Validity of E-Contracts in India
Introduction:
Any contract, whether online or offline, must fulfil all the essentials of a valid contract, such as offer, acceptance, valid consent, consideration etc. Under the Indian Contract Act, 1872 (ICA), a signature is not necessarily required to form a valid contract. Contracts are valid if legally competent parties reach an agreement, whether they agree verbally, electronically or in a physical paper document. A contract could be established by referring to the conduct / acts of the parties as well, and not necessarily a written contract.
In case of a contract where customer accepts the terms of the contract online, by clicking ‘I accept/ I agree’ or any other method where it is clear that the customer has consented, a valid contract is formed (assuming other essential elements under ICA exist). It is not necessary under the ICA to have any contract in a physical/paper form or to have the wet signature of the customers.
Further, Section 10A of the Information Technology Act, 2000 (IT Act) provides that a contract does not lose its enforceability merely because it is formed electronically. The IT Act does not apply to the following contracts (and consequently they cannot be created electronically):
- Negotiable instrument other than a cheque,
- Power of attorney
- Trust
- Will
- Contract for sale of immovable property or any interest in such property.
E-authentication service under IT Act:
An Electronic signature means a signature which complies with requirements of Schedule 2 of the IT Act, i.e. an e-authentication technique that uses Aadhar e-KYC services (Aadhar eSign).[1] Aadhaar eSign is legally valid and acceptable for all types of documents as provided in the IT Act. Electronic Signature also includes a digital signature (i.e. a DSC).
Section 5 of the IT Act states that where any law provides that any document should be authenticated by signature, or any document should be signed by any person, then this requirement is satisfied if an Electronic signature is used to authenticate the document.
Since a contract (in general) does not need signatures to be valid, it is not mandatory to authenticate the contract by use of an Electronic Signature. In such a case, it is possible to use any mode of authentication available, including OTP based technology.
Enforcement of E-Contracts:
To enforce a contract, parties must prove the execution, acceptance and existence of the contract. The Indian Evidence Act, 1872 (IEA) provides for admissibility of electronic records as evidence in the court.[2] The term ‘document’ defined under IEA includes 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. However, such information must conform to the conditions of Section 65B of the IEA. From an enforcement perspective, it is important to be able to establish by records/ conduct/ acts/ omissions that the contract was accepted and executed by the customer.
Conclusion:
Government’s Digital India campaign aims to provide secure online infrastructure and transform India into a paperless economy. Over the years, the Government has taken various initiatives to promote digitised economy and increase acceptance of digital signature.
For organizations adopting e-signatures, it is advisable to use only Electronic Signatures that are recognized by the IT Act to avoid any enforceability and admissibility related risks.