It is often stated that law is dynamic in nature and should be changed in accordance with the changing times. With an uproar in the technological advancements, the concept of e-contracts was recognised in the Information Technology Act, 2000. The pandemic and the nationwide lockdown imposed forced businesses to transact digitally and thus there was a sudden increase in the number of e-contracts. However, this exposed some limitations in e-contracts which is needed to be addressed on an urgent basis. This research article is an attempt to understand the meaning and scope of e-contracts and thereafter dwell into the limitations of the same.
Introduction to e-contracts
The Indian Contract Act, 1972 is the primary legislation governing contractual relationships between the parties. However, the concept of e-contract is not provided in the Act. E-contracts get their legal validity from Section 4 and Section 10 A of the Information Technology Act, 2000 which places both e-contracts and physical contracts at the same pedestal as far as their validity is concerned. According to Section 4, a document which, according to the law by which it is governed, can be in typewritten or printed form shall also deem to include the document made in electronic form with the condition precedent that it must be available for future reference of the concerned parties. Also, Section 10A of the Act states that a contract shall not be deemed to be invalid solely on the grounds that it has been made and concluded in electronic form. Apart from this, the Supreme Court has also given a favourable stance for the validity of e-contracts and have accepted the same to be placed with the age old physical contracts in Trimex International FZE Ltd. v. Vedanata Aluminium Ltd[i].
Insofar as the execution of e-contracts are concerned, the same can be concluded after an offer from one party and acceptance after due communication to the other through emails[ii]. Post the acceptance of the terms and conditions of the agreement, the same has to be mandatorily affixed with an e-signature. Two separate modes of e-signatures have been provided in the IT Act affixing which can result in execution of a legally binding contract. The first mode of signature is the ‘digital signature’[iii] which was later on called an ‘electronic signature’ through the 2008 Amendment to the IT Act. An electronic signature can be referred to anything, including an image of handwritten signature or typed signature which is uniquely linked to the signatory in such a manner that complete control over all data used to create the signature vests with the signatory. The second method is the signature through Aadhar card via third party forums.
Addressing the limitations of e-contracts
Though the concept of e-contracts is a celebrated move which has revolutionised the remote execution of contract through paperless route which has fostered timely and smooth transaction, the concept is a fairly new aspect and is still in its nascent stage of development. This system is not free from legal hassles which crop up time and again as the protection that can be attributed to physical contracts cannot be considered to be present in e-contracts. E-contract involves communication of all terms and conditions via email which may lead to certain misunderstandings between the contracting parties. In this regard, face-to-face communication is a far better means to ensure that the parties to the contract are on the same page with respect to the terms and conditions set out in the agreement. There also arises some specific issues with respect to execution of e-contracts which are elaborated in the succeeding paragraphs.
Signatures in e-contract under the Informational Technology Act is limited to only electronic signatures and Aadhar linked signatures. There has been a constant effort to make the process of signature easy and smooth. During the pandemic, when there was a sudden upscale in the e-contracts, the Securities and Exchange Board of India allowed using DigiLocker and other apps for completing KYC requirements to ensure that the whole process can be done without any hassles[iv]. There has been more and more interaction of the different business units incorporated in different countries due to globalisation and this has caused a need for usage of e-contracts. However, limited means of signature may cause problems for foreign citizens especially in countries where there are different laws for signature. In such situations, executing an e-contract becomes difficult.
Moreover, the Indian Stamp Act and different state stamp legislations provides that every document mentioning rights must be stamped. However, this is not possible in cases of online contracts. In case of an online transaction, specifically a contract between the buyer and the seller, there is a requirement for a receipt acknowledging that the consideration has been received and as per the Indian Stamp Act, stamping a receipt is a requirement to be fulfilled[v].
The IT Act excludes from its purview, the documents mentioned in Schedule I of the Act which includes wills, power of attorney, conveyance of immovable property and the like. These are excluded from the e-contract as there is a requirement for registration of such documents from the authorities. Conveyance documents like lease deeds, mortgage and sale agreements form an integral part of the real estate business and non-executable remote conveyance deed posed problems for the real estate sector during the pandemic times.
The pandemic had bought to the fore these various limitations in the e-contract prevalent in India. The concept of e-contract is lacking in India as compared to some other countries. The e-contract market is largely unregulated and there is a need for the legislation to frame amend the existing laws and frame proper regulations for execution and enforcement of e-contracts. The Act should include a provision dealing with electronic contracts with people from other countries recognising the fact that they may have different contracting policy prevalent in their country. Legislating on these essential aspects would ensure that the gaps are cleared and digitisation of contracts is done in a more effective manner with clear regulations for the same.
[i] (2010) 3 SCC 1
[ii] Trimex International FZE Ltd. v. Vedanata Aluminium Ltd, (2010) 3 SCC 1
[iii] Information Technology Act, 2000, s.3, s.5
[iv] Securities and Exchange Board of India (April 29, 2020), SEBI eases the KYC process by enabling online KYC, use of technology/app by the registered intermediary [press release], https://www.sebi.gov.in/media/press-releases/apr-2020/sebi-eases-the-know-your-client-kyc-process-by-enabling-online-kyc-use-of-technology-app-by-the-registered-intermediary_46612.html
[v] Indian Stamp Act, 1899, s. 30
Authored by: Arushi Chopra
Arushi Chopra is a third year learner pursuing B.B.A. LL.B. from Symbiosis Law School, Noida.