Electronic Contracts--Legal Validity In India?

  • What are Electronic Contracts or Online Contracts?

With the recent advancement in the areas of computer technology, information is transmitted and received widely and more rapidly than ever before. ‘E-commerce’ is the means of buying and selling information, products and services electronically, usually over the internet. Electronic contracts are thus the contracts which take place through e-commerce. 

These contracts have become so common in daily life that we sometimes fail to realise that we have entered into one. Online shopping is a perfect example of entering into 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 indicate their acceptance of the terms presented by the seller. Once the terms are accepted and the payment is made, the transaction can be completed. A customer withdrawing money from an ATM machine is also an example of electronic contract. 

An e-contract is conceptually very similar and is drafted in the same manner in which a traditional paper-based contract is drafted, although in such cases there is no actual meeting of the parties to the contract.

  • What are the types of E-Contracts?

Generally, there are three types, i.e. shrink-wrap agreements, click or web-wrap agreements and browse-wrap agreements. The term ‘Shrink Wrap’ describes the shrink wrap plastic wrapping which coats software boxes or the terms and conditions which come with products on delivery. With 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.  A ‘Click Wrap’ Contract is most commonly found as a part of a software. The user of such software has two options, to agree and use that particular software or to disagree with terms and conditions and not to use that particular software.  If a customer likes a product and wants to buy it or avail its service he clicks on ‘I accept’ or ‘Ok’ and if he rejects it, then cannot buy that product or avail that service. The terms and conditions for usage are exposed to the users prior to acceptance. ‘Browse wrap’ agreements are generally found in a website or a downloadable product.  Any agreement made intended to be binding on two or more parties by the use of website can be called a browse wrap agreement. Therefore, a regular user of a particular website is deemed to accept the terms of use and other policies of the website. 

  • When are E-Contracts Valid?

The Indian Contract Act, 1872 provides that a contract is valid if it is made by competent parties out of their free consent for a lawful object and consideration. There is no specific way of communicating offer and acceptance; it can be done verbally, in writing or even by conduct. Thus, the only essential requirement to validate an electronic contract is compliance with the necessary pre-requisites provided under the Indian Contract Act, 1872.

The essential requirements for creating a valid contract are: 

  1. Offer and Acceptance- An offer and acceptance may be made online and through any of the modes of communication such as e-mail, fax, filing requisite form, etc. By browsing and choosing the goods and services available on the website of the seller, the consumer makes an offer to purchase such in relation with the invitation to offer made by the seller. An offer is revocable at any time until the acceptance is made. Acceptance must be unconditional and absolute and must be communicated to the offeror. 
  2. Lawful Purpose and Consideration - It must not defeat any provision of law and must not be fraudulent in nature. For example, a contract for the purpose of conducting illegal business online is a void contract. Also, for any contract to be enforceable by law, both parties must give and receive something in return.
  3. Intention to create legal relations- The intention of the parties is to be considered by the Court in each case and must be ascertained from the terms of the agreement and surrounding consequences. Agreement of social or domestic nature do not create legal relationship, hence they are not contracts and are not enforceable by law. For example, sending a birthday invite to a friend via e-mail is not a contract.
  4. Capacity of Parties and Free Consent - Contracts entered into by minors, lunatics and people declared insolvent by a court are void. All the parties to the contract must be lawfully competent to enter into the contract. Consent is said to be free when there is absence of coercion, misrepresentation, undue influence or fraud.
  5. Possibility of performance- A contract must not be ambiguous or unclear and must not be impossible to perform.
  6. Consensus-ad-idem (Meeting of the minds of Parties) - Once the parties are at consensus-ad-idem, the formal execution of the contract is secondary. Therefore, once an offer is accepted through any of the modes of communication, a valid contract is formed unless otherwise specifically provided by law in force in India.

Section 10-A of the Information Technology Act, 2000, gives legal recognition to the validity and enforceability of e-contracts. It provides that, “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.”

The courts in India also recognise electronic documents under Section 65-A of 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.  However, 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.

Therefore, online contracts or e-contracts are a welcome development in the sphere of information technology as it makes contracting online for everyday goods and services fast, secure and cost effective.

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