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All About E-Contracts - Meaning, Types and Law
All About E-Contracts - Meaning, Types and Law
Contractshavebecomesocommonindailylifethatmostofthe
timewedonotevenrecognizethatwehaveenteredintoone.
Rightfromhiringataxitobuyingairlineticketsonline,countless
thingsinourdailylivesareruledbycontracts.
The Indian Contract Act, 1872 governs the manner in which
contractsaremadeandperformedinIndia.Itgovernstheway
in which the requirements in a contract are implemented and
codifiestheeffectofabreachofvowedprovisions.
Within the outline of theAct, parties are free to contract on any terms they choose. Indian
ContractActcomprehendsoflimitingfactorssubjecttowhichcontractmaybeenteredinto,
executed and breach enforced. It only provides an outline of rules and regulations which
governcreationandperformanceofcontract.Therightsanddutiesofpartiesandtermsof
agreement are definite by the contracting parties themselves. The court of law acts to
enforceagreement,incaseofdefault.
Electroniccontracts(contractsthatarenotpaperbasedbutratherinelectronicpractise)are
born out of the need for speed, suitability and efficiency. Imagine a contract that an Indian
exporter and anAmerican importer wish to enter into. One option would be that one party
firstpullsuptwocopiesofthecontract,signsthemandcouriersthemtotheother,whoin
turnsignsbothcopiesandcouriersonecopyback.Theotheroptionisthatthetwoparties
meetsomeplaceandsignthecontract.
In the electronic age, the whole contract can be completed in seconds, with both parties
simply attaching their digital signatures to an electronic copy of the contract. There is no
need for delayed couriers and additional travelling costs in such a situation. There was
initiallyahesitationamongstthelegislaturestorecognizethismoderntechnology,butnow
manycountrieshavepassedlawstorecognizeelectroniccontracts.
Essentialsofanelectroniccontract:
As in every other contract, an electronic contract also requires the following necessary
requirements:
1.Anofferrequirementstobemade
Inmanycontacts(whetheronlineorconventional)theofferisnotmadedirectlyoneonone.
The consumer browses the available goods and services showed on the sellers website
andthenchooseswhathewouldliketopurchase.Theofferisnotmadebywebsiteshowing
theitemsforsaleataparticularprice.Thisisessentiallyaninvitationtoofferandhenceis
revocableatanytimeuptothetimeofacceptance.Theofferismadebythecustomeron
introductiontheproductsinthevirtualbasketorshoppingcartforpayment.
2.Theofferneedstobeacknowledged
Asstatedearlier,theacceptanceisusuallyassumedbythebusinessaftertheofferhasbeen
madebytheconsumerinrelationwiththeinvitationtooffer.Anofferisrevocableatanytime
untiltheacceptanceismade.
Processesavailableforformingelectroniccontractsinclude:
I. Email: Offers and acceptances can be exchanged entirely by email, or can be
collectivewithpaperdocuments,faxes,telephonicdiscussionsetc.
II.WebSiteForms:Thesellercanoffergoodsorservices(e.g.airtickets,softwareetc.)
through his website. The customer places an order by completing and communicating
theorderformprovidedonthewebsite.Thegoodsmaybeactuallydeliveredlater(e.g.
incaseofclothes,musicCDsetc.)orbedirectlydeliveredelectronically(e.g.etickets,
software,mp3etc.).
III.OnlineAgreements:Usersmayneedtotakeanonlineagreementinordertobeable
toavailoftheservicese.g.clickingonIacceptwhileconnectingsoftwareorclickingon
Iagreewhilesigningupforanemailaccount.
3.Therehastobelegalconsideration
Anycontracttobeenforceablebylawmusthavelegalconsideration,i.e.,whenbothparties
giveandreceivesomethinginreturn.Therefore,ifanauctionsiteeasesacontractbetween
twopartieswhereoneEcommerceLegalIssuessuchasapersonprovidesapornographic
movieasconsiderationforpurchasinganmp3player,thensuchacontractisvoid.
4.Therehastobeanintentiontocreatelawfulrelations
If there is no intention on the part of the parties to create lawful relationships, then no
contract is possible between them. Usually, agreements of a domestic or social nature are
not contracts and therefore are not enforceable, e.g., a website providing general health
relateddataandinstructions.
5.Thepartiesmustbeabletocontract.
Contracts by minors, lunatics etc. are void.All the parties to the contract must be lawfully
competenttoenterintothecontract.
6.Theremustbefreeandunaffectedconsent
Consent is said to be free when there is absence of coercion, misrepresentation, undue
influenceorfraud.Inotherwords,theremustnotbeanyagitationofthewillofanypartyto
thecontracttoentersuchcontract.Usually,inonlinecontracts,especiallywhenthereisno
activerealtimecommunicationbetweenthecontractingparties,e.g.,betweenawebsiteand
the customer who buys through such a site, the click through process ensures free and
genuineconsent.
7.Theobjectofthecontractneedtobelawful
A valid contract presumes a lawful object. Thus a contract for selling narcotic drugs or
pornographyonlineisvoid.
8.Theremustbeconvictionandpossibilityofperformance
A contract, to be enforceable, must not be ambiguous or unclear and there must be
possibility of performance.A contract, which is impossible to perform, cannot be enforced,
e.g.,whereawebsitepromisestoselllandonthemoon.
TYPESOFELECTRONICCONTRACTS
EmploymentContracts
The Information Technology is determined by manpower in Indian context and thus
employment contracts are vital. With a high erosion rate as well as the confidentiality
involved in the work employment contracts become crucial.Apart from that Indian Labour
practices are based on tough labour laws and not the hire and fire processes of the first
world. In this background copyright issues of software development assumes vital
importance. Apart from that contracts for onsite development and sending the workforce
abroad and security clauses will play a crucial role in employment contracts. Firms hiring
personnel abroad apart from their personnel need to include the relevant employment
contractoftheplaceofaction.
ConsultantAgreements
The normal requirements of Indian Contracts Act of 1872 will apply on any consultant
agreement. But particularly in Information Technology industry where the infrastructure to
function is low and connectivity is very high consultancy with experience marketing and
business development and technology development is a very dominant mode of contract.
HerepropercaretobetakeninConsultantagreementswhereissuesofIntellectualProperty
Rights,privacywillplayanimportantrole.Ifcareisnottakenitmayleadtocostofbusiness
andlossofclients.
ContractorAgreements
As manufacturing companies subcontract their business, Information Technology also
subcontract their work due to changing orders and would like to cut on the cost of regular
workforce and attendant legal and financial problems. At the same time in manufacturing
business,toughlabourlawsliketheContractLabour(AbolitionandRegulation)Actof1970
inforcecouldleadtoadifferenttypeoflegaltwist.Howeverifcareistakentosubcontract
keeping the requirements of the contract Act and the Contract Labour abolition act the
anticipated objectives could be met. Here again privacy, consumer liability and copy right
issuesassumegreatimportanceandcaretobetakeninrepresentationsuchcontracts.
Sales,ReSellerandDistributorAgreements
InsoftwareandInternetdealingsthoughtheorderofmiddlemenaredoneawaywith,itstill
requiresacirculationnetworkandhenceprescribedissuescomeintoplayinthatfeatureof
business.InfirstplaceoneneedstoseewhethersoftwareisagoodintheSaleofGoods
Act.
Softwareisaprogrammeofinstructions,whichoperatethesystemorhardwaretofunction
inaplannedmanner.Hencetherearisesanefforttoclassifyanddefineinlegaltermsofthe
vaguenatureofsoftwareincomparisonwithotherproducts.Thecodeanditssourcecanbe
understoodasinformationplannedinawaytooperatethesystemleadingtotheconclusion
it is not a property and not a good in the legal intellect. In Aerodynamics Systems
Productv.GeneralAutomationlimited,theargumentupraisedbythedefendantsthatthough
software can be a subject matter of sale, software themself is pure information, and the
transmissionofsoftwareisaserviceandnotsaleofgoods.Thereisanotherexplanationof
Software to be considered as Goods where it is likened to that of a book containing
information,whichisconsideredasgoodsundertheSaleofGoodsAct.Asthevalueofthe
bookisnotthemerevalueoftheinletjacket,paperandmaterialsusedinitscreation,but
onethatofthevalueoftheinformationlimitedinit,softwareisalsoaproductafloppy,ora
CDROMorsimplystoredinharddiscbutthevalueismuchhigherthanthesimplestorage
device.
Hence software due its high value in terms of application is measured as goods for the
purpose of legal classification. Having recognised it as good the distribution, reseller
agreementshouldtakecareoftheaspectofMonopolyRestrictiveTradePractices(infuture
thecompetitionlaw)provincialauthorityandothertaxinstruments.
NonDisclosureAgreements
NonDisclosureAgreementsarepartofITcontracts,whichidentifybindingagreementswith
employeesapartfromthestandardconfidentialityagreements.TheIndianContractAct1872
has provisions for the same and it undertakes importance in an industry which is purely
knowledgebasedandonewhichcanbeeasilyrepeatedruiningthebusiness.
SoftwareDevelopmentandLicensingAgreements
Alicenseisanauthorisationgiventodoaspecificmanufacture/sales/marketing/distribution,
whichislegitimate.Licenseplaysaprevailingformofcontractinmassmarketingactivityof
any kind including Information Technology. Software licensing has a historical background
where originally it was pushed with the hardware and was given free and its use and
applicationwaslimitedtothatofoperatingthesystemandfewotherfeatures.Laterinlate
60sandearly70shardwaremakersinEuropemarketedsoftwaredistinctly.Latersoftware
makers resorted to license their products distinctly from that of the hardware. In normal
ownership, the product sold becomes the exclusive property of the buyer who can do
whatsoever he wants. In case of software, the product can be copied easily and will
adverselyaffectthemanufacturerofhissaleandthustheentireinvestmentreturnprocesses
andfuturespurtoinvestinmakingsoftware.Thussoftwarebusinessbecameabusinessof
licensecommand.Theselicensesareissuedinpersistenceorforalimitedperiod.Licensing
agreementnormallyforbidsreverseengineering,decompilingoranyothermanipulationof
thesoftware,whichcanbemarketedeasilywithsomealterations.Licensesareissuedfora
single machine practise at a specified location with a provision for backup in the same
machine in case of a crash or unreliable functioning. Multiple machine licenses are also
given.Thelicenseagreementalsoprotectstheuserfromanycopyrightorotherintellectual
property violation of the manufacturer. The licensing agreements become vital in Cyber
Contracts. Similarly software development is another agreement between joint ventures of
companiesorforawardingdevelopmentofsoftwaretomultipleparties,whichassumevital
importanceincontractsofcyberworld.
ShrinkWrapContracts
A Shrink Wrap contract is the former license agreement required upon the buyer when he
buys software. Before he or she tears the pack to use it, he or she is made mindful by
tearing the cover or the wrap that they are sure by the license agreement of the
manufacture. This is done as previous deliberated to protect the interests of the
manufacturerwheretheconsumercannotreplicatethepackage,copyitorsellitordonateit
toothersmovingthesaleofthesoftware.Thelicense,whichiscontractedandenfoldedin
the product, which becomes enforceable and taken as consent before the buyer tears the
package.Theusualsectionsthatarepartoftheshrinkwraplicensearethatof
a)prohibitingillegalcreationofcopies
b)prohibitingpaymentsofthesoftware
c)prohibitionofcontraryengineering,decompilationoradjustment
d)prohibitionofusageinmorethanonecomputerdefiniteforthatpurpose
e)disclaimerofcontractsinrespectoftheproductsold
f)limitationsofresponsibility
The reason and business sense is that to guard the manufacturer of the package, as it is
easytocopy,operatesandduplicateunderotherbrandname.Critiquescontendthatshrink
However, now it has been explained that even foreign intermediaries delivered to provide
servicecanbesuedinIndia.[8]
Thepaymentgatewayswhichfootingaveryimportantpositionastheprimaryprocessorof
thepaymentforthemerchantswerebroughtintothelegalframeworkafterproclamationof
thePaymentandsettlementSystemsAct,2007(PSSAct,2007).ThePSSAct,2007aswell
as the Payment and Settlement System Regulations, 2008 made under theAct came into
effect from August 12, 2008.[9] Further, the Reserve Bank of India, issued additional
guidelines initiating all such gateways and payments processors to register under the said
act.
The authority of the transactions of Econtract is established under the Information
TechnologyAct,2000(ITAct,2000).Itexplainsthereasonablemodeofacceptanceofthe
offer. ITAct, 2000 also rules the revocation of offer and acceptance.[10] However, definite
provisionsthatregulateEcontracttransactionsconductedovertheinternet,mobilephones,
etc. are vague. With numerous cross border transactions also being conducted over the
internet,specificlawguardingtheIndiancustomersandIndianbusinessesareessentialand
Indianlawsaregravelyinsufficientonthisissue.
In a bid to safeguard security, the government has made digital signatures necessary in
several Econtract transactions mainly in the government to government (G2G) or
government to business (G2B) framework with a view to safeguarding the identity of the
transacting parties. Econtracts transactions on these modes require digital signatures as
essential parts. They are used for the verification of the electronic contracts. These are
controlledbytheITAct,2000whichprovidestheoutlinefordigitalsignatures,theirissues
and verification. The Act thus tries to safeguard that trust between both the parties is
maintainedthroughverificationofidentitiesandhelppreventcybercrimesandensurecyber
securitypractices.[11]
In the light of the above discussion, it is to be said that the present laws in respect of the
guidelines of Econtract and its related operations are not suitable serving the purpose.
Propagation of laws is creating a confusion in the smooth procedures of the Econtract
accomplishments. Further, the present laws are salient on features of econtract such as
payment instrument and delivery instrument and present standard practises which have
beensettledbytheindustry.TheReserveBankofIndia,however,hastriedtosupportthe
electronic payment mechanism through various orders, but such orders can only act as a
stopgap procedure.[12] The most important order in this regard was the application of
secondfactorverificationinallIndianPaymentGateways.CommonlyrecognisedasVerified
by Visa or MasterCard Secure Code, this had made card transactions on the internet
moderatelymoresecure.
POSITIONOFECONTRACTININDIA
IndianRailwayCateringandTourismCorporationLimited
IndianRailwayCateringandTourismCorporationLimited(IRCTC)iscertainlythemajore
commerce site in India and in Indias answer to private capitalist ventures.[13] IRCTC was
setupasasubsidiaryoftheIndianrailwaysfortheexclusivepurposeofprovidingcatering
servicesandticketingservicesfortheIndianRailways.However,oflate,ithasextendedits
wing and now covers sectors such as flights and hotel bookings. The flagship was
establishedin2002andhastransformedtheonlinetravelbookingbusinessinIndia.IRCTC
functionsbothinthebusinesstobusinessandbusinesstoconsumersegment.Accordingto
thedatareleasedbyIRCTC,ithasmorethan44.5lakhreservationsperday.In201011,
IRCTC sold tickets value more than Rs. 8000 Crore. It claims to switch more than 8 lakh
equivalent transactions thereby speaking volumes about the prominence and the size of
theirbusiness.[14]
ThesiteofferstheonlylinkforpurchasingIndianrailwayticketsonlineandevenagentsites
(B2B)havetolinkthemtoIRCTCtoprovideonlinebookingservicesforcustomers.IRCTC
offersalargeoptionforconsumersforpaymentofbuyingticketsonline.IRCTChowever,is
one of the few enduring ecommerce sites which charged transactions charges from
customers,whichisdifferentbanktobank.
Through IRCTS several customer enter daily into a new dimension of contract i.e. E
contract. Econtract now plays an important role both for the customer and the seller.
Customer has a lot of choice to choose a product and seller through econtract reach to
largecustomers.
InferencesthatcanbedrawnfromtheaboveCaseStudies:
Themainissuesthathavebeenidentifiedfromthecasestudiescanbestatedasfollows:
a)Lackofguidelineregardingpaymentmechanisms
Thereisanoutrightlackofregulationsregardingthemodeofpaymentswhichneedstobe
providedbyanyecommercewebsiteandthetransactionschargeswhichtheycanlevy.Itis
seen that numerous travels website levy additional charges on the payment made by the
customers. The websites state that it is an industry customary practise. This makes the
matterevenmorecomplexowingtoissuesofanticompetitivepractises.
Further,thereisnostandardReserveBankofIndiarulesavailableespeciallyfortheissues
of refund transactions in the case of credit card and debit card payments. The regular
guidelines available for point of sale (PoS) dealings may not apply to all econtract
transactionsduetotheenvelopmentofmultiplepartiesinthesecasesinsteadoftwoparties
inanormalPoStransaction.
b)NeedforcriteriaforConsumersGrievanceRedressal
vary from one jurisdiction to alternative. Possible standard electronic consumer policies
shouldbepertinenttocrossborderdealingstowhichallormostcountriescansubscribe.
OECD Member States have acknowledged the necessity of an international synchronized
approachtodealwiththeissueofdisputefirmnessinelectronicbusiness.Inoneimperative
document framed by the OECD, Procedures for Consumer Protection in the Context of
ElectronicCommerce,proceduresforconsumerprotectionindisputefirmnessandamends
aimtosafeguardconsumerscontributinginelectronicbusinesswithoutfoundingbarriersto
trade.
Therulesserveasareferencetogovernments,businesses,consumers,andtheircouncils
of the characteristics of active consumer protection for electronic business. The rationale
behind them is alike to that of the US and EU. Firstly, applicable law and jurisdiction are
singledoutforlikelyamendment.
Nobroadcreationofthenewapplicablelaworprincipleofjurisdictionispointedout,butthe
rulesdodefinefeaturesofsuitablemodifications.Equality,theysuggest,isoneofthemost
importantfeaturesinunderstandingconsumersafety.Thepurposeofthefairnessistooffer
consumersalevelofprotectionnotlessthanthataffordedinotherformsofcommerceand
toprovideconsumerswitheloquentcontacttofairandtimelydisputeresolutionandredress
without undue cost or burden. To complete fairness, one must provide a framework for
correctingunfairness.
As said in the guidelines, businesses, consumer councils, and governments should work
collected to endure to use and develop fair, effective, and clear selfregulatory and other
measures, which provide consumers with the choice of mechanisms to firmness their
disputesascendingoutofconsumerdealings.Moreover,theseeffortsshouldbefollowedat
an international level. To attain the maximum reimbursements of the new arrangements,
moderntechnologyshouldbeusedtoimproveconsumerawarenessandfreedomofchoice.
Fromthebreakdownabove,wecandeterminethattheinternationalcommunityhastouched
a harmony on the general approach toward consumer protection. While making
developmentsoncourtproceduresandtheapplicationofprinciples,newmeansshouldbe
found out to quarter the new needs of electronic business. The means should permit the
expansionofnewshopseffectiveinaresponsiblemannerandresolvingdisputesaccessibly
online and, along with them, greater choices and more antagonism. With new services in
place, consumers shall positively be protected from excessive costs of defiance with
duplicativeorvaryingguidelines.
CONCLUSIONS
Econtract in India has definitely came a long way from the days of bazee.com which
underwayasthefirstlargeonlineretailwebsite.Atpresent,withtheincreaseinnumberof
internetuser,econtractisorganisedtogrowfurther.Thegrowingtrendofinternetbanking
andcreditordebitcardsalongwiththeriseinthenumberofeducatedandcomputerliterate
persons will further support this growth. The need of the hour is law which covers all the
aspects of econtract extending from payment mechanism and maintaining minimum
standards in the delivery of services. Such a legislation will help to restraint the growth of
websiteswhichrisewithinafewdaysandthenstopfunctioningintheabsenceofsuitable
fundsforsustenance.Asallbusinessthroughecontractsitesisendedthroughtheinternet
without any direct physical interfaces, the main basis connections is the trust of the
customerswhichshouldbeengagedatanycost.Alawinthisfieldwilldetectthecriminals
whohaveusedtheinternetasasourceformakingquickmoney.Thiswillalsoactadefence
forthegenuineecontractwebsitesandhelpinfurthergrowingofbusiness.Thereisalsoa
needforthecreationofanauthorityintheconsumercourttolookintothegrievancesarising
out of econtract transactions. Such an authority should have experts in area such as
payment security.This will embolden speedy redressal of disputes and promote econtract
transactions.Econtractwhichisadevelopingsegmentinthecommercialarenasscheduled
to grow and it is the accountability of the prevailing players to ensure that growth is not
hinderedbytheiractsandpolicies.