An arbitral clause or arbitration agreement is sine qua non to initiate arbitration proceedings. According to Section 7(4) of the Arbitration and Conciliation Act, 1996 ("A&C Act"), the agreement must be in writing and it must be signed by the parties. While electronic contracts are made in writing, they are not signed physically by the parties. The most commonly used e-contracts are Shrink-wrap contracts, Click-wrap contracts, Browse-wrap contracts and Individually negotiated contracts through electronic mode. Such contracts also include arbitral clause and often become the point of debate whenever a dispute arise between parties.
Amendment of Arbitration Act for inclusion of Electronic Contracts
In order to do away with this issue, Section 7(4) (b) was amended in 2016 by way of the Arbitration and Conciliation (Amendment) Act, 2015 ("2016 amendment") and inserted the expression "including communication through electronic means". The implication of this amendment was that an agreement containing arbitral clause shall be valid even if it is executed through an electronic mode. However, issues like execution of contracts through exchange of emails containing reference to arbitration, and enforceability of arbitral clause in electronic standard form of contracts requires a revisit by the
Validity and enforceability of arbitral clause where agreement is executed through exchange of emails
Any contract is said to be valid if it satisfies the rigours of Section 101 of the Indian Contract Act of 1872. Section 7(4)2 of the Arbitration and Conciliation Act, 1996 states that exchange of letters would constitute a valid arbitration agreement. However, in cases of exchange of emails, the requirement of physical signatures is not met with and accordingly such agreements are challenged for the want of proper signature.
Electronic Signatures under the Information Technology Act
Electronic signatures are recognized under Section 3A of Information and Technology Act, 20003 ("IT Act") and a presumption in favour of electronic signatures also exist under Section 85B of the Indian Evidence Act, 1872 ("IEA")4. Further, Section 10A of the IT Act states that an electronic contract shall not be deemed to be unenforceable merely because an electronic mode was used for the execution of the contract.5
A contract executed through exchange of e-mails was recognized by the Hon'ble Apex Court in
In
Validity and enforceability of Arbitral Clause in electronic standard form of contracts
Standard form of contracts are "take it or leave it contracts", which leave the other party with almost no bargaining power. Such contracts are also known as adhesion contracts. Parties belonging to various sectors such as non-banking financial companies (NBFCs), software companies, banks, etc. require their customers to sign the standard form of contracts. These contracts are even made through electronic mode and give more power to one party over the other. Recently, in
Conclusion
In view of
Footnotes
1 As per Section 10 of the Indian Contract Act- all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. —All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void." Nothing herein contained shall affect any law in force in 1India, and not hereby expressly repealed, by which any contract is required to be made in writing 2or in the presence of witnesses, or any law relating to the registration of documents.
2 Arbitration and Conciliation Act, 1996, s. 7(4).
3 The Information and Technology Act, 2000, Section 3A states: "Electronic signature.- (1) Notwithstanding anything contained in section 3, but subject to the provisions of sub-section (2), a subscriber may authenticate any electronic record by such electronic signature or electronic authentication technique which- (a) is considered reliable; and (b) may be specified in the Second Schedule."
4 Indian Evidence Act, 1872, Section 85B states: "Presumption as to electronic records and electronic signatures. - (1) In any proceedings involving a secure electronic record, the Court shall presume unless contrary is proved, that the secure electronic record has not been altered since the specific point of time to which the secure status relates."
5 The Information and Technology Act, 2000, Section 10A states: "Validity of contracts formed through electronic means- 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 means of an electronic records, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose."
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7 Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1
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11 Perkins Eastman Architects DPC v.
12 Voestalpine Schienen GmBH v.
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