Technical and Legal Issues in Electronic Contracts

This article titled “Technical and legal issues in electronic contracts” aims at understanding the cornerstone of e-commerce; i.e., electronic contracts. Further, the article will focus on the various issues that tag along with e-contracts and bring trouble in the cyberspace.

Technical and Legal Issues in Electronic Contracts

While the IT Act provides a rather adequate legal framework and governance to e-commerce, it does face certain shortcoming that addresses raising issues in India with respect to these e-contracts. These issues faced in e-commerce are both legal and technical.

1. Jurisdiction

Since electronic contracts are paperless and therefore, borderless, it becomes incredibly difficult to determine the extent of any court’s authority over a suit that arises due to breach of an e-contract.

A question of jurisdiction is raised in cases of e-governance usually because the cause of action may arise at the place where the electronic information was dispatched, irrespective of the fact of the principle place of business.

The Allahabad Court has previously held that when the acceptance of a contract was sent through e-mail and received in Chandauli in U.P, and the principle place of business of the petitioner was Vanaras in U.P, the place of jurisdiction would be considered to be U.P.[1]

2. Parties to Contract

There is a constant threat to the parties involved in an electronic contract since they are essentially strangers who are connected only in a virtual world.

For an electronic contracts or a paper-based contract to be valid, it is necessary as per §11 of the Contract Act, that the parties involved are not minors, lunatics or disqualified by the law.[2] However, minors can easily enter into contracts through click-wrap or browse-wrap contracts with a website.

Thus, the legal liability is on the website to ensure that the party contracting is competent under the Indian Contract Act, 1872.

One way that websites account for this is by making the user sign up with personal details including date of birth so as to ensure capacity. Despite these methods, however, the enforceability of an e-contract is still in question due to the lack of any stringent legislation.

3. Signature Authentication

Signatures placed in traditional contracts signify the intention and assent of the party to constitute the contract and has legal value in the eyes of the law. However, certain statutes also require for the contract to be signed by both parties, such as the case in Copyright Act, 1957.

Since electronic contracts are generated through means of electronic transmissions, it cannot be signed physically by the parties and is required to be signed electronically through an electronic or digital signature as defined under §3A[3] or §5.[4]

However, the IT Act provides that an electronic signature is not valid on documents such as negotiable instruments, power of attorney, trust deeds and documents of real estate. Thus, these documents are required to be physically signed and the provisions of e-contracts within the IT Act has no applicability over it.

4. Technical Errors

E-contracts are entirely entered into through electronic transmissions and thus, all data surrounding the contract is stored only in the virtual world. However, if any information that enters the digital world is lost due to the failure of technology, there are no real administrative, legal or judicial guidelines based on which the information may be accounted for or recovered.

5. Free Consent

Free consent is essential to a valid electronic contracts. However, for e-contracts, there is no scope for negotiation and this is a disadvantage to the user. The user is essentially forced to either accept or leave the service or goods in terms of the online contract. His option is either to accept the unreasonable terms of the contract or forgo the product or service forever.[5]

Conclusion

While the ease in convenience is high with regards to e-contracts, issues such as the occurrence of mistakes due to human error or programming of software errors are inevitable. The question lies as to who bears the risk of such mistakes.

This is crucial in understanding an issue since errors may be magnified or may be harder to detect and eventually have substantial financial consequences. Thus, the Court needs to adopt a judicious and pragmatic stance in resolving issues that require them to allocate risk to parties involved.

Technological advancements in the nation have inspired the people of our country to adopt and adapt to the growing surge of the internet. These trends have now made e-contracts an important cornerstone in the development of our e-commerce industry in India. However, changes require strong guidance for proper implementation and administration.

The IT Act so far has rather failed to provide adequate rules for data protection in internet banking, identity theft, phishing et cetera. Therefore, there is a huge need for separate and stringent legislation for the governance of e-contracts in India so as to overcome the shortcomings of the present legislation.

This will further help in providing structural framework towards the legal and technical aspects of these e-contracts. With the implementation of the stringent legislature and adequate amendments to tackle issues, the e-commerce industry is set to bloom and grow further.

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[1] P.R. Transport Agency v. Union of India 2005 SCC OnLine All 880.

[2] §11, contracts, Indian Contract Act, No. 9 of 1872, Acts of Parliament, 1872, India.

[3] §3A, Information Technology Act, No. 21 of 2000, Acts of Parliament, 2000, India.

[4] §5, Information Technology Act, No. 21 of 2000, Acts of Parliament, 2000, India.

[5] Supra 5.

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