E-CONTRACTS AND

CHALLENGES
FACED

Sakaar
Srivastava
 TABLE OF CONTENTS

TABLE OF AUTHORITIES.................................................................................................1

RESEARCH METHODOLOGY............................................................................................2

INTRODUCTION...............................................................................................................3

E-CONTRACTS VIS-À-VIS CONTRACTS ACT....................................................................6

THE JURISDICTION PROBLEM.........................................................................................7

CHALLENGES FACED....................................................................................................10

CONCLUSION.................................................................................................................11
 TABLE OF AUTHORITIES

CASES

Banyan Tree Holding (P) Ltd. v. A. Murali Krishna Reddy & Anr..............................6
Christian Louboutin v Nakul Bajaj................................................................................7
Dhodha House v. S.K. Maingi.......................................................................................6
Mohiri Bibi Vs. Dharmodas Ghose................................................................................9
P.R. Transport Agency v. Union of India and Others....................................................7
Trimex International FZE Ltd. Dubai Vs. Vedanta Aluminum Ltd..............................4

STATUTES

Consumer Protection Act, 1872.....................................................................................3

Information Technology Act, 1986................................................................................3
The Civil Procedure Code, 1908....................................................................................6

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 RESEARCH METHODOLOGY
Research was conducted on the basis of secondary sources including books, journals
and internet sources. Primary sources could not be explored due to limitation of
subject and requisite knowledge.

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 INTRODUCTION

With the advent of Internet origination in India, came the demand to explore the
possibilities of online solutions. Internet could save cost of physical delivery of letters
and travelling. Bearing in mind, the virtual cyberspace being time saving and liberated
by challenges of distance, it came, subject to certain challenges such as online identity
difficulties, trust issues, online payment problems and many more, which this paper
intends to deliberate in detail. In order to reach an amicable solution, the need of a
binding online contract arose.

India is a country with many such challenges, deliberating the vast geographical area.
The need of having a tightly regulated online contract (E-contract) was apparent,
considering the recent digital revolution, which increased the consumption of Internet
to a whopping figure of 460 million Indian citizens in March 2017, making India the
second largest online market after China1. An E-contract is an online contract model
with listed terms and conditions for online customers, executed and enacted by
various facilitating software’s. It is a kind of contract, which is formulated in the
course of an online transaction with the interaction of individuals using electronic
means with an electronic agent such as a computer program or by interaction of two
or more electronic agents, which are capable enough to understand the existence of an
e-contract (artificial intelligence).

With the aid of online transactions, parties are entering into various transactions like
lease agreement, contracts governing sale and purchase of goods and services,
negotiable instruments, loan agreement, insurance agreement, share purchase
agreement and alike. Compared to classical contracts, there are certain additional pre-
requisites that an e-contract must qualify, which are as follows:
1. Clear identification of the contracting parties and time-period of validity;
2. Clear identification of the subject-matter of the agreement;
3. Clear intention to create legal relationship;
4. Valid e-signatures of the parties involved;
5. Non-repudiation i.e. no change in the content after the contract is signed.
1
https://www.statista.com/topics/2157/internet-usage-in-india/ as accessed at 2200 Hours on
08/10/2017.

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Click-wrap, browse-wrap and Shrink-wrap contracts are the most commonly used
formats of e-contracts. The terms and conditions of the e-contract are presented to the
customer in a different manner as compared to a standard contract.

In a click-wrap contract, the legal consent of the online customer is taken by means of
an “I accept” tab, right above which the terms and conditions of the agreement are
prescribed.

In a browse-wrap contract, the website offers the terms and conditions to the online
user before entering the website with “I agree to enter the website” and “No, I wish to
exit” tabs (used in websites with sensitive information).

In a shrink-wrap contract, the online contracting party can have the access to terms
and conditions of the agreement only after opening the product (generally licenses).

There are essentially two stages in an e-contracting process viz. contract

establishment (formation) and contract enactment (fulfillment or performance). The
establishment/formation phase typically includes activities like identifying, checking,
validation of contractual parties and negotiation. The enactment/performance phase
includes monitoring of performance of contracts.

The parties expose themselves to various laws when they enter into an e-contract,
such as:
1. Consumer Protection Act, 1872;
2. Information Technology Act, 1986;
3. Intellectual Property Right Laws2

Hence, contrary to what we often believe, cyberspace is not a lawless arena for
conducting commerce. Several laws acting in alliance have established a regulatory
regime for e-contracts.

2
Not discussed for the sake of limitation of study

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E-contracts are dealt within the realms of Contracts Act vis-a-vis conditions such as
parties competent to contract, free consent of parties, lawful consideration and lawful
object but the question is how the requirements of Contracts Act would be fulfilled in
relation to e-contracts. E-contracts derive its validity from Section 10A of the
Information Technology Act, 2000 (“IT Act”) which substantiates that when the
communication, acceptance and/or revocation of proposal is expressed in electronic
form to become a contract, it is on an equal footing as general contracts. Both
Contracts Act and IT Act needs to be read in consonance with each other in order to
complete the operations of e-contract. In addition, Section 3 of the Evidence Act,
1872 provides that the evidence may be in electronic form to be declared valid
evidence. The Supreme Court of India in the case of Trimex International FZE Ltd.
Dubai Vs. Vedanta Aluminum Ltd.3 has held that e-mails exchanges between parties
regarding mutual obligations constitute a valid contract.

3
2010 (1) SCALE 574

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 E-CONTRACTS VIS-À-VIS CONTRACTS ACT

An e-contract needs to qualify the conditions prescribed in the Contracts Act in order
to become a valid agreement between the parties. This paper proposes to substantiate
the same with the help of an illustration on a typical e-contract governing the selling
and purchasing of a laptop on Amazon, the popular e-commerce website.

The website created by Amazon can be compared to an electronic appliances and

gadgets store (like Vijay Sales or Croma). Just how the laptops which are physically
displayed in the electronic store is an “invitation to offer” to a customer, the laptops
displayed on Amazon’s website is also an “invitation to offer” to an online website
visitor. Similarly, when a customer communicates his offer to purchase a particular
model of a laptop to the sales executive in the store, he is making an offer which can
be substantiated with an e-commerce model when the online customer clicks on the
particular model of the laptop he wants to buy out of the laptops displayed on the
website.

Further, when the sales executive intimates to the customer that the selected laptop
model is available and can be bought against the price displayed, is a representation of
“acceptance” and “consideration” respectively on the behalf of promisor i.e. the store.
The same can be substantiated vis-à-vis e-contracts when the laptop displayed online
is shown as “available” and put into the cart.

As soon as the money is paid to promisor (store) and the possession of laptop (along
with invoice) is transferred to promisee (customer), the contractual condition of
consideration is fulfilled and the contract ends. Similarly, when the payment has to be
made online after choosing the desired laptop, website asks for customer’s name,
address and other personal details to establish the legit identity of the customer. The
website also offers to link the account through Facebook or Gmail to establish the
identity of individual. Once payment is made online, (via credit/debit card, net
banking or cash on delivery) the consideration is fulfilled and the transaction comes to
an end.

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 THE JURISDICTION PROBLEM

The Civil Procedure Code, 1908 (“CPC”) validates the rules pertaining to jurisdiction
of civil matters either on the basis of cause of action or the place of business of
defendant. On the contrary, Section 13 of the IT Act asserts that the electronic record
is deemed to be dispatched from the place where the originator of the “electronic
record” has his place of business and is deemed to be received at the place where the
addressee has his place of business. Hence, notwithstanding the place from where the
electronic record was dispatched and the place where it was received, the place of
contract is always either the place of business of the offeror or the acceptor of the
electronic record.

Therefore, the jurisdictional rights granted by CPC can be curtailed by the virtue of
Section 13 of the IT Act.

In the Banyan Tree case,4 the plaintiffs relied on Section 20 of CPC while
determining cyber jurisdiction and proclaimed that Hon’ble Delhi High Court does
not possess the requisite jurisdiction. It was held that to oust the jurisdiction, the onus
to prove that there was an intention to conclude the commercial transaction would be
on the service provider.

The Division Bench further clarified the law in relation to territorial jurisdiction by
pointing out that in the Dhodha House v. S.K. Maingi,5 case itself, the Supreme Court
had clearly observed that for the purpose of carrying on business, the presence of the
person concerned at a particular place is not necessary, and must only conform with
the three conditions to be fulfilled, namely that:

1. The agent must be a special agent who attends exclusively to the business of
the principal;

4
Banyan Tree Holding (P) Ltd. v. A. Murali Krishna Reddy & Anr
5
(2006) 9 SCC 41

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 2. The person acting as agent must be an agent in the strict sense of the term;
and
3. To constitute ‘carrying on business’ at a certain place, the essential part of the
business must be performed at that place.

Acknowledging the growing concept of e-commerce models and the possibility of an

entity conducting business only through a virtual presence rather than through a
physical presence in a place, the Division Bench refined the applicability of this
judgment, with emphasis on how to interpret what is actually meant by “carrying on
business”.

In the same year, there came an another case- Christian Louboutin v Nakul Bajaj6
where the defendant sold the plaintiff’s products without permission through its
website www.darveys.com, thus creating doubts as to the quality of those products in
the minds of consumers. The plaintiff alleged that the defendant’s activities also
affected the reputation of its brand and consumer goodwill towards it, and that
continued use of its name would cause its luxury brand irreparable harm. The court
granted an interim injunction restraining the defendant from selling unauthorized
products.

The Delhi High Court recently restrained online retailer “Brandworld” from using the
brand name L’Oreal to sell or supply any goods, on any website or in any other
manner, after the cosmetics company alleged that counterfeit products bearing its
trademark were being sold by the merchant on its shopping website
www.ShopClues.com.

In the case of P.R. Transport Agency v. Union of India and Others 7, Bharat Coking
Coal Ltd (“BCC”) held an auction for coal. P.R. Transport Agency’s (“PRTA”) bid
was accepted for 4000 metric tons of coal. The acceptance letter was issued to
PRTA’s official e-mail address, acting upon which PRTA deposited the full amount
through a cheque in favor of BCC, which was accepted and encashed. Thereafter,
BCC did not deliver the coal to PRTA and instead e-mailed PRTA that the sale as

6
CS (OS) 2995/2014
7
AIR 2006 All 23

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well as e-auction stands cancelled due to some technical reasons. This communication
was challenged by PRTA in the Allahabad High Court. On which BCC objected to
territorial jurisdiction of the court on the ground that no part of cause of action had
arisen within Uttar Pradesh. The court held that the acceptance was received by PRTA
at Varanasi, which, falls within the territorial jurisdiction of Allahabad High Court
and the contract was held to be valid.

IRCTC: A classical model of yesteryears

In the year 2002, the Railway Ministry introduced the concept of e-contracts to India
through the Indian Railway Catering and Tourism Corporation (“IRCTC”) website.
The Government of India initiated an e-commerce public portal to make it convenient
for its citizens to book the train tickets and subsequently, the government came
forward with the IRCTC online passenger reservation system, which introduced
online ticket booking from any physical location at any time.

This was a boon for the country, as the website allowed passengers to avoid long
queues, decreased wastage of time during unavailability of the trains, decreased
burden of the passengers etc. The advancement in the technology as the years passed
have also been seen in the IRCTC online system, as now the passenger can book
tickets (tatkal, normal, current, etc.) by one go easy payments, can check the status of
the tickets and availability of the trains as well. This is an enormous accomplishment
in the history of India in the field of e-commerce by the Railway Ministry.

IRCTC, the country’s largest e-commerce portal, is eyeing ticket sales worth Rs
27,000 crores in the financial year ending March 2017, a 20 per cent jump from Rs
22,500 crores worth of tickets sold in the previous financial year 2015-16. As per
IRCTC, more than 50% of the booking is being done online. During online ticket
booking, online payment of fare can be made through various methods. These options
are given below:
1. Net Banking
2. Credit/Debit Cards
3. Internet Banking
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4. Cash Card/Wallets

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 CHALLENGES FACED

The identification of parties to transaction has lead to some significant problems vis-
à-vis e-contracts. As it was pointed out in the case of Mohiri Bibi Vs. Dharmodas
Ghose8, a contract with minor is null and void-ab-initio. The strain of identification of
minors is a big challenge in an e-contract transaction. It is crucial for the online
business portals to keep a track of filtering out online transactions with incompetent
parties such as minors. Presently, most of the e-contracts are formulated on the basis
of virtual identity associated with Facebook, Gmail accounts or by filling an identity
form. Social media (like Facebook and Gmail) assistance is a blessing in disguise for
e-commerce companies, considering that if a rigid identity procedure is put in place,
the number of customers might go down because of tedious system.

The e-commerce companies must make a stringent procedure in order to filter out
parties, which are incompetent to contract to save themselves with future legal
troubles like entering into contracts with minors or insolvent persons. Details like
Aadhar Card, Driving License or Pan Card must be taken compulsorily and must be
verified with the identity, which is prescribed through the form.

The scope of consent is limited in case of e-contracts. An opportunity to negotiate

terms is stalled, as in click wrap and shrink-wrap contract, the online customer simply
have to accept the contract without an occasion to bargain the terms. Presently every
e-contract comes with a fixed set of terms and conditions equal for all online
customers without any pecuniary bifurcation. For example, if an investor wishes to
buy two shares in a company, he shall be bound by the general terms and conditions
prescribed for everyone. On the contrary, if an investor wishes to buy 20% stake in
the company, even the company would wish to re-negotiate terms with the investor. A
pecuniary threshold must be monitored through an online software, above which the
terms and conditions shall be flexible enough to negotiate considering the practicality
of e-contracts.

8
(1903) 30 Cal. 539

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 CONCLUSION

Today with recent advancement in the areas of Internet and Information technology,
living standards of people have changed in an unimaginable way because of which
communication these days is no more restricted due to geographical and time
constraints. Information is being transmitted and received more widely and rapidly
ever before. And this is where electronic commerce offers the flexibility to business
environment in terms of place, time, space, distance as well as payment. With growth
of e-commerce, there is a rapid advancement in use of e-contracts.

The common legislative and judicial intent appears to be clear that any legally valid
acts that are ordinarily performed would continue to be valid even if performed
electronically or digitally, as long as such electronic/digital performance consists of
all attributes of legally valid contract as may be prescribed under the applicable laws.

Determination of territorial jurisdiction for e contracts becomes complicated in the

absence of geographical or national boundaries for execution and implementation of
such contracts. While, the IT Act and judicial interpretations related to contracts in
general, have to a certain extent clarified the jurisdictional aspect of e-contracts, in
view of the aforesaid discussions, it is generally advisable to clearly specify both
jurisdictional and governing law provisions in the e-contracts, to avoid future conflicts
on jurisdictional or choice of law issues.

To conclude authors will like to propose that e commerce is expected to improve the
productivity and competitiveness of participating business by providing
unprecedented access to online global markets with millions of customers and with
that e contracts are well suited to facilitate the re-engineering of business processes
occurring at many firms across the globe as well contribute to exchange of
information.

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