E-Contracts and the Scheme of the Information Technology Act
Chapter Thirteen
Syllabus topic 1.3, "Includes Legal Recognition to E-Contracts as per the Information Technology Act (Section 2 to 16), Definitions"
Pages 54 to 58 of 462
In one line
An e-contract is an ordinary contract made by electronic means, and the Information Technology Act exists to remove the three technical objections that would otherwise be made to it.
In the words a student can write in an exam: MU's syllabus brings sections 2 to 16 of the Information Technology Act 2000 into this paper because the Indian Contract Act contains nothing about electronic contracting. The Contract Act still decides whether there is a contract, through proposal, acceptance, consideration and section 10. The Information Technology Act supplies three things the Contract Act cannot: that an electronic record satisfies a requirement of writing (section 4), that an electronic signature satisfies a requirement of signature (section 5), and that a contract formed by electronic means is not unenforceable merely on that ground (section 10A). Sections 11 to 13 then fix attribution, acknowledgment and the time and place of despatch and receipt, and sections 14 to 16 deal with security.
Why a separate Act was needed
Nothing in the Indian Contract Act prevents a contract being made by email. Sections 3 and 9 are indifferent to the medium: communication may be by any act or omission intended to communicate, and a promise made otherwise than in words is implied and equally binding.
The difficulty was never the Contract Act. It was every other statute that required writing, signature, an original document or a stamped instrument, and the ordinary law of evidence, which was built around paper. A party wishing to escape an inconvenient electronic bargain had three technical arguments available:
- "That was not in writing." Wherever a law required writing, an electronic file arguably did not qualify.
- "That was not signed." A typed name or a cryptographic key is not a signature in the traditional sense.
- "A contract cannot be made this way at all." A general objection to the medium.
The Information Technology Act 2000 was enacted to remove all three. It received assent on 9 June 2000, and it was substantially amended by the Information Technology (Amendment) Act 2008, which came into force on 27 October 2009. That amendment matters throughout this part of the syllabus, because it replaced "digital signature" with the wider "electronic signature" and inserted section 10A.
The structure of sections 2 to 16
MU's range is not arbitrary. It is the first three substantive chapters of the Act, and they answer the questions in order:
| Chapter | Sections | Question answered |
|---|---|---|
| II | 3 to 10A | Is the record recognised, is the signature recognised, and is the contract valid? |
| IV | 11 to 13 | Whose record is it, was it acknowledged, and when and where was it sent and received? |
| V | 14 to 16 | Is it secure, and what does security buy? |
E-Contracts and the Scheme of the Information Technology Act
Section 2, the definitions chapter, sits in front of all of them, and this chapter works it once for the four that follow.
The definitions that carry the rest of the topic
Section 2 is long, and only a handful of its clauses are needed for contract law. These are worked here and cited afterwards.
Electronic record. Data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche. Every email, web form entry, database row and message is one.
Data. A representation of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalised manner, and is intended to be processed, is being processed or has been processed.
Electronic signature. Authentication of an electronic record by a subscriber by means of an electronic technique specified in the Second Schedule, and includes a digital signature. Note the two layers: digital signature is one species of electronic signature, and the wider term was introduced by the 2008 amendment so that the Act would not be tied to one technology.
Digital signature. Authentication of an electronic record by a subscriber by means of an electronic method or procedure in accordance with section 3, which is the asymmetric crypto system and hash function method.
Originator. A person who sends, generates, stores or transmits any electronic message, or causes it to be sent, generated, stored or transmitted, but does not include an intermediary.
Addressee. A person who is intended by the originator to receive the electronic record, but does not include any intermediary.
Intermediary. With respect to any particular electronic record, any person who on behalf of another receives, stores or transmits that record or provides any service with respect to it. Internet service providers, web hosting providers, search engines, online marketplaces and payment sites are all named as intermediaries in the definition.
Computer resource. A computer, computer system, computer network, data, computer database or software. This is the phrase section 13 uses, and it is deliberately wide.
Cyber security. Protecting information, equipment, devices, computer, computer resource, communication device and information stored therein from unauthorised access, use, disclosure, disruption, modification or destruction. Inserted by the 2008 amendment.
The originator and addressee definitions repay attention because both exclude the intermediary. That exclusion is what makes it possible to say that a contract by email is between the two businesses and not with the mail provider, and it is the foundation of the safe harbour the Act gives intermediaries elsewhere.
What the Act does NOT apply to
The Act's First Schedule, previously the exclusions in section 1(4), keeps certain documents outside electronic form. In substance, the excluded categories are:
E-Contracts and the Scheme of the Information Technology Act
- a negotiable instrument other than a cheque;
- a power of attorney;
- a trust;
- a will and any other testamentary disposition;
- any contract for the sale or conveyance of immovable property or any interest in such property.
This list is examinable and is frequently the answer to a problem. A sale deed for a flat cannot be executed electronically under this Act, and a will cannot be made by email. For everything else, the recognition provisions apply.
The Central Government has power to amend the Schedule by notification, so the list is capable of change.
How the two Acts fit together
The single most important thing to understand about this topic is that the Information Technology Act does not create a separate law of contract. It creates recognition.
| Question | Answered by |
|---|---|
| Was there a proposal? | Contract Act, s.2(a) |
| Was there an acceptance? | Contract Act, ss.2(b), 7 |
| Was there consideration? | Contract Act, ss.2(d), 25 |
| Are the parties competent, is the consent free, is the object lawful? | Contract Act, ss.10 to 30 |
| Does the electronic form satisfy a requirement of writing? | IT Act, s.4 |
| Does the electronic signature satisfy a requirement of signature? | IT Act, s.5 |
| Is the contract bad merely because it was made electronically? | IT Act, s.10A |
| When and where was it made? | IT Act, s.13 |
| Whose record is it? | IT Act, s.11 |
So an e-contract with a minor is void under section 11 of the Contract Act, and the Information Technology Act has nothing to say about it. An e-contract for an unlawful object is void under section 23. Everything that makes a paper contract bad makes an electronic one bad in exactly the same way.
A worked example
A software company in Pune emails a proposal to a client in Chennai. The client's purchasing manager replies from her official address: "Approved, please proceed." The company begins work. The client later says there was no contract because nothing was signed.
- Is there a proposal and an acceptance? Contract Act, sections 2(a) and 2(b). Yes, on the ordinary rules.
- Is the reply attributable to the client? IT Act section 11: an electronic record is attributed to the originator if sent by him, or by a person who had authority to act on his behalf, or by a system programmed to operate automatically. A purchasing manager sending from her official address falls in the second limb.
- Does the absence of a signature matter? Only if some law required the contract to be signed. For an ordinary commercial services contract none does. If one did, section 5 would answer it, provided an electronic signature was affixed.
- Is the contract bad because it was made by email? Section 10A says it is not.
- Where and when was it made? Section 13.
E-Contracts and the Scheme of the Information Technology Act
The client's objection fails, and it fails on the Contract Act, with the Information Technology Act removing the technical points.
Change the subject matter to the sale of a plot of land. Now the exclusion applies: a contract for the sale or conveyance of immovable property is outside the Act, and the parties must use a written and registered document.
What it does NOT mean
"The Information Technology Act made e-contracts valid." It removed the objections to them. They were not clearly invalid before; they were vulnerable to three technical arguments, and those arguments are now closed.
"Everything can be done electronically now." The First Schedule excludes negotiable instruments other than cheques, powers of attorney, trusts, wills and contracts for the sale or conveyance of immovable property.
"Digital signature and electronic signature mean the same thing." Digital signature is one kind of electronic signature, using the asymmetric crypto system under section 3. The wider term was introduced in 2008 so the Act would not depend on a single technology.
"An email provider is a party to the contract." The definitions of originator and addressee both exclude the intermediary.
Quick revision
- MU sets IT Act ss.2 to 16. The Contract Act still decides whether there is a contract.
- The Act removes three objections: not in writing (s.4), not signed (s.5), made electronically (s.10A).
- Assent 9 June 2000; the 2008 amendment came into force 27 October 2009, substituting "electronic signature" for "digital signature" and inserting s.10A.
- Key definitions: electronic record, data, electronic signature (digital signature is a species of it), originator, addressee, both excluding the intermediary, computer resource, cyber security.
- Excluded documents: negotiable instrument other than a cheque, power of attorney, trust, will, contract for sale or conveyance of immovable property.
- Chapter II recognises, Chapter IV attributes and times, Chapter V secures.
Test yourself
1. Why does MU put the Information Technology Act inside a contract paper? Because the Indian Contract Act contains nothing about electronic contracting, and the recognition of electronic records, electronic signatures and electronically formed contracts comes from sections 4, 5 and 10A of that Act.
2. Distinguish a digital signature from an electronic signature. An electronic signature is authentication of an electronic record by a technique specified in the Second Schedule and includes a digital signature. A digital signature is the particular method under section 3 using an asymmetric crypto system and hash function.
3. Name three documents that cannot be made in electronic form under this Act. Any two or three of: a negotiable instrument other than a cheque, a power of attorney, a trust, a will or other testamentary disposition, and a contract for the sale or conveyance of immovable property.
E-Contracts and the Scheme of the Information Technology Act
4. Who is an intermediary, and why does the definition matter? A person who on behalf of another receives, stores or transmits an electronic record or provides any service with respect to it. It matters because the definitions of originator and addressee both exclude intermediaries, so the contract is between the parties and not with the service provider.
5. An e-contract is made with a person of unsound mind. Which Act decides its fate? The Indian Contract Act, section 12 read with section 11. The Information Technology Act deals with the medium, not with capacity.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.