E-contracts: Does clicking ‘I agree’ really work?

By Manish Gupta and Nupur Nadir, Link Legal India Law Services
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Electronic contracts, which govern the relationship of parties vis-à-vis an online transaction, are among the most important legal aspects of e-commerce. E-contracts, as they are known, are formed by the interaction of two or more individuals and/or computer programmes using electronic means, such as e-mail, instead of entering into a physical contract. While this has made things simpler and quicker, it has also given rise to legal challenges and issues, including whether such contracts will be valid and enforceable.

Manish Gupta, Partner, Link Legal India Law Services
Manish Gupta
Partner
Link Legal India Law Services

E-contracts are commonly entered into through e-mail exchange, and click-wrap, browse-wrap and shrink-wrap agreements (explained below). Offer, acceptance, consideration and free consent, which are essentials of a valid contract as per the Indian Contract Act, 1872 (Contract Act), all take place electronically. The Information Technology Act, 2000 (IT Act), and the Indian Evidence Act, 1872 (Evidence Act), also need to be analysed to ascertain the validity of e-contracts.

The IT Act clearly recognizes e-contracts and documents signed by way of a digital signature. The IT Act also deals with related aspects of e-contracts (receipt, time and place of dispatch, security issues, etc.). Further, as per the Evidence Act, e-documents signed by way of digital signatures are admissible in a court. However, issues of validity/enforceability arise where no digital signature has been affixed on e-contracts, as is the case with shrink-wrap, browse-wrap and click-wrap contracts.

Click-wrap agreements (commonly used for software licences, online purchases and even banking) require users to accept the agreement’s terms by clicking on a box or icon titled “I Agree”. Browse-wrap agreements do not require a definitive indication of acceptance or consent. Merely browsing a website may constitute valid assent since the relevant terms are mentioned on the website. Shrink-wrap agreements (a term derived from the plastic packaging of products such as compact discs or software) come with the product’s package, and using the product is deemed to constitute acceptance of the terms of the contract.

Such contracts are typically standardized and don’t give consumers any bargaining power or opportunity, which is usually not looked at favourably by Indian courts. Further, since these contracts are not accepted by means of a digital signature, it is questionable whether the acceptance is valid under the Contract Act. Indian law seems to be silent on this point and it would need to evolve to keep up with technological advancements and newer ways of doing business.

The US and EU have granted legal recognition to e-contracts by way of legislation and directives. Case law in such jurisdictions has given specific acceptance to such e-contracts. One landmark case in point is ProCD Inc v Zeidenberg (1996), in which the US appeals court recognized the enforceability of licences granted by way of shrink-wrap agreements. Certain US courts have also recognized contracts formed through e-mail correspondence, accepting the validity of a typewritten signature.

Nupur Nadir, Senior associate, Link Legal India Law Services
Nupur Nadir
Senior associate
Link Legal India Law Services

Similarly, in India, in Trimex International FZE Ltd, Dubai v Vedanta Aluminium Ltd (2010), the Supreme Court held that a contract between parties which was unconditionally accepted through e-mails was a valid contract and it satisfied the requirements of the Contract Act. The Supreme Court observed that: “It is clear that in the absence of signed agreement between the parties, it would be possible to infer from various documents duly approved and signed by the parties in the form of exchange of e-mails, letter, telex, telegrams and other means of tele-communication.”

While acceptance has been given to contracts made through e-mails, Indian laws still don’t specifically provide any rules or regulations governing click-wrap, shrink-wrap or browse-wrap agreements. The foreign judicial precedents will have only persuasive value and will not be binding on Indian courts.

In light of the above, enforceability of e-contracts per se may not be a big challenge, though a court is likely to consider the facts of each case and may not enforce the terms of a click-wrap contract if it finds the terms to be unconscionable. The courts may consider the prevalent industry practice, where transacting by way of e-contracts is becoming popular and gaining momentum. However, to what extent such e-contracts would be admissible in evidence on technical grounds will remain to be seen, given the absence of specific provisions regarding their admissibility.

While many companies, especially in the areas of IT or e-commerce, are open to the idea of e-contracts and offer click-wrap contracts, sometimes without analysing their enforceability, it remains to be seen how the Indian judiciary would react to these contracts in a trial over their admissibility in evidence and when the lawmakers will realize the need to fill this vacuum.

Manish Gupta is a partner and Nupur Nadir is a senior associate at Link Legal India Law Services.

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