In recent times, the conventionally functioned models of business have become out-of-date and in many cases are not execution enough income to the owners or shareholders of the company. A usual example of such a situation in the business of newspaper in the United State of America wherein many of the noticeable newspaper have shut down or have lifted purely to the online medium. New and inventive models and type of business need to be invented and worked. Existence of e-contract in the market is accomplishing the need for innovativeness in the traditional business segments. Businesses, both existing and new are trying to create an online individuality and an e-contract stand keeping in view the needs of the modern times.
E-contract is one of the divisions of e-business. It holds a similar meaning of traditional business wherein goods and services are switched for a particular amount of consideration. The only extra element it has is that the contract here takes place through a digital mode of communication like the internet. It provides an opportunity for the sellers to reach the end of consumer directly without the involvement of the middlemen.
New models of business demands different organisational charters. E-contract demands an organizational charter which caters to its new marketing needs. This mode of business enables businesses to save time on product design and device products according to the individual customer requirement, track sales and get immediate feedback from the customer.
Contracts have become so common in day-to-day life that most of the time we do not even recognize that we have entered into one. Right from buying a vegetable and hiring a Cab or to buying an airline ticket online, uncountable thing in our daily exists is governed by contracts.
The Indian Contract Act, 1872 rules the way in which contracts are made and completed in India. It rules the way in which the requirements in a contract are implemented and codifies the effect of a breach of contractual provisions.
Electronic contracts (contracts that are not paper based but relatively in (electronic form) are born out of the need for speed, ease and efficiency. Imagine a contract that an Indian manufacturer and an American exporter wish to enter into. One selection would be that one party first draws up two copies of the contract, signs them and couriers them to the further, who in turn signs both copies and guides one copy back. The other option is that the two parties meet someplace and sign the contract. In the electronic age, the whole contract can be accomplished in seconds, with both parties simply fixing their digital signatures to an electronic copy of the contract. There is no need for behind couriers and additional travelling costs in such a situation.
There was primarily a fear between the legislatures to identify this modern technology, but now many countries have legislated laws to recognize electronic contracts. The conventional law involving to contracts is not satisfactory to address all the issues that arise in electronic contracts. The Information Technology Act describes some of the irregular issues that arise in the formation and verification of electronic contracts.
WHAT IS ELECTRONIC CONTRACT?
Contracts have become so common in daily life that most of the time we do not even recognize that we have entered into one. Right from hiring a taxi to buying airline tickets online, countless things in our daily lives are ruled by contracts.
The Indian Contract Act, 1872 governs the manner in which contracts are made and performed in India. It governs the way in which the requirements in a contract are implemented and codifies the effect of a breach of vowed provisions.
Within the outline of the Act, parties are free to contract on any terms they choose. Indian Contract Act comprehends of limiting factors subject to which contract may be entered into, executed and breach enforced. It only provides an outline of rules and regulations which govern creation and performance of contract. The rights and duties of parties and terms of agreement are definite by the contracting parties themselves. The court of law acts to enforce agreement, in case of default.
Electronic contracts (contracts that are not paper based but rather in electronic practise) are born out of the need for speed, suitability and efficiency. Imagine a contract that an Indian exporter and an American importer wish to enter into. One option would be that one party first pulls up two copies of the contract, signs them and couriers them to the other, who in turn signs both copies and couriers one copy back. The other option is that the two parties meet someplace and sign the contract.
In the electronic age, the whole contract can be completed in seconds, with both parties simply attaching their digital signatures to an electronic copy of the contract. There is no need for delayed couriers and additional travelling costs in such a situation. There was initially a hesitation amongst the legislatures to recognize this modern technology, but now many countries have passed laws to recognize electronic contracts.
Essentials of an electronic contract:
As in every other contract, an electronic contract also requires the following necessary requirements:
1. An offer requirements to be made
In many contacts (whether online or conventional) the offer is not made directly one-on-one. The consumer ‘browses’ the available goods and services showed on the seller’s website and then chooses what he would like to purchase. The offer is not made by website showing the items for sale at a particular price. This is essentially an invitation to offer and hence is revocable at any time up to the time of acceptance. The offer is made by the customer on introduction the products in the virtual ‘basket’ or ‘shopping cart’ for payment.
2. The offer needs to be acknowledged
As stated earlier, the acceptance is usually assumed by the business after the offer has been made by the consumer in relation with the invitation to offer. An offer is revocable at any time until the acceptance is made.
Processes available for forming electronic contracts include:
I. E-mail: Offers and acceptances can be exchanged entirely by e-mail, or can be collective with paper documents, faxes, telephonic discussions etc.
II. Web Site Forms: The seller can offer goods or services (e.g. air tickets, software etc.) through his website. The customer places an order by completing and communicating the order form provided on the website. The goods may be actually delivered later (e.g. in case of clothes, music CDs etc.) or be directly delivered electronically (e.g. e-tickets, software, mp3 etc.).
III. Online Agreements: Users may need to take an online agreement in order to be able to avail of the services e.g. clicking on “I accept” while connecting software or clicking on “I agree” while signing up for an email account.
3. There has to be legal consideration
Any contract to be enforceable by law must have legal consideration, i.e., when both parties give and receive something in return. Therefore, if an auction site eases a contract between two parties where one Ecommerce – Legal Issues such as a person provides a pornographic movie as consideration for purchasing an mp3 player, then such a contract is void.
4. There has to be an intention to create lawful relations
If there is no intention on the part of the parties to create lawful relationships, then no contract is possible between them. Usually, agreements of a domestic or social nature are not contracts and therefore are not enforceable, e.g., a website providing general health related data and instructions.
5. The parties must be able to contract.
Contracts by minors, lunatics etc. are void. All the parties to the contract must be lawfully competent to enter into the contract.
6. There must be free and unaffected consent
Consent is said to be free when there is absence of coercion, misrepresentation, undue influence or fraud. In other words, there must not be any agitation of the will of any party to the contract to enter such contract. Usually, in online contracts, especially when there is no active real-time communication between the contracting parties, e.g., between a website and the customer who buys through such a site, the click through process ensures free and genuine consent.
7. The object of the contract need to be lawful
A valid contract presumes a lawful object. Thus a contract for selling narcotic drugs or pornography online is void.
8. There must be conviction and possibility of performance
A contract, to be enforceable, must not be ambiguous or unclear and there must be possibility of performance. A contract, which is impossible to perform, cannot be enforced, e.g., where a website promises to sell land on the moon.
TYPES OF ELECTRONIC CONTRACTS
The Information Technology is determined by manpower in Indian context and thus employment contracts are vital. With a high erosion rate as well as the confidentiality involved in the work employment contracts become crucial. Apart from that Indian Labour practices are based on tough labour laws and not the hire and fire processes of the first world. In this background copyright issues of software development assumes vital importance. Apart from that contracts for on-site development and sending the workforce abroad and security clauses will play a crucial role in employment contracts. Firms hiring personnel abroad apart from their personnel need to include the relevant employment contract of the place of action.
The normal requirements of Indian Contracts Act of 1872 will apply on any consultant agreement. But particularly in Information Technology industry where the infrastructure to function is low and connectivity is very high consultancy with experience marketing and business development and technology development is a very dominant mode of contract. Here proper care to be taken in Consultant agreements where issues of Intellectual Property Rights, privacy will play an important role. If care is not taken it may lead to cost of business and loss of clients.
As manufacturing companies subcontract their business, Information Technology also subcontract their work due to changing orders and would like to cut on the cost of regular workforce and attendant legal and financial problems. At the same time in manufacturing business, tough labour laws like the Contract Labour (Abolition and Regulation) Act of 1970 in force could lead to a different type of legal twist. However if care is taken to subcontract keeping the requirements of the contract Act and the Contract Labour abolition act the anticipated objectives could be met. Here again privacy, consumer liability and copy right issues assume great importance and care to be taken in representation such contracts.
Sales, Re-Seller and Distributor Agreements
In software and Internet dealings though the order of middle men are done away with, it still requires a circulation network and hence prescribed issues come into play in that feature of business. In first place one needs to see whether software is a good in the Sale of Goods Act.
Software is a programme of instructions, which operate the system or hardware to function in a planned manner. Hence there arises an effort to classify and define in legal terms of the vague nature of software in comparison with other products. The code and its source can be understood as information planned in a way to operate the system leading to the conclusion it is not a property and not a good in the legal intellect. In Aerodynamics Systems Product v. General Automation limited, the argument upraised by the defendants that though software can be a subject matter of sale, software themself is pure information, and the transmission of software is a service and not sale of goods. There is another explanation of Software to be considered as Goods where it is likened to that of a book containing information, which is considered as goods under the Sale of Goods Act. As the value of the book is not the mere value of the inlet jacket, paper and materials used in its creation, but one that of the value of the information limited in it, software is also a product –a floppy, or a CD-ROM or simply stored in hard disc but the value is much higher than the simple storage device.
Hence software due its high value in terms of application is measured as goods for the purpose of legal classification. Having recognised it as good the distribution, reseller agreement should take care of the aspect of Monopoly Restrictive Trade Practices (in future the competition law) provincial authority and other tax instruments.
Non-Disclosure Agreements are part of IT contracts, which identify binding agreements with employees apart from the standard confidentiality agreements. The Indian Contract Act 1872 has provisions for the same and it undertakes importance in an industry which is purely knowledge based and one which can be easily repeated ruining the business.
Software Development and Licensing Agreements
A license is an authorisation given to do a specific manufacture/sales/marketing/distribution, which is legitimate. License plays a prevailing form of contract in mass marketing activity of any kind including Information Technology. Software licensing has a historical background where originally it was pushed with the hardware and was given free and its use and application was limited to that of operating the system and few other features. Later in late 60’s and early 70’s hardware makers in Europe marketed software distinctly. Later software makers resorted to license their products distinctly from that of the hardware. In normal ownership, the product sold becomes the exclusive property of the buyer who can do whatsoever he wants. In case of software, the product can be copied easily and will adversely affect the manufacturer of his sale and thus the entire investment-return processes and future spur to invest in making software. Thus software business became a business of license command. These licenses are issued in persistence or for a limited period. Licensing agreement normally forbids reverse-engineering, de-compiling or any other manipulation of the software, which can be marketed easily with some alterations. Licenses are issued for a single machine practise at a specified location with a provision for backup in the same machine in case of a crash or unreliable functioning. Multiple machine licenses are also given. The license agreement also protects the user from any copyright or other intellectual property violation of the manufacturer. The licensing agreements become vital in Cyber Contracts. Similarly software development is another agreement between joint ventures of companies or for awarding development of software to multiple parties, which assume vital importance in contracts of cyber world.
Shrink Wrap Contracts
A Shrink Wrap contract is the former license agreement required upon the buyer when he buys software. Before he or she tears the pack to use it, he or she is made mindful by tearing the cover or the wrap that they are sure by the license agreement of the manufacture. This is done as previous deliberated to protect the interests of the manufacturer where the consumer cannot replicate the package, copy it or sell it or donate it to others moving the sale of the software. The license, which is contracted and enfolded in the product, which becomes enforceable and taken as consent before the buyer tears the package. The usual sections that are part of the shrink-wrap license are that of
a) prohibiting illegal creation of copies
b) prohibiting payments of the software
c) prohibition of contrary engineering, de-compilation or adjustment
d) prohibition of usage in more than one computer definite for that purpose
e) disclaimer of contracts in respect of the product sold
f) limitations of responsibility
The reason and business sense is that to guard the manufacturer of the package, as it is easy to copy, operates and duplicate under other brand name. Critiques contend that shrink-wrap license agreement is in contradiction of the basic principle of contract of offer, consideration and acceptance as the licensee is unsettled. Several cases to this effect have been dispensed in US courts.
Source Code Escrow Agreements
In software development many principal firms who participate in development are keen to guard the source code of the software, which is the most appreciated and cautious part of the computer programme. Copyright owners of such source code may have to disclose this to countless developers who will be developing definite software based on the source code. In these conditions, the copyright owner will credit the source code to specified source code escrow agents who will release the code on the development of the product upon agreed terms. In cyber contracts, such agreements and also the terms and conditions to contract with the escrow agents becomes vital.
LEGAL FRAMEWORK RELATING TO E-CONTRACT
With the growing importance and value of e-contract in India and across the world, the different stakeholders are continuously identifying and evaluating the nuances of legal outline relating to it. The participation of different service providers in the transaction of e-contract, which includes a payment gateway, the main website, the bank or card verification website, the security authorisation website and the final service provider which can also comprise the shipping agent has made the E-contract business more complex. Therefore, the need for amendable it has augmented. In India, till date there are no definite legislations or guidelines protecting the buyers and sellers of goods and services over the electronic medium. However, several laws acting in unification are trying to regulate the business transactions of E-contract. They are as follows:
Like any other types of business, E-contract business also works on the basis of contracts. It is therefore, structured by the Indian Contract Act, 1872. Any valid and legal E-contracts can be designed, completed, and enforced as parties replace paper documents with electronic parallels. The contracts are move in between the service providers or sellers and buyers.
Earlier, there was no definite law to regulate the intermediaries such as verification service providers and shipping service providers to safeguard that the product or service is actually delivered. However, the government has recently acquainted the Information Technology (Intermediaries Guidelines) Rules 2011. The actual scope of the security provided under these regulations would only be known after judicial interpretation of the provisions. However, now it has been explained that even foreign intermediaries delivered to provide service can be sued in India.
The payment gateways which footing a very important position as the primary processor of the payment for the merchants were brought into the legal framework after proclamation of the Payment and settlement Systems Act, 2007 (PSS Act, 2007). The PSS Act, 2007 as well as the Payment and Settlement System Regulations, 2008 made under the Act came into effect from August 12, 2008. Further, the Reserve Bank of India, issued additional guidelines initiating all such gateways and payments processors to register under the said act.
The authority of the transactions of E-contract is established under the Information Technology Act, 2000 (IT Act, 2000). It explains the reasonable mode of acceptance of the offer. IT Act, 2000 also rules the revocation of offer and acceptance. However, definite provisions that regulate E-contract transactions conducted over the internet, mobile phones, etc. are vague. With numerous cross border transactions also being conducted over the internet, specific law guarding the Indian customers and Indian businesses are essential and Indian laws are gravely insufficient on this issue.
In a bid to safeguard security, the government has made digital signatures necessary in several E-contract transactions mainly in the government to government (G2G) or government to business (G2B) framework with a view to safeguarding the identity of the transacting parties. E-contracts transactions on these modes require digital signatures as essential parts. They are used for the verification of the electronic contracts. These are controlled by the IT Act, 2000 which provides the outline for digital signatures, their issues and verification. The Act thus tries to safeguard that trust between both the parties is maintained through verification of identities and help prevent cybercrimes and ensure cyber security practices.
In the light of the above discussion, it is to be said that the present laws in respect of the guidelines of E-contract and its related operations are not suitable serving the purpose. Propagation of laws is creating a confusion in the smooth procedures of the E-contract accomplishments. Further, the present laws are salient on features of e-contract such as payment instrument and delivery instrument and present standard practises which have been settled by the industry. The Reserve Bank of India, however, has tried to support the electronic payment mechanism through various orders, but such orders can only act as a stop-gap procedure. The most important order in this regard was the application of second factor verification in all Indian Payment Gateways. Commonly recognised as Verified by Visa or MasterCard Secure Code, this had made card transactions on the internet moderately more secure.
POSITION OF E-CONTRACT IN INDIA
Indian Railway Catering and Tourism Corporation Limited (IRCTC) is certainly the major e-commerce site in India and in India’s answer to private capitalist ventures. IRCTC was set up as a subsidiary of the Indian railways for the exclusive purpose of providing catering services and ticketing services for the Indian Railways. However, of late, it has extended its wing and now covers sectors such as flights and hotel bookings. The flagship was established in 2002 and has transformed the online travel booking business in India. IRCTC functions both in the business to business and business to consumer segment. According to the data released by IRCTC, it has more than 4-4.5 lakh reservations per day. In 2010-11, IRCTC sold tickets value more than Rs. 8000 Crore. It claims to switch more than 8 lakh equivalent transactions thereby speaking volumes about the prominence and the size of their business.
The site offers the only link for purchasing Indian railway tickets online and even agent sites (B2B) have to link them to IRCTC to provide online booking services for customers. IRCTC offers a large option for consumers for payment of buying tickets online. IRCTC however, is one of the few enduring e-commerce sites which charged transactions charges from customers, which is different bank to bank.
Through IRCTS several customer enter daily into a new dimension of contract i.e. E-contract. E-contract now plays an important role both for the customer and the seller. Customer has a lot of choice to choose a product and seller through e-contract reach to large customers.
Inferences that can be drawn from the above Case Studies:
The main issues that have been identified from the case studies can be stated as follows:
a) Lack of guideline regarding payment mechanisms
There is an outright lack of regulations regarding the mode of payments which needs to be provided by any e-commerce website and the transactions charges which they can levy. It is seen that numerous travels website levy additional charges on the payment made by the customers. The websites state that it is an industry customary practise. This makes the matter even more complex owing to issues of anti-competitive practises.
Further, there is no standard Reserve Bank of India rules available especially for the issues of refund transactions in the case of credit card and debit card payments. The regular guidelines available for point of sale (PoS) dealings may not apply to all e-contract transactions due to the envelopment of multiple parties in these cases instead of two parties in a normal PoS transaction.
b) Need for criteria for Consumers Grievance Redressal
There should be standards recommended by law regarding the customer service requirements to be fulfilled by an e-contract undertaking. Providing a necessary physical office and mandatory 24 hour call centre are some of the steps which should be commenced. Further, the consumer courts should be made conscious the issue of e-contract transactions and the special steps to be shadowed in such cases. Timelines should be set for returning the amount back to the customer’s account in case of failed transactions or order cancellations. These procedures should be applicable to the e-commerce merchants as well as the banks and payment entries.
INTERNATIONAL SCENARIO IN RESPECT TO E-CONTRACT
New intimidations to consumer protection call for new protecting rules and measures. We should distinguish the fact that better consumer protection in online environments shall have an optimistic impact on the further development of electronic commerce and thereby on merchants. Generally speaking, if electronic commerce is to increase, consumers must be provided with at least the same guarantees they would be provided with in the older marketplace.
The US and the EU have affirmed the importance of protecting a new type of consumers. With the rise of electronic commerce, the role of consumers has changed affectedly. While consumers were formerly a quiet body, today they have power in businesses. Sellers are now in a comparatively submissive position. Their job is too merely to paste that product information it becomes the accountability of consumers to evaluate and make active decisions upon.
Where the precise field of argument firmness is concerned, both the US and the EU realize the best way to safeguard consumers could be to provide them with suitable measures for recompense. Consumer protection groups have created mediums where consumers can both acquiesce e-mail based complaints when discontented with advertisements, goods or services, and allege violators of self-regulatory codes of beliefs.
While consumer protection can take on diverse forms, dispute resolve mechanisms are its final insurance. Principles for dispute management are finally more attractive to devices than less formal intended arrangements since they can encourage more reliable conduct of consumer benefits. In light of government practise, protection accessible by state power is important. Some consumers even seek reserve in the court. In order to quarter the special character of modern business without drifting too far from tradition, ADR mechanisms for dispute firmness very cleverly entail state application support. Procedure for consumer protection in electronic commerce dispute firmness must extend outside national limits. Individual states privation the ability and initiative to adequately address issues related to consumer protection in the background of electronic market. Many of the issues that arise from cross border disputes are impaired by the fact that misleading marketing practice laws vary from one jurisdiction to alternative. Possible standard electronic consumer policies should be pertinent to cross-border dealings to which all or most countries can subscribe.
OECD Member States have acknowledged the necessity of an international synchronized approach to deal with the issue of dispute firmness in electronic business. In one imperative document framed by the OECD, Procedures for Consumer Protection in the Context of Electronic Commerce, procedures for consumer protection in dispute firmness and amends aim to safeguard consumers contributing in electronic business without founding barriers to trade.
The rules serve as a reference to governments, businesses, consumers, and their councils of the characteristics of active consumer protection for electronic business. The rationale behind them is alike to that of the US and EU. Firstly, applicable law and jurisdiction are singled out for likely amendment.
No broad creation of the new applicable law or principle of jurisdiction is pointed out, but the rules do define features of suitable modifications. Equality, they suggest, is one of the most important features in understanding consumer safety. The purpose of the fairness is to offer consumers a level of protection not less than that afforded in other forms of commerce and to provide consumers with eloquent contact to fair and timely dispute resolution and redress without undue cost or burden. To complete fairness, one must provide a framework for correcting unfairness.
As said in the guidelines, businesses, consumer councils, and governments should work collected to endure to use and develop fair, effective, and clear self-regulatory and other measures, which provide consumers with the choice of mechanisms to firmness their disputes ascending out of consumer dealings. Moreover, these efforts should be followed at an international level. To attain the maximum reimbursements of the new arrangements, modern technology should be used to improve consumer awareness and freedom of choice. From the breakdown above, we can determine that the international community has touched a harmony on the general approach toward consumer protection. While making developments on court procedures and the application of principles, new means should be found out to quarter the new needs of electronic business. The means should permit the expansion of new shops effective in a responsible manner and resolving disputes accessibly online and, along with them, greater choices and more antagonism. With new services in place, consumers shall positively be protected from excessive costs of defiance with duplicative or varying guidelines.
E-contract in India has definitely came a long way from the days of bazee.com which underway as the first large online retail website. At present, with the increase in number of internet user, e-contract is organised to grow further. The growing trend of internet banking and credit or debit cards along with the rise in the number of educated and computer literate persons will further support this growth. The need of the hour is law which covers all the aspects of e-contract extending from payment mechanism and maintaining minimum standards in the delivery of services. Such a legislation will help to restraint the growth of websites which rise within a few days and then stop functioning in the absence of suitable funds for sustenance. As all business through e-contract sites is ended through the internet without any direct physical interfaces, the main basis connections is the trust of the customers which should be engaged at any cost. A law in this field will detect the criminals who have used the internet as a source for making quick money. This will also act a defence for the genuine e-contract websites and help in further growing of business. There is also a need for the creation of an authority in the consumer court to look into the grievances arising out of e-contract transactions. Such an authority should have experts in area such as payment security. This will embolden speedy redressal of disputes and promote e-contract transactions. E-contract which is a developing segment in the commercial arenas scheduled to grow and it is the accountability of the prevailing players to ensure that growth is not hindered by their acts and policies.
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Image 2 courtesy of tigger11th at FreeDigitalPhotos.net
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