding on two or more parties by the use of a website can be called a browsewrap agreement. In the case of browsewrap agreement a regular user of a particular website deemed to accept the terms of use and other policies of the website for continuous use.

Though these online contracts have become common in our daily, there are no precise judicial precedents on the validity and enforceability of shrink-wrap and click-wrap agreements. Other countries have dealt with these online agreements such as courts in the United States have held that as far as the general principles of the contract are not violated, both shrink-wrap agreements and clickwrap agreements are enforceable.

Recognition E-contracts

Offer

The law already recognizes contracts formed using facsimile, telex and other similar technology. An agreement between parties is legally valid if it satisfies the requirements of the law regarding its formation, i.e. that the parties intended to create a contract primarily. This intention is evidenced by their compliance with 3 classical cornerstones i.e. offer, acceptance and consideration.

One of the early steps in the formation of a contract lies in arriving at an agreement between the contracting parties by means of an offer and acceptance.

Advertisement on the website may or may not constitute an offer as an offer and invitation to treat are two distinct concepts. Being an offer to an unspecified person, it is probably an invitation to treat, unless a contrary intention is clearly expressed.

The test is of intention whether by supplying the information, the person intends to be legally bound or not. When consumers respond through an e-mail or by filling in an online form, built into the web page, they make an offer. The seller can accept this offer either by express confirmation or by conduct.

Acceptance

Unequivocal unconditional communication of acceptance is required to be made in terms of the offer, to create a valid e-contract. The critical issue is when acceptance takes effect, to determine where and when the contract comes into existence. The general receipt rule is that acceptance is effective when received. For contracting no conclusive rule is settled. The applicable rule of communication depends upon the reasonable certainty of the message being received. When parties connect directly, without a server, they will be aware of failure or partial receipt of a message. Such party realizing the fault must request re-transmission, as acceptance is only effective when received.

When there is a common server, the actual point of receipt of the acceptance is crucial in deciding the jurisdiction in which the e-contract is concluded. If the server is trusted, the postal rule may apply, if however, the server is not trusted or there is uncertainty concerning the e-mail’s route, it is best not to apply the postal rule. When arriving at the server is presumed insufficient, the ‘receipt at the mail box’ rule is preferred.

Consideration and Performance

Contracts result only when one promise is made in exchange for something in return. This something in return is called ‘consideration’. The present rules of consideration apply to e-contracts. There is concern among consumers regarding Transitional Security over the Internet. The e-directive on Distance Selling tries to generate confidence by minimizing abuse by purchasers and suppliers. It specifies—

 A list of key points must be supplied to the consumer in a clear and comprehensible manner.’

• Written confirmation, or confirmation in another durable medium available and accessible to the consumer, of the principal points.
• The right of withdrawal enabling consumers to avoid deals entered into inadvertently or without sufficient knowledge, providing for seven-day cooling-off period free from penalty or reason to return the goods or reimburse the cost of services.
• Performance should be delivered within thirty days of order unless otherwise expressly agreed.
• Reimbursement of sums lost to fraudulent use of credit cards. It places the risk of fraud on the credit card Company, requiring them to take steps to protect their position.
• On the other hand, there is also a need to protect sellers from rogue purchasers. For this, the provision of ‘charge-back clauses’ and encouragement of pre-payment by buyers is recommended.
• Thus, this Directive adequately protects the rights of consumers against unknown sellers and sellers against unknown buyers.

Liability And Damages

A party that commits a breach of an agreement may face various types of liability under contract law. Due to the nature of the systems and the networks that business employ to conduct e-commerce, parties may find themselves liable for contracts which technically originated with them but, due to programming error, employee mistake or deliberate misconduct were executed, released without the actual intent or authority of the party. Sound policies dictate that parties receiving messages be able to rely on the legal expressions of the authority from the sender’s computer and legally be able to attribute these messages to the sender.

Digital Signatures

 Section 2(p) of The Information Technology Act, 2000 defines digital signatures as authentication of any electronic record by a subscriber by means of an electronic method or procedure. A digital signature functions for electronic documents like a handwritten signature does for printed documents. The signature is an unforgeable piece of data that asserts that a named person wrote or otherwise agreed to the document to which the signature is attached.

A digital signature actually provides a greater degree of security than a handwritten signature. The recipient of a digitally signed message can verify both that the message originated from the person whose signature is attached and that the message has not been altered either intentionally or accidentally since it was signed.

Furthermore, secure digital signatures cannot be repudiated; the signer of a document cannot later disown it by claiming the signature was forged. In other words, digital signatures enable “authentication” of digital messages, assuring the recipient of a digital message of both the identity of the sender and the integrity of the message.

The fundamental drawback of online contracts is that if there is no alternate means of identifying a person on the other side than digital signatures or a public key, it is possible to misrepresent one’s identity and try to pass of as somebody else.

The validity of Electronic Contracts In India

Under the provisions of the Information Technology Act, 2000 particularly Section 10-A, an electronic contract is valid and enforceable. The only essential requirement to validate an electronic contract is compliance with the necessary pre-requisites provided under the Indian Contract Act, 1872. Also, the courts in India give due regard to electronic contracts under the provisions of the Indian Evidence Act, 1872. The provisions of the Information Technology Act, 2000 (IT Act) give legal recognition to an electronic (E-Contract) particularly section 10-A of the IT Act which states:

Unless an inference can be drawn from the facts, that the parties intend to be bound only when a formal agreement has been executed, the validity of an agreement would not be affected by its lack of formality. Hence, once the parties are at consensus-ad-idem, then the formal execution of the contract is secondary. Therefore, once an offer is accepted through modes of communication such as e-mail, internet and fax then a valid contract is formed unless otherwise specifically provided by law in force in India; such as the Registration Act, 1908, the various Stamp Acts etc.

Also, Section 1(4) of the IT Act lists out the instruments to which the IT Act, does not apply, which are as follows:

• Negotiable Instruments;

• Powers of Attorney;

• Trust deeds;

• Wills;

• Contracts for Sale or Transfer of Immovable Property

Evidentiary Value of Electronic Records

The courts in India recognize electronic documents under Section 65-A of the Indian Evidence Act, 1872. The procedure for furnishing electronic documents as evidence is provided under Section 65-B of the Indian Evidence Act, 1872.

As per Section 65-B of the Indian Evidence Act, 1872 any information contained in an electronic record produced by a computer in printed, stored or copied form shall be deemed to be a document and it can be admissible as evidence in any proceeding without further proof of the original. But, admissibility of the same is subject to various conditions prescribed under section 65-B of the said act. It is required that the document or e-mail sought to be produced from a computer, was in regular use by a person having lawful control over the system at the time of producing it; the document or the e-mail was stored or received during the ordinary course of activities; the information was fed into the system on a regular basis; the output computer was in a proper operating condition and has not affected the accuracy of the data entered.

Recognition of E- Agreement and Digital Signature under the Information Technology Act, 2000

Section 10A of the IT Act expressly provides for validity of contracts formed through electronic means and states that-

An e-agreement subsequent to its execution is stored/recorded with the executing parties in electronic form, and is considered as an electronic record under the IT Act. In this regard, it is relevant to refer to Section 2(1)(t) of the IT Act, which defines an electronic record as “data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche”.

The terms electronic signature (Section 3A of the Information and Technology Act, 2000)and digital signature have been defined under the IT Act.

In fact, the IT Act quite comprehensively covers the legalities of digital signature certificates (DSCs). Section 5 of the IT Act gives electronic signatures their legal character.

Section 5: Legal recognition of electronic signatures- Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of an electronic signature affixed in such manner as may be prescribed by the Central Government. “

Considering that the IT Act has recognised e-signatures as legal and binding, the same may also form a strong basis for initiating litigation before a court of law.

Admissibility of E- agreements as evidence?

Under the Evidence Act, 1872, an e-agreement has the same legal effect as a paper-based agreement.

The definition of “evidence” as provided under Section 3 of the Evidence Act includes “all documents including electronic records produced for the inspection of the court.” Section 65B(1) of the Evidence Act provides that any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be also a document and shall be admissible in any proceedings, without further proof or production of the original, as evidence of any contents of the original or of any fact stated therein of which direct evidence would be admissible”.

Further, Section 47A of the Evidence Act stipulates that when the Court has to form an opinion as to the electronic signature of any person, the opinion of the Certifying Authority which has issued the electronic Signature Certificate is a relevant fact, and Section 85B of the Evidence Act stipulates that unless the contrary is proved, the Court shall presume that-

• the secure electronic record has not been altered since the specific point of time to which the secure status relates;
• the secure digital signature is affixed by the subscriber with the intention of signing or approving the electronic record.