The principles governing the E-contracts are based on the traditional law of contracts. According to section 10, of the Indian Contract Act, 1872 essentials of a contract include:
1. Parties competent to contract
2. Existence of consent of parties
3. Consent being free
4. Existence of consideration
5. Consideration and Object being lawful
6. The agreement does not being expressly declared void.
However, before ascertaining whether a contract is valid or not, it is important to ascertain whether a contract has been concluded at all. A contract is formulated when the offer is communicated by the offeror to the offeree and the same is accepted by the offeree, whether expressly or by implication. The key to understanding electronic contracting is that is to regard the Internet simply as another tool of communication. Until now, new modes or tools of communication have been adequately incorporated into the legal system for example the telex or the fax machine. In theory, therefore law is capable of dealing with the issues raised by electronic means of communication.
Communication in Electronic Form and E-contract Issues:
An offer or acceptance, like any other expression of will or intention, may be communicated by any means, including by messages in electronic form (called electronic record in Information Technology Act, 2000). The provisions of Indian Contract Act, 1872 are wide enough to cover such transactions. In the context of contract formation, unless otherwise agreed by the parties, an offer and the acceptance of an offer, or either of them, can be expressed by means of data messages or electronic records.
Where electronic records are used in the formation of a contract, that contract shall not be denied validity or enforceability on the sole ground that data messages was used for that purpose according to provisions of Section 10 A of Information Technology Act, 2000. As between the originator[i] and the addressee[ii] of the electronic record, a declaration of Will or other statement should be valid, effective and enforceable even though it is in the form of a data message.
1.1 Is online contracting instantaneous?
One might express the view that email and other methods of online contracting are instantaneous communications and that the general acceptance rule should apply to their acceptances. In fact, this argument may be true in respect to website acceptances since there is no actual space in time between the sending and the acceptance of the offer. But, contracting through email messages is different than that happens in website contracting and hence cannot be treated as instantaneous communication.
How Do People contract online?
To determine when to treat online contracting instantaneous and when not, we need to understand methods of online contracting. There are two main methods: click wrap and e-mail.
A. Click-wrap: Click wrap contracts are most commonly found in the workings of the World Wide Web. The usual formation of such a contract begins with the web vendor placing information about a product on the web. This information could be in the form of an advertisement, an invitation to offer, or an offer of a product or service for the due consideration. There is usually a hypertext order form within close electronic proximity which the consumer fills out and this form will contain a button labeled ‘I Accept’, ‘Submit’, ‘Purchase’ or some such phrase. When the computer clicks on this button, the order is sent to the vendor, who usually reserves the right to proceed or not to proceed with the transaction. In many instances, however, the order will be a processed automatically and in this respect, it is similar to a purchase in real world. Communications in the manner described above, will be treated as instantaneous.
However, the situation is different with regard to contracting through email.
B. E-mail: The text of email messages is the digital equivalent of a letter. E-mail without being in existence physically, is still capable of performing all the functions of a usual email. It can be used to send offers and acceptances. However, because of some technical reasons e-mail delivery systems is different from standard mail delivery system and this creates complications for e-contracting. To understand the complications, first we need to understand how an e-mail is transmitted.
How is E-mail Transmitted?
A user who has an email account can draft a message that he is going to send without having a connection to the internet. After the user creates this message on the sender’s computer the first stage of the e-mail’s journey starts when he opens the connection to the internet server provider (ISP). The second stage occurs at the moment the sender actually presses the send button, which, so long as the network is not busy and the receiver’s email address has been correctly entered, transmits it along the international network of computers until it reaches the intended receiver’s ISP. From the ISP the email enters the internet where it may bounce from a minimum of one computer to many millions, before reaching the ISP of the receiver. The recipient will then be able to retrieve the message by logging onto their ISP and downloading the message.
In fact, the e-mail’s journey, while travelling through the internet, may involve travelling across the world even though the person receiving the message is in the next building. This journey takes a moment, sometimes minutes, until the recipient receives the email message. This fact does not differ even, if the internet service provider for the offeree is the same as for the offeror, as would be the case if they are members in the corporation or the university email network. This is because the transmission of email through the network depends entirely on the viability of the ISP for the offeree or the offeror.
For example, if the offeree is in London and the offeror in New York, then the journey should start from London’s internet service provider of the offeree and go to another network service provider in the Atlantic and perhaps it will then need two or more connections prior to it reaching the offeror’s service provider in New York. The speed of email messages depends, in these cases, on whether one or more of these service providers are busy with millions of applications from other internet users. Considerable delays may occur in email communication between when a message is sent and when it is received by the recipient. These delays result from the complex path over which the email is sent. For example, if person A in London sends an email message to person B in Nigeria, usually there will be no direct link between the computer systems. This explains why, on occasion, an email takes a longer time than usual to reach the recipient
It can be said that email is not an instantaneous form of communication, because as explained previously, there can be gap in time between dispatch and deemed receipt. This conclusion was recently pointed out in a Singapore case, in the judgment of Rajah JC, in Chwee Kin Keong v Digilandmall.com Pte Ltd[iii] “… unlike a fax or a telephone call, it is not instantaneous. Emails are processed through servers, routers and internet service providers. Different protocols may result in messages arriving in an incomprehensible form. Arrival can also be immaterial unless a recipient accesses the email, but in this respect email does not really differ from mail that has not been opened.”
Usually, an acceptance is considered as having been sent at the time the acceptance went out of the possession of the offeree and into the possession of the third party allowed to receive it. The third party, of course, is neither an agent of the offeree nor of the offeror, but in the situation of email, it is the ISP. Even though the offeree’s server is not under the offeree’s control, it is considered a provider for the internet service to the offeree and likewise, it is not agent to the offeree, as it is an independent entity, such as a company server or a university service provider.
In transmission of the acceptance through email, the message is considered to be out of the offeree’s position at the time the offeree connects to the internet and presses the ‘send’ button. The offeree may receive acknowledgement that the message is successfully sent (if this acknowledgement is available in his email system), otherwise the offeree will receive a message in his mail box system, indicating a failed delivery notice of an email which has not been successfully transmitted. There are times when a computer freezes upon sending a message, the offeree should at that time resend the email, because the message may not have been sent or may have been altered when it was frozen. Clarifying the moment of dispatch by time can be ensured by looking at the time of sending of the email, is recorded by the ISP and can be found by looking in the offeree’s account. This time usually corresponds with the time which appears on the sender’s computer at the time of sending the email. Some email accounts embody a universal GMT timing of the provider of the email account itself. There is also the provision of time-stamping authority in Information Technology Act, 2008. Time-stamping is the process of securely keeping track of the creation and modification time of a document.
Invitations, Offer and Acceptances
Before we further investigate the details of electronic contracting we must consider whether these contracts are actually legal and binding. In general, the contract law will enforce any form of contract supported by consideration, whether oral or written, formal or informal, as long as the intention of the parties can be clearly discerned to create legal relationship. If it satisfies, the essentials of the contract according to sec 10 of Indian contract Act as specified at the beginning of this unit, it will be enforceable. Thus, there are no reasons in principle and legally to prevent the enforcement of electronic contract.
A contract is formed when there is meeting of mind between the parties. This is usually found in clear and unambiguous offer followed by similarly clear and unambiguous acceptance. An important distinction needs to be made here between an offer, an invitation and an advertisement. A offer is a proposed set of terms which can form the basis of a contract. An invitation to treat is simply an invitation to make an offer for a product or service. Hence, an advertisement, as a form of an invitation to treat, also acts as carrier to information upon which contracting decisions might be based. Significantly, an offer will always contemplate acceptance and therefore it must always be something capable of being accepted.
This is particularly important in the Internet context because the distinction between advertisements, invitations to treat, and offers included in websites are often blurred by vendors. If there is an offer, an affirmative response means that a contract is formed. If a statement looks like an offer but it is not capable of being accepted, it is only an invitation to offer, and then an affirmative response is only an offer. A well-established real example of an invitation to offer can be found in supermarkets. Goods on the shelves are presented by the shop as an invitation to offer, and goods subsequently being taken to the cash counter and presented by the shopper is treated as an offer.
Applying these principles to the World Wide Web, the electronic proximity between the advertisement on web and the actual point of sale is likely to render the status of a message closer to an invitation to offer in a shop than to an advertisement that we might see in a magazine. Hence, a consumer who clicks on a form in a click wrap situation is generally making an offer and the vendor will be the party accepting the offer. This, of course, is not universally the case, as it is quite possible for a vendor to make a clear and unambiguous offer on the World Wide Web and the consumer, through the click of the mouse, accepts the offer.
Terms of a contract
Terms can be incorporated into a contract in a number of ways. A contract can contain these three distinct types of terms:
- Express terms
- Terms incorporated by reference
- Implied terms
Before a contract can be formally concluded all the terms of the contract must be brought to the attention of the parties. Otherwise, there cannot be a meeting of minds. This is crucial both in terms of both e-mail and click wrap contracts. In the former, parties must take care to avoid contradiction and confusion if negotiations of terms are held using e-mail; this is especially so if the negotiations are lengthy. Parties must also take care to identify the documents which are intended to form part of the contract. In the event that terms of a contract are imprecise, the effect of the contract may be substantially altered through a different interpretation of the terms of the terms from that originally intended. In the case of click wrap contracts, web site designers must take care to ensure that all terms are brought to the attention of the consumers before they are presented with the opportunity to purchase a product. Often the terms of click wrap contracts are incorporated by reference.
Incorporating terms by reference is most important for click wrap contracts. This means that the terms of the contracting parties are set out in different document and incorporated by reference. In click wrap contracts, the terms and conditions of the contract are usually located on a separate web page, rather than being embedded in the contract page. The problem is that both parties must know that these terms are part of the binding contract. The vendor must take all reasonable steps to bring the terms to the attention of the other party. As advertisements on web are invitations to offer and not contracting documents, the potential customers would not expect to find terms and conditions of contract contained in the web advertisements.
Hence the design of the web site must be such that before the consumer has the opportunity to click ‘Submit’ or “I Agree’, the terms must be clearly brought to his or her attention. The onus is upon the web designers to enure that consumers read and acknowledge the terms and conditions. In order to do this effectively, the usual practise has been to require consumers to tick a box or clicks on the acknowledgement that the terms and conditions have been read. If the consumer checks the box or clicks on the acknowledgement, the terms will be incorporated, regardless of whether they have been actually been read. If this is not done, the purchase order or other agreement will not proceed.
Implied terms usually arise separately from the contract formation process and are usually localised. This means that, in the event of a dispute, the governing law of the contract would be a central concern, as would be the type of contract at issue. So this becomes removed from the method of contract formulation in general. Terms may be implied by fact, on the basis of customs or usage, or by construction of the contract. Questions of implied terms are case-specific and will turn on the particular relevant laws of a particular jurisdiction, such as unconscionable conduct or business efficacy or on the subject matter of the contract.
Formation of a contract and the Postal Acceptance/Mailbox rule:
The final step to understand e-contracting is the issue of when and where the contract is formally made or concluded. The general rule is that contract is made when acceptance is communicated from the offeree to the proposer/offeror. Accordingly, there is no contract where the acceptance is not communicated to the proposer, the reason being that it would be unfair to hold proposer by an acceptance of which he has no knowledge. The location of the formation is decided according to where the offeror receives notification of the acceptance. However, there is well-known exception which was made to facilitate contracting between the parties at a distance- The postal acceptance rule.
Parties at a Distance
When parties are in the presence of each other, the proposer and the acceptor knows that the acceptance has been communicated, if they are at a distance, they depend upon other modes of communication. The modes used may be instantaneous, namely telephone, telex etc. or they may choose other modes like post, courier, telegram, fax or email.
The conclusion of distance contracts has been one of the controversial issues in the law of contract formation. It raises some question marks, especially with regard to the type of rules that should govern the timing of contract formation. More specifically, a strong debate has been emerged recently as to whether the postal acceptance rule may apply in respect to contracting through electronic medium like email.
First, it has been argued that the postal acceptance rule applies to the Internet because the communication has been entrusted to a third party such as ISP acting as a parallel to postal system. Second, it has been argued that the reason for the application of postal acceptance rule applies because the system of Internet is similar to postal delivery and hence is non-instantaneous form of communication.
Non-Instantaneous Mode of Communication and Formation of contract: Evolution of Mailbox rule
The postal acceptance or mailbox rule was first established in the case of the court of Adams v Lindsell[iv] whenthe court had to decide the moment of contract formation by post. The court found that parties when communicating acceptance by post were not sure at the precise time the acceptance had been communicated. As postal communication is subject to delay, the parties could not be simultaneously aware of the communication. This created a number of problems and has led to a formulation of the rule. This rule as accepted in the common law legal systems is: “Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted”.[v]
The uncertainty regarding the moment of contract formation does not happen in the environment of face-to-face communication or even in distance contracting where an instantaneous method of communication is used. In this kind of contracting, all parties are aware of contract conclusion and they do not face problematic issues such as delay or failure of transmission which occur in non instantaneous communications.
In contrast, the case of Adams v Lindsell, adopted the rule to avoid “the extraordinary and mischievous” consequences which could follow if it were held that an offer might be revoked at any time until the offeree was in the position of “accepting it had been actually received”.[vi] This justification for the postal rule appears to provide the best solution in determining the time that the parties reach consensus ad item and it was felt, that at the time of posting the letter, there would be a greater chance of a ‘meeting of minds’ occurring than at the later time when the letter was delivered.
Another reason has been suggested for the validity of this rule, is that the offeror must be considered as having made the offer throughout the whole time that his offer is in the post, and that therefore, the agreement between the parties is complete as soon as the acceptance is posted. This idea depends on the assumption that the offer creates a power that binds both parties and that an acceptance is an exercise of that power. Consequently, the offeror has, in the beginning, full power to determine the acts that are to constitute acceptance. However, after the offeror makes that determination, the legal consequences are out of his hands because an offer has then become effective and the offeree has an advantage over the offeror in the contract formation process. The offeree may need additional time to decide whether or not to accept the offer and during that time, may need to spend money and effort in reaching to a decision.
Justification of Mailbox Rule
It can be said that this rule is effective as it is takes care of both of the business convenience of the offeree and the fair allocation of risk, as it establishes a finite date for the contract and avoids circular communication. Any delay which occurs between sending and receiving post letters creates potential risk for both of parties due to the uncertainty as to preciously when the message is deemed to have been received. This justification may be considered as the corner stone for application of the postal acceptance rule.
For example, if the offeror asks for notification, then the offeree would need notification of the receipt and so on. Another way of illustrating this is demonstrated if we consider that A is required to receive B’s acceptance, then B should have the right to receive notification from A, that the acceptance was received, and A should have the right to receive notification from B, that the notification of receipt of the acceptance was received and so forth. Carrying this on to its logical conclusion, putting the risk in the hands of the offeror would appear logical since it is he who is the master of the offer and he is the position to for or stipulate a specific action in order to be exposed to the potential risk. [vii]
The mailbox rule is further justified on the ground that it limits the power proposer to revoke the proposal after the offeree has acted upon the offer. The rule is justified on the basis of commercial convenience.
These traditional justifications have been argued in respect to post contracting since as we explained above there is a gap of time and a delay between sending a letter and receiving it and parties are not in a position that they can control transmission of letters by post. Thus, it can be argued that if electronic contracting is similar to contracting by post then the postal rule should be applied to electronic acceptances like emails.
Under the UNDROIT principles, acceptance is complete when it reaches the offeror; the reason for adoption of the ‘receipt’ principle being that the risk of transmission is better placed on the offeror than on the offeree, since it is the former who chooses the means of communication, who knows whether the chosen means of communications is subject to special risks or delay and who is therefore able to take measures to ensure that the acceptance reaches its destination.[viii]
Another important reason for applying the postal rule is that it avoids any business uncertainty regarding the timing of email contracts. For example, applying the general rule will create uncertainty in what is the definitive time of considering the email formed. If A sends his email acceptance late Friday afternoon and the recipient B, left his office at lunchtime not to return until the following Monday, at what time can we consider the time of receipt? Is it on Monday morning when B returns to work or at any time when the B opens his email account and accesses the particular email, even if it was out of the working hours? In fact, applying the postal rule will avoid such uncertainty and create a definite time regarding to email contract conclusion.
Email is considered to be a non-instantaneous method of communication and therefore subject to delay. Contracting by email has been considered as the digital equivalent of the postal system. According to the difficulties with the transmission of email, delays, failure of networks, hacking by third parties or incorrect email addresses of intended recipients, may delay or prevent the delivery of an email. They suggest therefore, that risk of non-delivery of the email, as with the ordinary post, should lie with the offeror. Nevertheless, it should be kept in mind that similar issues of delay identified in relation to telexes are similarly applicable to email. In fact, no universal rule can cover all situations. These possibilities were not sufficient to persuade courts to find that the general rule of communication should be displaced. Likewise with email, the mere possibility of delays, incorrect addresses or technological failures may not be sufficient to create a universal rule that an email acceptance is effective at a time other than communication.
Generally, courts tend to apply the general rule in cases where there is an instantaneous method of communication, such as the telephone or the EDI or where they are virtually instantaneous and direct, such as telex. In the case of Entores Ltd. v Miles Far East Corporation[ix] , the court concluded that the contract was made when the acceptance was received by the plaintiffs in London because:
“..….So far as telex messages are concerned, though the dispatch and receipt of a message is not completely instantaneous, the parties are to all intents and purposes in each other’s presence just as if they were in telephone communication, and I can see no reason for departing from the general rule that there is no binding contract until notice of the acceptance was received by the offeror”.
Where the acceptor uses the telephone or telex for communication, the acceptor will generally know if his communication has not reached the proposer and can try to send it again. The rule is sound and practical because the oral acceptance may be drowned by the noise of a flying aircraft or the telephone may go dead. The Supreme Court of India, in Bhagwandas Goverdhandas Kedia v Girdharilal Purshottamdas[x] has held that in case of oral communication or by telephone or telex, an acceptance is communicated when it is actually received by the proposer.
It seems that the justifications for applying the postal rule in the age of post may be valid to be analogized to a new method of communication, such as the email. Email cannot be considered as an instantaneous method of communication, since there are some delays and gaps between sending and receiving messages. Parties do not communicate instantaneously between one other. In contrast, there is much greater clarity regarding the application of the general rule to website acceptances. Having examined the basis of the development of the postal rule and applying the reasoning above, the logical conclusion would be that contracts based on e-mail acceptances do benefit from the postal rule application.
Summing Up
When postal rule is applied to e-mail technical consideration come to the fore. The fact remains that e-mail is not instantaneous, the packets may not all arrive there may be congestion on the networks, some of the servers may malfunction and so on. E-mail is also fragmented when compared to a telephone call and the sender has no way of knowing whether the receiver will actually get the message.
In relation to click wrap a different method is involved. The communication between the web client and the server is instantaneous. If the communication between the parties is broken for whatever reasons, the other party will be immediately notified. This is due to the built in self-checking mechanism known as ‘checksum’. Therefore, when dealing with click wrap contracts, the postal rule is not applicable as compared to e-mail contracting because the line of communication in click wrap is continually verified, which implies that a communication once sent will be instantly received.
Application of MailBox/Postal Acceptance Rule to Electronic Contracts- Legislative Developments in US and UK
Even though the electronic commerce legislation, in the UK and the US, do not aim to provide substantial changes to the rules of contract formation, particularly regarding email contracting, they do provide clarification of the contracting process, especially in contracting through websites.
A. Position in US
The US laws are active in determining the time and place of dispatch and receipt of Electronic Commerce has the same approach as the Uniform Electronic Transactions Act (UETA) as a main source, US legislation relating to this discussion reject the application of the postal acceptance rule for electronic transactions and adopt the general rule (receipt rule), for the acceptance to be effective. The reasons for this are firstly, in the US, the application of the general rule depends on whether the method of communication is instantaneous or “substantially instantaneous as two-way communication”. For example, in cases regarding contracting by fax or telephone, even though the parties are not in physical proximity of one another, the general rule is applied to these types of communication. Since email cannot be described as direct and instantaneous communication thus it cannot be within this argument.
Secondly, US laws, especially the UETA, clarifies the moment when a message is considered as having been received by the recipient and when it could be accessible in order to be received. The UETA contains a section entitled ‘Time and Place of Sending and Receipt’, which states that an electronic record is deemed to be sent when it is properly addressed or directed to another recipient, is in a form capable of being read by the other parties’ system and when it is out of the control of the sender but however, it does not establish when the acceptance becomes effective and the contract is formed.
Additionally, subsection 15(b) of the UETA, states that “an electronic record is deemed received when it enters an information processing system designated by the recipient for receiving such messages (e.g., home office), and “it is in a form capable of being processed by that system.” This Section closely follows Art 15 of UNICITRAL Model law.
The Uniform Computer Information Transactions Act (UCITA) 1999, which is uniform commercial code for software licenses and other computer information transactions, goes further, with detailed provisions to indicate explicitly the application of the general rule in contracting by electronic means. Article 215 of the Act provides for electronic messages to be in effect at the time of receipt, regardless of whether any individual is aware of that receipt. Receipt is defined as: “In the case of an electronic notice… coming into existence in an information processing system or at an address in that system in a form capable of being processed by or perceived from a system of that type by a recipient, if the recipient uses, or otherwise has designated or holds out, that place or system for receipt of notices of the kind to be given and the sender does not know that the notice cannot be accessed from that place”. [xi]
In this Act, under the section entitled “Offer and Acceptance in General”, s.203 (4), it states that “if an offer in an electronic message evokes an electronic message accepting the offer, a contract is formed when an electronic acceptance is received”. This means that UCITA considers that the general rule should apply to electronic transactions, even if the recipient is not aware of its receipt.
B. Position in UK
At the English legislation level, there is no indication of treatment of conclusion of contract or timing issues as there is in the UETA or the UCITA. The Regulations of Electronic Commerce 2002 do not have any article indicating when a message is considered as having either been sent or received. These Regulations brought the majority of the provisions of the Directive into force on 21st August 2002. The Electronic Commerce Directive requires member states to establish a somewhat more complicated rule that departs from the UETA and the UNCITRAL, Article 11 provides: “Member states shall ensure, except when otherwise agreed by parties who are not consumers, that in cases where the recipient of the service places his order through technological means, the following principles apply: the service provider has to acknowledge the receipt and they are deemed to be received when the parties to whom they are addressed are able to access them.”
Unlike UETA, the Regulations do however, focus on accessibility and the contracting process on the website, rather than analyze in depth, the general and vague concept “able to access”. This is because the Regulations aim to provide transparency by requiring information to be supplied. The best example of this information is the duty on a service provider to provide certain information about the procedures of how contracts can be concluded by electronic means. However, in the drafting process of the Ecommerce Directive regarding formation of electronic contracts, there was considerable debate as how best to regulate this issue and unify it within Europe. The first and second draft of the Directive contained a section entitled ‘Moment at which the contract is concluded’. According to the drafting process, the electronic contract is considered to be formed upon the final confirmation of receipt from the consumer after he has received the second acknowledgement from the consumer.
The draft of the E-commerce Directive contained a novel method for timing issues in formation of electronic contracts; this is the confirmation of receipt of the acknowledgment. In this section, drafters of the Directive wanted to create uniformity and certainty in online contracting throughout Europe. In the final draft, this section has been changed, under the name ‘Placing of order’ and reduces the number online contract formation stages to three. Moreover, provisions which govern the mechanism of forming online contracts (Regulation 11), do not apply for contracts concluded exclusively by email. For example, Regulation 11 (2) b of the E-commerce Regulations makes reference to an “acknowledgment of receipt of the order… without undue delay and by electronic means”. This Regulation does not apply to email acceptances, but it does apply to website contracting in which the service provider shall send an acknowledgement of receipt of the order without any due delay to the consumer and that service is not available in the case of emails.
Electronic Contract and Information Technology Act , 2000
Recognition of E-contracts
The Indian Contract Act, 1872 governs the manner in which contracts are made and executed in India. It provides for the essentials of a valid contract, manner of offer and acceptance, rights and obligations of the parties and remedies in case of breach of contractual terms.
Anticipating the difficulties likely to arise from this, the Information Technology Act, 2000 in Section 13 provides that unless otherwise agreed to between the originator and the addressee, the dispatch of an electronic record occurs when it enters a computer resource outside the control of the originator. If the addressee has designated a computer resource for the purpose of receiving electronic records and it is send to such resource, the receipt occurs at the time when the electronic, record enters the designated computer resource. If instead the electronic record is sent to a computer resource of the addressee that is not the designated computer resource, receipt occurs at the time when the electronic record is retrieved by the addressee. If the addressee has not designated a computer resource along with specified timings, if any, receipt occurs when the electronic record enters the computer resource of the addressee. The sender of the electronic record is entitled to stipulate that the record sent shall be binding only on receipt of acknowledgment.
Unless otherwise agreed to between the originator and the addressee, electronic record is deemed to be dispatched at the place where the originator has his place of business, and is deemed to be received at the place where the addressee has his place of business. The position will be same even when the place where the computer resource is located may be different from the place where the electronic record is deemed to have been received.
Determination of Place of Business
Sec 13 (5) of IT Act provides for the following provisions to determine the place of business:
(a) if the originator or the addressee has more than one place of business, the principal place of business, shall be the place of business;
(b) if the originator or the addressee does not have a place of business, his usual place of residence shall be deemed to be the place of business;
(c) “usual place of residence”, in relation to a body corporate, means the place where it is registered.
Recent Amendments to provide validity to electronic contracts
The amendment to the Information Technology Act, 2000 inserted the section 10 (A) which states that, “where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by the means of an electronic record, as such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”
New Section 10 A specifies that contract formation is possible with offer and acceptance being in electronic form.
Case Law on Electronic Contract: The issues relating to electronic contract’s place and time were addressed by the Allahabad High Court in P.R. Transport Agency vs. Union of India & others[xii].
The defendant, Bharat Coking Coal Ltd (BCC) held an e-auction for coal in different lots. P.R. Transport Agency’s (PRTA) bid was accepted for 4000 metric tons of coal from Dobari Colliery. The acceptance letter was issued on 19th July 2005 by e-mail to PRTA’s e-mail address. Acting upon this acceptance, PRTA deposited the full amount of Rs. 81.12 lakh through a cheque in favour of BCC. This cheque was accepted and encashed by BCC. BCC did not deliver the coal to PRTA. Instead it e-mailed PRTA saying that the sale as well as the e-auction in favour of PRTA stood cancelled “due to some technical and unavoidable reasons”.
The only reason for this cancellation was that there was some other person whose bid for the same coal was slightly higher than that of PRTA. Due to some flaw in the computer or its programme or feeding of data the higher bid had not been considered earlier. This communication was challenged by PRTA in the High Court of Allahabad. Bharat Coking Coal Ltd. objected to the “territorial jurisdiction” of the Allahabad High Court on the grounds that no part of the cause of action had arisen within U.P.
The court held thatcontracts made by telephone, telex or fax, are complete when and where the acceptance is received. However, this principle can apply only where the transmitting terminal and the receiving terminal are at fixed points. In case of e-mail, the data (in this case acceptance) can be transmitted from any where by the e-mail account holder. It goes to the memory of a ‘server’ which may be located anywhere and can be retrieved by the addressee account holder from anywhere in the world. Therefore, there is no fixed point either of transmission or of receipt. Section 13(3) of the Information Technology Act has covered this difficulty of “no fixed point either of transmission or of receipt”. According to this section “…an electronic record is deemed to be received at the place where the addressee has his place of business.”The acceptance of the tender will be deemed to be received by PRTA at the places where it has place of business. In this case, the place of business is located in U.P. and hence Allahabad High Court was held to have jurisdiction.
Cause of Action to be determined according to Code of Civil Procedure, 1908
Cause of action means every fact which, if denied, will be necessary for the plaintiff to prove in order to support his right to the judgment of the court. It does not comprise every piece of evidence which is necessary to be proved to entitle the plaintiff to a decree. Everything which if not proved would give a defendant a right to an immediate judgment must be part of the cause of action. It is, in other words, a bundle of essential facts which it is necessary for the plaintiff to prove before he can succeed in the suit.
Section 20 of the C.P.C provides that
“…suits to be instituted where defendants reside or cause of action arises. Subject to the limitations aforesaid, every suit shall be instituted in Court within the local limits of whose jurisdiction.
(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or
(b) any of the defendants, where there are more than one, at the time of the commencement of the suit actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or
(c) the cause of action, wholly or in part, arises.”
A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.
Illustrations
(a) A is a tradesman in Calcutta, B carries on business in Delhi. B, by his agent in Calcutta, buys goods of A and requests A to deliver them to the East Indian Railway Company. A delivers the goods accordingly in Calcutta. A may sue B for the price of the goods either in Calcutta, where the cause of action has arisen or in Delhi, where B carries on business.
(b) A resides at Simla, B at Calcutta and C at Delhi A, B and C being together at Benaras, B and C make a joint promissory note payable on demand, and deliver it to A. A may sue B and C at Benaras, where the cause of action arose. He may also sue them at Calcutta, where B resides, or at Delhi, where C resides; but in each of these cases, if the non-resident defendant objects, the suit cannot proceed without the leave of the Court.
The making of a contract is part of the cause of action and a suit on contract can always be filed at the place where it was made. Ordinarily, acceptance of an offer and its imitation result in a contract and hence a suit can be filed in a court within whose jurisdiction the acceptance was communicated. The performance of a contract is a part of cause of action and a suit in respect of the breach can always be filed at the place where the contract should have been performed or its performance completed.
As regards jurisdiction, the normal rule as described above in C.P.C, 1908 will apply. For reasons discussed above in connection with communication by emails etc, the postal rule must be applied to the question of formulation, time and place of contracts and not the rule applied to instantaneous modes of communications.
[i] According to S.2 (1) (za) the Information Technology Act, 2000, “originator” means a person who sends, generate, stores or transmits any electronic message or causes any electronic message to be sent, generated, stored or transmitted to any other person but does not include an intermediary.
[ii] According to S.2 (1) (b) of the Information Technology Act, 2000 “addressee” means a person who is intended by the originator to receive the electronic record but does not include any intermediary.
[iii] [(2005)SGCA 2]
[iv] ([1818] 1 B &Ald,681)
[v] Henthorn v Fraser [1892] 2 Ch 27 at 33)
[vi] (See, House hold Fire and Carriage Accident Ins.Co.V. Grant (1879) LR Ex D 216 at 221; see also Re Imperial Land Co of Marseilles (1872) LR 7 Ch App 587 at 594)
[vii] Marwan Al Ibrahim, Ala’eldin Ababneh & Hisham Tahat, Journal of International Commercial Law and Technology , Vol.2,Issue 1(2007)
[viii] UNDROIT Principles, comment below Article 2.6
[ix] [1955] 2 QB 327
[x] AIR 1966 SC 543
[xi] (See UCITA Art. 102(A) (52))
[xii] AIR2006All23, 2006(1)AWC504