This article discusses the law surrounding general and business contracts in India and their evolution

With the increasing evolution in nature of business in India, it has become more than pertinent to ensure that business interests and relationships are legally protected by all the parties involved. To do so, legally valid contracts are drawn between parties which capture all their business understandings, obligations, and considerations.


A contract is a legally binding agreement wherein the parties’ mutual rights and obligations are defined. The Indian Contract Act, 1872 (“Act”) prescribes the law relating to contracts in India. This Act is based on English common law and was drafted by Britishers, established on 25th April 1872, and was enforced on the 1st day of September 1872. Section 2(h) of the Act defines a contract as an agreement enforceable by law. Contracts are crucial for a successful business because they serve as an official record, outline the expectations of the concerned parties, prevent complications and misunderstandings, establish a set of rules and regulations, minimize risk, prevent conflicts, and protect both you and your client. They can also be used to establish new business relationships, and strengthen old ones. Contracts serve as a representation of the agreement between two parties. Each party has obligations and privileges with respect to the other. A contract serves as a written record of this arrangement. Every detail and the extent to which the parties are obligated to one another are likely to be stated in a well-written contract. The relationship between the parties is outlined in a contract. The opposite party may file a lawsuit in the event that a party violates the agreement to which it has agreed.


Section 10 of the Act states the following essentials for a contract to be valid.

  • There must be an intention to create legal obligations.
  • There must be free consent between the parties involved.
  • Parties to a contract must be competent.
  • The contract must not be void under the law.
  • The object and the consideration must be lawful.
  • Meeting of minds of the concerned parties must be for the same things and in the same sense.
  • The performance of the contract should be possible.


In ancient times the prevalent system was the barter system, which was based on the mutual principle of give and take. This was confined to the commodities unlike in the modern era, where the exchange takes place through money.


VEDIC AND MEDIEVAL PERIOD: In ancient and modern times, there was no uniform code covering contracts. The principles governing contracts were thus derived from numerous sources like sources of Hindu law, that is, the Vedas, Dharmashastras, Shrutis, and Smritis. The rules governing contracts form a part of the law called Vyavaharmayukha. During Chandragupta’s reign, a contract existed in the form of a “bilateral transaction”. Concepts like rights and duties of a bailee, competency of the parties, and liability of the parties can be found during the Vedic period.


ROMAN PERIOD: A notion that a promise itself may give rise to an enforceable duty was an achievement of Roman law. According to them, a contract is enforceable if it falls under the category of real contracts, consensual contracts, stipulations, and innominate contracts. The framework of Roman Contract law helped the English with the development of English law, thus affecting the Indian Contract Act, 1872.


ISLAMIC PERIOD: During the Muslim’s rule in India, the Mohammedan law of contract used to prevail. It states that there must be a proposal (Ijab) made and that proposal should be accepted by the other party (Qabul). The contract was called “Aqd” and should be made with both the parties consenting to it. It also stated that the result of the contract must be legal. Under Islamic law even marriages (Nikah) were treated as contracts.


HINDU PERIOD: A contract by a minor, intoxicated person or an old man, or a cripple was stated during this period and is incorporated in the Indian Contract Act. The difference is that during the Hindu period the age limit was 16 years whereas in the modern period it is 18 years.


BRITISH PERIOD: By the charter of 1726, English law was applied in the presidency towns of Calcutta, Bombay, and Madras, and the towns outside these presidencies were governed by the principle of equity, justice, and good conscience. The Third Law commission report introduced the draft of the Indian Contract Act originally in 1861 but had undergone many changes. In 1872 it came into effect and soon after this, amendments were made and the Sale of Goods Act and later the Partnership were repealed from Indian Contract Act. The codification of the law was done by Britishers.


Along with traditional agreements the Indian Contract Act, 1872 has also accorded recognition to oral contracts provided they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void.


With the tremendous development in the computer system and with the advancement of technology, flourishment of E-commerce took place. E-contract is an essential part of E-commerce. They are neither explicitly recognized by the Indian Contract Act, 1872, nor prohibited by them. Indian courts recognize E-contracts but they must fulfill the conditions mentioned in Section 10 of the Indian Contract Act, 1872. Free consent is a quintessential characteristic of a valid contract. Generally there is no scope for negotiations on E-Contracts and it is usually a ‘take it or leave it’ transaction. The legal basis of E-contracts can be drawn from the Information Technology Act, 2000 and the Indian Evidence Act, 1872.


Currently, India has no regulation to govern E-Contracts. The Information Technology Act, 2000 contains detailed provisions for attribution, acknowledgement and dispatch of electronic records and secured electronic procedures. The recent amendments to Maharashtra Stamp Act provide that the term ‘document’ includes an electronic record.


A contract that is created and “signed” electronically, without the need for paper, is known as an E-contract. For example, if an offer is e-mailed to a company and the company accepts it by electronic signature, it will be a valid contract. The e-signature signifies acceptance. A “click to agree” contract, which is frequently provided with downloaded software, can also be used as an electronic contract. A type of electronic contract is also involved when making a purchase online. Even though nothing is written, the buyer agrees to give the seller a certain sum of money in return for the seller’s promise to deliver a product.


According to the Information Technology Act, 2000 (“ITA”), an electronic signature is the “authentication of any electronic record by a subscriber by means of the electronic technique specified in the Second Schedule and includes a digital signature”. An electronic signature has been given status as a handwritten signature except for an airslate electronic signature. The ITA defines a “digital signature” as the “authentication of any electronic record by a subscriber by means of an electronic method or procedure in accordance with the provisions of section 3 of the ITA.”

For an electronic signature to be valid, it must be reliable and in the accordance with the Second Schedule of ITA. It is reliable if:

  • The signature is uniquely identified and linked to the signatory.
  • The sole control of the private key that is used to create the e-signature must be with the signatory.
  • If the accompanying data has been tampered with after the message was signed, the signature must be capable of identifying it.
  • The signature must be invalidated in case of any changes occurred in the accompanying data.


Electronic signatures are legally recognized in India by the Electronic Signature or Electronic Authentication Technique and Procedure Rules, 2015, the Indian Contract Act of 1872, the Indian Stamp Act, 1899, and the Information Technology Act, 2000. There are certain documents that cannot be signed electronically. Those are:

  • Negotiable instruments
  • Trust deeds
  • Power-of-attorney
  • Will and other testamentary disposition
  • Contract for sale or conveyance of immovable property or any interest in such property.


The signer must obtain a Digital Signature Certificate (DSC) from a Certifying Authority (CA) Licensed by the Controller of Certifying Authorities (CCA) under the Information Technology (IT) Act, 2000 in order to create an electronic signature. The controller of certifying authority and officers are appointed by the Central Government by notification in the Official Gazette. The CCA, according to IT Act has the authority to license and regulate the working of certifying authorities. A Certifying Authority can be anyone who is a trusted third party or entity that seeks license from the licensing authority and issues electronic signature certificates to the users of e-commerce. The Root Certifying Authority of India has been established by the Controller of Certifying Authorities under Section 18(b) of the Information Technology Act, 2000, to digitally sign the public keys of Certifying Authorities in the country. Certifying Authorities are certified with the public keys by the Controller of Certifying Authorities which enables people to confirm that a specific certificate was issued by Certifying Authority. The Repository of Digital Certificates are maintained by the Controller of Certifying Authority, which contains all the certificates issued to the Certifying Authorities in the country.


Basis the aforementioned discussion, it could be inferred that the IT Act recognizes that communication of proposals, acceptance of proposals, revocation of proposals and acceptances, as the case may be, could be expressed in electronic form or by means of an electronic record, and shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose. This has set a ground for further rules and regulations governing E-Contracts specifically which is a much needed required push for our economy.

Disclaimer: The contents of this Article are intended for educational purposes only and Lexicon Legal neither makes any claims to the accuracy of the information shared nor constitutes this as legal advice. It is strictly forbidden to reproduce any part of this Article with any third party, without a written consent of Lexicon Legal. Readers are advised to exercise caution while using any information provided in this Article.