Legal Validity of Electronic Transactions in India

E-commerce is a booming business in today’s market. It refers to the transactions carried out while buying and selling goods and services on the internet. However, with the use of e-commerce, there has been a rise in questions of contract validity and legitimacy. The Indian Contract Act, 1872 continues to govern electronic transactions and its elements for a valid contract must be fulfilled, regardless.

Wed Jun 29 2022 | Business Law | Comments (0)

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E-commerce, as the term suggests, is a type of business that involves transfer of information across the internet. It allows customers to electronically exchange goods and services with almost no barriers.

E-commerce has expanded  manifolds in the last few years and with the pace it is accelerating at, it is expected to expand even more as it is  convenient and easily accessible. However, there are various legal issues relating to formation and validity of electronic transactions, such as online contracts and enforcement issues, which are dealt hereinafter.

(A)Formation of an E-Contract:

The most common forms of e-contracts are click wrap, browse wrap and shrink- wrap contracts. The terms and conditions in such contracts are made available to the contracting party in a form that is considerably different from the standard paper contracts. In click wrap contract, the party's affirmative acceptance is taken by means of checking on an 'I accept' tab with the scroll box that allows accepting party to view the terms and conditions.

In case of browse wrap agreement, the mere use (or browse) of the website makes the terms binding on the contracting party.

In case of shrink wrap agreement, the contracting party can read the terms and conditions only after opening the box within which the product (commonly a license) is packed. Such agreements are relevant in the context of e-commerce mostly because of the kind of goods associated with shrink-wrap agreements.

(B)Online Contracts Validity:

The Indian Contract Act, 1872 governs all the e-contracts in India, which inter alia mandate certain pre-requisites for a valid contract such as free consent and a lawful consideration. The question examined is how the requirements of the Indian Contract Act would be fulfilled in relation to e-contracts. Further, the Information Technology Act, 2000 ('IT Act') provides fortification of the validity of e-contracts.

As per Indian Contract Act, 1872, some of the important requirements of a valid contract are as follows:

  • The contract should be entered with the free consent of the parties;
  • There should be lawful consideration for the contract;
  • The parties should be competent to contract;
  • The object of the contract should be lawful.

The terms and conditions associated with e-commerce platform are of utmost importance in ensuring and deciding that e-commerce transaction meet with the requirements of a valid contract. Unless expressly prohibited, click wrap agreements would be enforceable and valid if the requirements of valid contract as per Indian Contract Act, 1872 are fulfilled.

There is no requirement under the Indian Contract Act to have written contracts physically signed. However, specific statues do contain signature requirements. Further, the very nature of e-commerce is that it is practically impossible to check the age of anyone who is transacting online and which pose problems and liabilities for e-commerce platforms as the position under Indian Law is that the minor is not competent to enter into a contract and such a contract entered is not enforceable against the minor.

In India, every instrument under which rights are created or transferred needs to be stamped and stamping of the instrument further depends on specific stamp duty legislations enacted by different states in India.

(C) Standard Form of Online Contracts are Unconscionable

In India, there is no well developed jurisprudence on the question of whether standard forms of online agreements are unconscionable. Though the courts of India, as per Indian Laws, previously dealt with instances where contract terms, including standard form contracts, were negotiated between parties in unequal bargaining positions. Certain provisions of Contract Act deal with unconscionable contracts such as when the consideration in the contract or object of the contract is opposed to public policy. In such cases, the contract itself cannot be valid.

The courts can put the burden on the person in the leading position to prove that the contract was not induced by  undue influence.

In the case of "LIC India Vs. Consumer Education & Research Center"2 the Hon'ble Apex Court of India interpreted an insurance policy issued by Life insurance corporation of India by bringing in certain elements of public purpose. The court noted that" in dotted line contracts there would be no occasion for weaker party to bargain as to assume to have equal bargaining power. He has either to accept or leave the service or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forgo the service forever."

It is highly important to have  well thought out terms which form online contracts in order to make sure that sufficient opportunity is provided to the customers to familiarize themselves with the terms thereof. Besides the above, there are also various other legal, tax and regulatory issues more specifically Security Issues, Consumer Protection Issues, Intellectual Property Issues, Content Regulation, Intermediary Liability, Jurisdictional Issues and issues relating to taxation which need to be taken in mind while dealing with e-commerce transactions.

Conclusion

The growth of the e-commerce industry is not only indicative of the increasing openness of the public but has also brought to the  forefront  issues that the legal system of the country  may face. The legal system has constantly tried to  update itself, especially with the enactment of IT Act, to deal with lots of issues emerging from the use of the internet. Therefore, a comprehensive understanding of the legal regime and the possible issues that an e-commerce business could  face, together with effective risk management plans,  is  the need of the hour for e-commerce businesses to succeed in India.

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