By MMVN Jayanth VS Rao
The rapid globalization along with the aggressive technological leaps in the era of information has profoundly shaped the e-commerce interaction across the world. This digital revolution has invaded the legal spectrum, rendering the traditional ink and paper contracts obsolete, paving way to the dominance of their electronic counterparts. The electronic contracts (“E-Contracts”) offer a convenient means for the parties to execute agreements, ensuring efficiency and enabling cost-effective, seamless transactions across global borders. Given the growing global relevance and dependence on the E-Contracts across the globe, understanding the nature and implications of these E-Contracts is a fundamental necessity for businessmen, everyday users, and legal practitioners.
An E-Contract is an agreement between or by two or more parties, negotiated and executed through an electronic means and executed digitally. These electronic means include electronic communications, e-mails, website interactions and other forms of digital exchanges. Like the traditional contracts, the foundational principles being ‘offer’ and ‘acceptance’ by the parties form a crucial component for the validity of an E-Contract. In India, the legality of the E-Contracts flows from the Information Technology Act, 2000 (“IT Act”). The IT Act provides legal recognition of the E-Contract through Section 10A[i], which stipulates that any agreement expressed in any ‘electronic form’[ii], through any means of ‘electronic records’[iii] shall not be deemed invalid merely for the fact that such E-Contracts have been concluded using electronic means. Further, Section 5 of the IT Act grants electronic signatures with the same legal validity as those of a physical signature, in all cases. Similar legislative efforts can be witnessed across the globe, aiming to establish a robust legal framework ensuring certainty and certain enforceability of these E-Contracts and electronic signatures.
Even though all E-Contracts are digital in nature, it is imperative that all the essential fundamental elements of the traditional contract are satisfied, to become legally valid and enforceable by the courts of law. These fundamental elements[iv] of any contract are offer, acceptance, quid pro quo, intention to create legal relations, lawful object, and legal capacity of the parties.
- Offer: In the electronic space, an offer typically manifests through an e-mail, proposition displayed on a website, or any other form of digital communication. However, distinguishing an ‘offer’ from an ‘invitation to offer’ becomes crucial in a digital era, especially in the context of automated responses and online advertisements.
- Acceptance: In an E-Contract, acceptance is conveyed through affirmative digital actions. These actions include users clicking ‘I Accept’ button, continued use of the website per the terms posted therein, email confirmations over the terms and conditions, or the use of e-signatures. The offeree’s action made through electronic means must unequivocally communicate the acceptance of the offer.
- Consideration (‘Quid Pro Quo’): One of the most fundamental elements of a valid contract is quid pro quo, signifying that the parties involved shall exchange something of value in the eyes of law. In the context of E-Contracts, the consideration may not always be tangible, involving various digital transactions, exchange of intellectual property, proprietary information, or mere access to digital platforms.
- Intention: Any agreement shall be enforceable under the law, only when the parties intended to create a legal obligation. In the realm of E-Contracts, often the element of intention is presumed, particularly in commercial transactions, except in certain specific circumstances which would require the parties to prove their intention to form an agreement through specific means.
- Lawful Object: the subject matter of any contract shall be legal and shall not be against the general public policy. This principle applies equally to E-Contracts, to conform to the legal framework surrounding the E-Contracts and prohibits any involvement of prohibited, fraudulent, or unlawful activity.
- Capacity: the parties entering these E-Contracts shall have the legal capacity for ensuring the legality of these E-Contracts. This includes the parties being of legal age, which should not be of unsound mind, and shall not be disqualified by law under any circumstance. The unique challenge dealing with E-Contracts is verifying the capacity of the parties, increasing the reliance on digital authentication mechanisms and due diligence.
While the IT Act provides legal recognition of E-Contracts, it expressly excludes certain instruments from the ambit of E-Contracts, rendering them unenforceable through digital means. These include negotiable instruments except cheques, testamentary wills, trusts, power of attorneys and such instruments which would require registration or attestation[v]. The rationale behind such exclusions lies in the greater need of verification, strict legal formalities, and procedural safeguards, requirements that E-Contracts may not adequately fulfill. With this legal foundation over E-Contract established, it becomes imperative to explore the various types E-Contracts take in everyday practice and use, each carrying their own legal considerations and enforceability considerations.
Types of Electronic Contracts
- Clickwrap Agreements[vi]
A clickwrap agreement requires users to affirmatively click a checkbox or a button that says ‘I Agree’ or other similar phrases, after going through the presented terms and conditions. These types of agreements are typically used in applications, websites, and other digital service platforms where the terms of use are clearly documented and showcased for the users. The enforceability of these agreements flows through the ability of the user to review the terms and conditions prior to providing his affirmative consent to the terms and conditions. Few examples:
- A streaming platform requires users to click the ‘I Agree’ button for signing up.
- Users of mobile applications accepting the updated privacy policies of applications.
- Software instalments require consent to the license terms for installation.
- Browse wrap Agreements[vii]
A browse wrap agreement is that agreement formed digitally where the terms and conditions of the engagement are provided to the users of the website through a hyperlink. However, it is presumed that the consent of the users of the website is implied to be provided by the conduct of the user without any actual affirmative action from the user. These browsewrap agreements would be deemed unenforceable in cases where the User has not been provided with a constructive notice of the governing terms of browsing. The courts assess whether or not the terms were conspicuously displayed on the website and that the use of the browser would constitute willing acceptance to the governing terms. Few examples:
- The terms are accessible through a hyperlink while the User is browsing.
- A label displayed in the website stating that the terms shall be binding on the User.
- Shrinkwrap Agreements[viii]
A Shrinkwrap agreement is where the User is required to accept the terms and conditions for using the product. Generally, these terms are enclosed along with the product or software or digital goods which shall be accepted during the installation or opening of the product or software. These agreements are considered as standard agreements and their enforceability relies on whether or not the User has the reasonable opportunity to return the product or reject the product. Few examples:
- The licensing terms are incorporated on the box/package of the software DVDs.
- The Users have to accept the terms of use before installing the software.
- Some of the hardware tools require software tools including the terms of use.
- Scrollwrap Agreements[ix]
A Scrollwrap agreement is formed when the User scrolls through the complete terms and conditions before accepting the terms through checking the button. These agreements ensure that the User has exposure to the terms governing the use before the User gives the consent to abide by the terms of use. Generally, these scrollwrap agreements are more favorably to the User as against the clickwrap, browsewrap, shrinkwrap agreements, owing to the fact that the User is required to go through the terms before consenting. Few examples:
- The e-signature portals seek consent once the User scrolls through the terms.
- Few financial account creations require the User to scroll through the terms.
- Students sometimes are required to scroll through the college codes, policies or rules before clicking ‘Agree’ button.
- E-Signature Contracts
E-signature contracts are those contracts which are executed using either the e-signatures or digital signatures. These signatures are often based on biometric authentication, or OTP-based authentication, or use of registered DSC, or a combination of the above methods. These methods ensure the integrity, attribution and authenticity of the User affixing the signature. Once the agreements are executed through e-signatures, these agreements would be legally enforceable. According to Section 5 of the IT Act, the e-signatures would have the same legal effect on the agreement to that of the physical signatures.
- Email Contracts[x]
These Email contracts are formed completely through email communications between the contracting parties. The offer and acceptance sent formally through the email, where the intent, promise and considerations are clearly shown by the parties, without any formal documentation. In these circumstances, if the contracting terms are acted upon it becomes a binding agreement with all the contracting parties, provided that all the elements required for a valid contract are met. According to Section 10A of the IT Act, the agreements entered into electronically shall be legally enforceable when supported with requisite intention and post agreement conduct of the contracting parties.
- Sign-in Wrap Agreements[xi]
The Sign-in Wrap Agreement are those agreements where the consent of the User for abiding by the terms is linked directly to the sign-in or registration made by the User. The consent in these agreements is implied by the act of signing in or registration by the User, without explicitly clicking on the ‘I Agree’ button. However, it becomes essential for the terms to be displayed or indicated in a clear and conspicuous place of the website. Few examples:
- During registration or signing in of social media platform, the User accepts to the terms by signing in.
- Similarly, the accounts of e-commerce platforms are created by agreeing the terms by default.
E-Contracts act as an indispensable tool of the digital economy, transforming the fundamental elements of the requisites and formation of agreements globally. In India, these E-Contracts are driven by technological advancements and underpinned by comprehensive legal frameworks including Information Technology Act, 2000, offering an incomparable expediency and efficiency. The E-Contracts, ranging from unambiguous consent requirements of the clickwrap agreement to the implied consent through conduct of the browsewrap agreements, and the robust authentication mechanisms of the e-signatures, offer a wide range of digital contractual abilities to address the diverse transactional needs of various entities.
Although these E-Contracts play such an integral role in the rapidly evolving digital economy, there are inherent complexities to be carefully navigated. More particularly, complexities relating to identifying the party across the borders, verifying clear consent of the parties, ensuring data privacy, and other jurisdictional niceties, become significant to ensure seamless enforcement. Despite the legal framework striving to provide certainty, it becomes important that the practitioners and the Users must exercise caution navigating through intricate requirements of each kind of E-Contracts and other potential pitfalls surrounding digital enforceability. Therefore, it becomes the need of the hour to ensure that the legal framework, requisite security measures and the e-signature authentication mechanisms continue to evolve on par with the dynamic evolution of the digital space, to mitigate the inherent risks associated with the E-Contracts.
[i] Information Technology Act, No. 21 of 2000, S10A (Ind.)
[ii] ‘Electronic Form’, Information Technology Act, No. 21 of 2000, S2(1)(r) (Ind.)
[iii] ‘Electronic Record’, Information Technology Act, No. 21 of 2000, S2(1)(t) (Ind.)
[iv] Thomson Reuters, The essential elements of a contract, Thomson Reuters Blog (Mar.1, 2024) https://legal.thomsonreuters.com/blog/the-essential-elements-of-a-contract/.
[v] Schedule I, Information Technology Act, No. 21 of 2000, S1(4) (Ind.)
[vi] Ted Sclavos, What is a Clickwrap Agreement?, Docusign Blog (Feb.12, 2025) https://www.docusign.com/blog/what-is-a-clickwrap-agreement.
[vii] Drew Block, CAVEAT SURFER: Recent Developments in the Law Surrounding Browse-Wrap Agreements, and the Future of Consumer Interaction with Websites, 14 Loyola Consumer Law Review, 227 (2002).
[viii] Id.
[ix] Raman Verma, E-Contracts in Cyber Law, SSRN (2024).
[x] Anushka Kumar, Offer and Acceptance Made Over Email, Bn’W Blog (July.29, 2021) https://bnwjournal.com/2021/07/29/offer-and-acceptance-made-over-email/.
[xi] Thomson Reuters, Sign-in wrap agreement, Thomson Reuters Glossary https://uk.practicallaw.thomsonreuters.com/w-031-4220?transitionType=Default&contextData=(sc.Default).
