Online Contracts and legal challenges
Technology has radically changed the way business is managed across the board. One of the key technologies driven change that business houses have welcomed is an automation of business processes, including electronically executing commercial contracts. However, corporate India is yet to tap this potential completely, due to the absence of relevant legal framework. Although technology has progressed, but the legal structure is far from adapting to the demands of such progress.
What are Contracts and Online Contracts ?
Before proceeding further with this topic we should all understand what is Contract & Online Contracts ?
Contract: An agreement between persons which obliges each party to do or not to do a certain thing.
Online contract is a contract that governs the use of a Web Site by netizens of the Site, and it publishes it on a Web Site.
The Existing legal Framework
The Information Technology Act 2000 regulates the provisions relating to e commerce in India. The Act contains various administrative and procedural guidelines for all electronic or computer data related transactions. These include electronic documts authentication by way of eletrcnoc signature, data protection or deterring heinous crimes like child pornography. The controller of the certifying authority is the notified authority for ensuring effective implementation of the Act.
Scope of the Act
The Act was formulated with the intention of regulating both E Commerce as well as E Governance. This Act was modelled on UNCITRAL’s Model Law on E Commerce, 1996. The Act departs in many respects from the spirit of the Model Law. The IT Act was again amended in 2008 to spell out many legal issues which were missing in it earlier.
There are number of common law principles relating to contract evolved by court over period of time. Their applicability to electronic contracts has yet to be determined. Furthermore, the Indian Courts Act have not yet found any opportunity to appraise the impact of the provision of IT Act, 2000 on substantive principles of contract formation codified in the Indian Contract Act. Since the Indian Contract Act, 1872 does not mandate contracts to be executed in writing and the parties to the contract have the liberty to negotiate the format of their contract, the Act does not throw any light on this aspect of e commerce. Entering into written arguments also pre empts the party to a contract from subsequently denying the existence of an agreement or disputing its terms. Therefore, the manner in which commercial contracts can be executed electronically has not been prescribed by the Act.
The Amendments to the Act in 2008 introduced the concept of electronic signature thereby widening the scope of the form that may be used to authenticate an electronic document. However, the amended Act limits these forms of authentication to only such techniques as have been approved by the India Government and included in Schedule II of the Act. Currently the Indian Government has only recognized and notified digital signatures using crypto programming as the approved form of authorisation technique or electronic signature. Therefore parties to the contract must apply to a certifying authority to avail a digital signature to be able to electronically execute ( i.e authenticate) a commercial contracts.
The last and the most difficult hurdle to be crossed by corporate India while executing a commercial contract electronically, is compliance with Indian Stamping laws. The Indian Law stipulates that any instrument chargeable wit duty (including electronic document) must be stamped in accordance with the relevant laws, immaterial of the form of execution. Appropriate stamp duty need to be paid either prior to, or at the time of electronic execution of the commercial contract in order for it to be capable for enforcement by a court in India, without having to pay penalty.
Although Indian Law recognizes that stamp duty, is payable on instrument executed electronically, it is yet to prescribe procedures to be followed for electronic stamping of electronic documents. As of date, the applicable Indian laws on stamping only enables procurement of electronically stamped certificate, in addition to payment of stamp duty through conventional method such as procuring non judicial stamp paper. Therefore electronic commercial contracts can’t be stamped electronically.
Steps to create legally enforceable contracts
- Introduction of Contract
- Intention to create legal relations
- Letters of Comfort
- Business Capacity
- Formal Requirements
- Contractual Terms
The absence of influence of stamping laws and the Information Technology Act has resulted in lack of legal infrastructure to facilitate paperless stamping of electronic documents. The extent of evidentiary value conferred to an electronically executed contract attested by other forms of signature, is also ambiguous. All of these factors hinder Indian business from marring towards a paperless world and renders most e business initiatives largely futile. Considering that India, has a huge business potential in the coming years, initiative towards bettering the technological infrastructure and the legal framework regulating the same would be highly beneficial. This world has also attracted more cross border transactions, further benefitting economy of the country.