Introduction
An electronic contract is a form of contract which takes place via e-commerce, usually without the parties even meeting each other. With India having one of the largest e-commerce markets in the world, projected to reach $150 billion in 2026, it is easy to understand why electronic contracts have gained so much popularity in recent times.
Electronic contracts are extremely convenient, cost-effective, fast and secure when compared to traditional paper contracts. These advantages, combined with India’s active promotion of digitalization has further added to the prevalence of these contracts across different sectors in India. Some of the most prominent means to enter into an electronic contract used today are electronic signatures, emails, click-wrap contracts and browse-wrap contracts.
Section 10A of the Information Technology Act, 2000 provides for the validity of contracts formed through electronic means. This means that in the formation of the contract, if the proposal made, its acceptance, revocation or rejection are expressed electronically, it cannot be said to be unenforceable merely because of its electronic nature. This Section essentially grants validity to all of the above forms of contracts.
On 26th September 2022, the Information Technology Act, 2000 was amended and Sl No: 5 reading “any contract for the sale or conveyance of immovable property or any interest in such property” was omitted from the first schedule to further extend the reach of Section 10A of the Act. This was seen as a major step towards normalizing and promoting e-contracts in the state of India.
However, despite all this, the enforceability of e-contracts in India remains vague and lacking comprehensive legislation. The primary issue that will be addressed through this article is the stamping of e-contracts and why it is more complex that it appears.
Means of Entering into an E-Contract
Emails
The formation of a contract requires an offer, acceptance of the offer, consideration and the intention to create a legal relationship between the parties. All of the above-mentioned steps can be completed via emails between the parties, which would lead to the formation of a valid electronic contract. The validity of contracts entered into via emails was upheld by the Supreme Court in the case of Trimex International FZE v. Vedanta Aluminium Limited.¹ Additionally, it is possible for parties to affix their electronic signatures on emails to further prove their intention to enter into a contract.
Electronic Signatures
Electronic signatures are electronic elements or marks used to signify that the person who has signed has agreed to the terms and conditions of the contract. These can be verified using Aadhaar or an asymmetric public key system. These signatures have the same validity before the law as traditional wet signatures and are recognized under Section 5 of the Information Technology Act, 2000. Electronic signatures can be affixed on electronic documents or even on emails.
Click-wrap Contracts
Click-wrap is a form of agreement used prominently for websites and software licensing. In a clickwrap agreement, the user party agrees to terms and conditions set by the other party before accessing some information on a website or installing some software by usually ticking a box labelled ‘I accept’. Click-wrap agreements have often attracted criticism due to the lack of negotiating power given to the user, who has no option but to accept all the terms and conditions, in order move to the next step or gain access to the application. Also, there is no scope of affixing an electronic signature to a clickwrap agreement.
Browse-wrap Contracts
Browse-wrap contracts, like clickwrap agreements, are also mostly used for accessing websites. The major difference between clickwrap and browse agreements is that, is that the latter does not require any explicit assent from the user.² The contract between parties is implied when the user continues to browse the website. In most cases, the website using a browse-wrap contract will have a clause below the terms and conditions, stating that by continuing to use the website, the user has read and accepted the terms and conditions set by the owner of the website. The enforceability of browse-wrap contracts is considered even more controversial than that of clickwrap agreements due to the fact that the user does not even give his explicit acceptance for the agreement to be reached, in addition to the lack of scope for negotiation between parties.
Stamping of Contracts
The process of stamping involves affixing adhesive stamps or paying prescribed stamp duty on certain specified documents to render them legally valid and enforceable. The Stamp Act, 1899 governs the stamping requirements across the country, along with the state-specific legislation that many individual states have.
Stamp duty serves two major purposes. Firstly, it acts as a revenue generation mechanism for the government. The payment of stamp duty on various documents provides a significant source of income for both the central and state governments. Secondly, stamping ensures the authenticity, validity, and admissibility of documents as evidence in courts of law. By affixing the requisite stamp duty, parties involved demonstrate their intention to be legally bound by the terms and conditions outlined in the document.
In the Trimex International FZE Ltd. v. Vedanta Aluminium Ltd judgement in 2010,³ the Supreme Court of India upheld the enforceability of an electronic contract which was neither signed nor stamped but was in the form of an email between two parties. It was further opined that technicalities like stamps or seals should not prevent parties from getting an efficient resolution to their dispute and having ‘autonomy of will’, with respect to commercial arbitration.
However, on April 25th 2023, in the N.N. Global Mercantile Private Limited v Indo Unique Flame Ltd. case,⁴ a five-judge bench of the Apex Court passed a judgement by 3:2 that the court would not be inclined to act upon an unstamped arbitration agreement, unless the stamp duty and a penalty are paid. The apex court ruling that an agreement would not be enforceable in law without the appropriate stamp duty has led to the doubts regarding the enforceability of e-contracts, where stamping is not as straight-forward as it is for paper contracts.
How E-Contracts can be Stamped
The Stamp Act, 1899 does not contain any specific provision dealing with the stamping of electronic agreements. Although Maharashtra’s Stamp Act, 1958 does have an inclusive definition of instruments which includes electronic records as defined in Section 2(1)(t) of the Information Technology Act, 2000.
It is possible for the parties to print a copy of the e-contract, get it stamped like a traditional paper contract and get it executed. Alternatively, the parties can make use of electronic stamping, where an e-stamp certificate is generated and the stamp duty can be paid electronically through an online portal.
However, both the above methods used to stamp electronic contracts, beat the entire purpose of digitalization of contracts, i.e., convenience and the saving of time. Furthermore, as observed by Justice Dalveer Bhandari, in the Great Offshore Ltd. v. Iranian Offshore Engineering. & Construction Co.,⁵ insisting on the stamps, seals and signatures for electronic agreements would come at the cost of effective, efficient and cheap resolution of the problems between the parties to the agreement.
In the wake of the N.N. Global Mercantile Private Limited v. Indo Unique Flame Ltd. judgement,⁶ it is understood that enforcing a contract before a court in India would not be possible without the payment of the requisite stamp duty.
Section 3 of the Indian Stamp Act, 1899 outlines that stamp duty is leviable only on instruments which are executed and as only signed agreements can be executed, it can be interpreted that stamp duty cannot be levied on agreements which are not signed, such as Click-wrap and Browse-wrap. This further raises doubts regarding the enforceability of these agreements before a court of law in India.
Analysis and Conclusion
An electronic contract which has a signature affixed on it, can be executed and hence a stamp duty would be payable on it as per the current provisions of The Stamp Act, 1899. When read with the N.N. Global Mercantile Private Limited v. Indo Unique Flame Ltd. judgement, it can be understood that these electronic contracts also need to be stamped for them to be considered enforceable by law.
Electronic contracts which are signed, can be stamped either through e-stamping or by printing the document and getting it stamped manually. These procedures, especially the latter are very tedious in nature and reduce the convenience that e-contracts boast of. However, the question regarding the enforceability of e-contracts which cannot be stamped remains unanswered.
Foreign courts have upheld the validity of click-wrap and browse-wrap, such as in the Feldman v. Google case,⁷ where it was held that the user clicked on ‘I agree’ with the intention to accept the seller’s offer, thus making a valid contract. However, Indian courts are yet to shed light on the validity of these two forms of agreements.
Presently in India, all forms of electronic contracts are very prevalent in use, including click-wrap and browse-wrap agreements. Despite this, critics of these agreements continue to question whether the consent given is even valid since the user has no chance to negotiate the terms and conditions of the agreement, and whether the two parties can truly be said to be on equal footing.
From another perspective, click-wrap and browse-wrap agreements can be likened to the standard form of contracts, where a party can choose to merely accept or reject a fixed set of rules, without any real negotiating power. Courts have used the test of reasonableness⁸ in cases of standard form of contract and adjudged that it will be a valid contract unless one of the parties is in a weaker position as compared to the other and the weaker party has no meaningful option other than to accept the fixed set of rules.⁹
For all these reasons, it is pertinent that legislation is brought in to clarify the legal status of click-wrap and browse-wrap agreements, as they presently do not come under the purview of The Stamp Act, 1899. Until then, the enforceability of any electronic agreement, without a signature remains a penumbra.
¹ Trimex International FZE Ltd. v. Vedanta Aluminium Ltd., (2010) 3 SCC 1
² Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. 2001)
³ supra
⁴ N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., 2023 SCC OnLine SC 495
⁵ Great Offshore Ltd. vs. Iranian Offshore Engineering. & Construction Co., (2008) 14 SCC 240
⁶ supra
⁷ Feldman v. Google Inc., 513 F Supp 2d 229, 247 (ED Pa 2007)
⁸ Central Inland Water Transport Corpn. v. Brojo Nath Ganguly, (1986) 3 SCC 156
⁹ SBI v. Radhey Shyam Pandey, (2020) 6 SCC 438