Online Contracts

Online Contracts

Online contracts, also known as electronic contracts, are legal agreements formed entirely online.

This means the creation, negotiation (if applicable), and signing all occur digitally. India recognizes online contracts, also known as electronic contracts (e-contracts), as valid and enforceable under the law. Two key legislations govern these contracts:

Indian Contract Act, 1872 (ICA):

This act lays the foundation for traditional contracts, outlining essential elements like offer, acceptance, consideration, and intention to create a legal relationship. E-contracts must adhere to these principles to be valid.

It is regarded as a necessity that the court should accept the electronic mode of contracts as evidence. This statement contended in the case of Société des products Nestlé S.A v. Essar Industries &Ors, which introduces Section 65A and Section 65B in the Indian Evidence Act related to the admissibility of computer-generated devices.

Similarly, in the case of RavindraSingh@Kaku vs the State of Punjab, it was observed by the

Supreme Court that a certificate under section 65B(4) of the Indian Evidence Act, 1872 is important to produce electronic evidence and that only giving of oral evidence in place of such certificate will not be sufficient. This step was taken to minimize the challenges related to e-contracts and other electronic evidence. In another case of State vs Mohd Afzal and Ors, it was

held that electronic devices are acceptable in court.

Information Technology Act, 2000 (IT Act):

This act provides legal backing for electronic transactions and records. It recognizes electronic

signatures and records as valid evidence in court, making e-contracts enforceable. The IT Act gives legislative authority to e-contracts under Section 10 of the act. To make any contract valid signatures from both parties are needed. In e-contracts, digital signatures come into play when section 2 (p) of the IT Act defines electronic signatures used in e-contracts. These signatures are very important in several contracts like in government to government and in government to business.

There are always two parties which are involved in e-contracts, the originator and the addresses

both of which are defined by the act. In the case of Trimex International FZE Ltd. Dubai vs.

Vedanta Aluminium Ltd., the Supreme Court held that where the parties had communicated their offer and acceptance through email in the absence of signed documents, once a contract is

concluded orally or in writing, the fact that a formal contract must be prepared and initiated by

the parties would not affect the contract.Therefore, the IT Act safeguards the interests of the parties which are maintained through its various provisions. The High Court of Madras had applied the provisions of the IT Act to an e-auction in Tamil Nadu Organic Private Ltd. Vs. State Bank of India, finding that the contractual duties which might arise through electronic methods and such contracts might be enforced under the law. 

Section 10A of the IT Act certifies that contracts are established with electronic means and Section 10B of the IT Act permits the use of electronic records and electronic methods for contract conclusion as long as the contract complies with the Indian Contract Act, 1872.

In the case of Ambala Sarabhai Enterprise Limited v. KS Infraspace LLP Limited, the Supreme

Court examined the validity of agreements entered into by parties using a combination of communications over email and Whatsapp. The key contention was the nature and language of the correspondence, which did not directly equate to affirmation, and therefore the agreement was invalid. Further, the court has accepted and said that agreements may be executed electronically, so long as they meet all the criteria of the Contract Act and IT Act which includes

agreements entered into through mail as well as Whatsapp.

It is regarded as a necessity that the court should accept the electronic mode of contracts as evidence. This statement contended in the case of Société des products Nestlé S.A v. Essar Industries &Ors, which introduces Section 65A and Section 65B in the Indian Evidence Act

related to the admissibility of computer-generated devices.

Similarly, in the case of RavindraSingh@Kaku vs the State of Punjab, it was observed by the

Supreme Court that a certificate under section 65B(4) of the Indian Evidence Act, 1872 is

important to produce electronic evidence and that only giving of oral evidence in place of such

certificate will not be sufficient. This step was taken to minimize the challenges related to

e-contracts and other electronic evidence. In another case of State vs Mohd Afzal and Ors, it was

held that electronic devices are acceptable in court.

Types of E-contracts:

Common forms include click-wrap agreements (where you click “I agree”), browse-wrap

agreements (terms accessible through hyperlinks), and email contracts (formed through email

exchange).Issues related to Online Contracts:

1. Judicial Issue– E-contract is a paperless transaction that is borderless, so it becomes

difficult to examine the jurisdiction. The Information Technology Act 2000 explains that:

2. The place of business of the originator will be regarded as a place where the information

was dispatched, and

3. The place of business of the addressee will be deemed to place where the information

was received.

This means that the location of computer sources through which it was dispatched and received,

places no role in determining the jurisdiction of the case. However, this section limits the power

by Section 20 of the Code of Civil Procedure, 1908. As Section 20 (c) explains that the suit can

be instituted in the court within whose local jurisdiction the cause of action has aroused.

Therefore, a question comes over the jurisdiction of the courts as the cause of action may arise in

e-contract at the place where the electronic information was dispatched, irrespective of the facts

of the principal place of business.

In the case of P.R. Transport Agency vs Union of India & others, the Allahabad High Court dealt with the question of jurisdiction and held that the acceptance of the contract was sent through email and received in Chanduali (U.P) and the principal place of business of the petitioner was at Varanasi (U.P) thus, the place of jurisdiction on the present case lies in U.P.

● Parties to Contract– Electronic contract transactions are between parties that are

strangers to each other. It puts all the contracting parties at risk. An e-contract is a

paperless transaction that is borderless, so the jurisdiction’s scope of the court’s limit on

any argument or appeal at the time of breach of e-contracts becomes difficult to assess.

● Signature authentication-The Indian Contract Act acknowledges both oral and written

contracts and thus, the parties don’t need to sign a binding contract under his statute. Inconventional contracts, the signature represents the party’s intention to constitute the

contract and, in the eyes of the law, has a more legal meaning.

● Loss due to technical error-The world’s stored information, such as paper transactions,

does not have protection. However, it is believed that everything that enters the digital

environment still survives and never gets lost, yet there are no organizational, legal, or

judicial regulations on the scenario in which any or part of the data is lost due to a

technical error.