Jurisdictional Issues in E- Contracts

By | December 15, 2019

Last Updated :

Jurisdictional Issues in E- Contracts are bound to arise since the positive limits of classic statutes do not fit in the eternity of the internet. The boundlessness of the net and the instantaneous transaction provides a tough opportunity for the courts to ascertain their jurisdiction upon the disputes concerning e-contracts.

Introduction

A contract which is not formed on a piece of paper but is put to effect through clicks. Electronic Contracts are those creations of the modern times which have simplified as well as complicated the situation. Simplification is through the convenience of entering into an agreement irrespective of space constraints. But, this leads to complication. The nature of the agreement makes it difficult to put it as a subject matter of dispute.

When the matter would go to the court, one asks the question, as to how and according to what provision will the court admit the suit? This leads to the lacuna in the legal positioning of the electronic agreements. The formation was not difficult. The complexity arises due to the involvement of none other than the INTERNET! Internet is that communications system that has no connection with the physical location of its component parts. Legal scholar Wendy Adams summarises the issue as under-

“This fundamental incompatibility between legal governance as a function of geopolitical territory, and network governance as a function of IP addressing, makes it difficult (although not impossible) to impose local limitations on the global dissemination of information”[1]

Thus, the classic legal principles would not fit into the breakthrough sphere of the internet. For this changed aspect of reality, some call for an entirely new paradigm of law.[2] Till the new regime kicks in, we will have to deal with the existing state of law.

Jurisdiction by Courts

There is no statutory meaning attached to the term jurisdiction. It is the authority to decide.[3] One may attach narrow or even wider meaning. Generally, it can be termed as the authority to embark upon an enquiry.[4] It is also called the legal shelter under which the court takes up a decision which will be binding though it can be incorrect.[5]

Hon’ble Supreme Court in the case of Delhi Special Police Establishment v. S.K. Loraiya[6], has explained the significance and usage of the term. It has been associated with that initial stage where the proceedings are instituted in a court. It is not that stage where the court goes on to decide the case on merits. There are three types of jurisdiction comprehended in law-

  1. Territorial
  2. Pecuniary
  3. Subject Matter[7]

The purpose of the jurisdiction is, like, to provide a gateway through which a matter goes to the court. It empowers the court to hear the matter through the authority of law.[8] Thus, in the case of e-contracts, the problem arises, how to hear a matter where the law is silent and the parties are geographically distant? It is said that the “notion of the jurisdiction is rooted in the territoriality from the point of view of both the court as well as the law.”[9] Regimes in different countries would have different answers. Let us try to explore the solutions to the problems raised.

Jurisdiction in the United States

The common law jurisdiction as the United States is following general principles applicable to the law of contracts as Indian jurisprudence. The courts exercise jurisdiction over those subject matters which are present in the State where the action is being pursued.[10] But this limit being placed by the due process of law[11] should not be strictly applied in case of transactions effected virtually.

With changing times, the law is to also grapple with innovative mechanisms. US jurisprudence has up kept that principle straight. There was a time when the automobiles were newly invented. How to take the jurisdiction? The law was silent. The courts interfered and applied the jurisdiction to the invention of automobiles.[12]

Similarly, in the case of such contracts, the innovative approach that can be applied is the Minimum Contacts Test. The landmark judgment of International Shoe Co. v. Washington[13]marked the beginning of this era. The test is of two parts and is applicable where the defendant is not residing within the forum state. The court would have to be satisfied with two prime requirements-

  1. The party should have minimum contacts with the forum state. It implies that the party has purposefully diverted its activities towards that particular state.
  2. If the court exercises its jurisdiction, the traditional notions of fair play and substantial justice would not be hurt.

The purpose of the test is also clear and explicit. Firstly, the defendant has to be relieved of the burden of visiting and litigating in a foreign jurisdiction. Secondly, the states are to be prohibited from transgressing their boundaries.[14]

The litmus test is, in a nutshell, reasonableness under the situation of the court asserting the jurisdiction. To test accordingly, Michael Geist explained that the eventualities in the foreign courts have to be foreseen.[15] This test is ideal for long scale commercial transactions.[16] This test is verified and approved by recent judicial decisions in the US as well.[17]

The crucial test in the earlier test, in its first part, was the purpose in the connection with the forum test. This gives rise to the Purposeful Availment test. This harps on the need for a strong purpose behind the action of a party instead of a mere act of the party. The US Supreme Court ruling is significant on this issue.

In the landmark case of Hanson v. N.R. Denckla[18], the assertion of the jurisdiction by the Florida court over a company situated outside its jurisdiction (Delaware) was rejected. The reason was that the connection of the company with the forum state was not purposeful. The only connection was that the other party sifted unilaterally to the State of Florida.

This test also does away with the physical presence of the parties. The actions should be purposefully directed towards the residents of a state.[19] The burden of proving the purpose is also quite high. Some significant activity would have to be shown to be qualified as a purposeful availment, for example, the continuing obligation from the forum state.[20]

The only problem that arises is the application of these creative tests over objective situations. Subjectivity, when interplayed with the dynamics of jurisdiction, can lead to unfairness also. And, the pillars upon which the stack of jurisdiction rests is reasonableness and fairness.[21]

Jurisdiction in India

The courts in India, get the power to take a suit civil in nature through the Civil Procedure Code. §9 of the code gives the power to the court to try all civil suits unless barred. For the jurisdiction to be exercisable by the court, the cause of action has to arise within its domain.[22]

But when it comes to the world of internet, the powers become ever- broadened. Even a portion of the cause of action may arise within the concerned territory. There can be a different standard set as in the US long-arm jurisdiction provisions.[23]

Foreign judgments are anyways recognised under the law.[24] Decrees of Indian Courts are applicable in the foreign territories as well (so declared by Central Government through notification).[25]

In some of the crucial cases, the courts have delved into the aspects of the jurisdiction governing the e-contracts.[26]

Operation of Website

One of such cases is Casio India Co. Ltd. v. Ashita Tele Systems Pvt. Ltd.[27] Primarily a passing off action, it throws a lot of light on the issue of jurisdiction. For a domain name of <www.casioindia.com> of the defendant, the plaintiff contested with this domain name of “CasioIndia.org”, “CasioIndia.net”, etc. To determine the jurisdiction, the court grappled with the fact whether the deception took place at Delhi or not, since the case was being tried on the Delhi High Court.

Ultimately, it was held that once a web site is accessed from Delhi, it is enough to invoke the territorial jurisdiction of the Court. For reaching the said conclusion, the court relied upon the decisions of Rediff Communication Ltd. v. Cyber booth[28] and Dow Jones & Co. Inc. v. Gutnick[29]

Substantial Connection Test

Later in the case of India TV Independent News Service Pvt. Ltd. v. India Broadcast Live LLC[30], the court went one step ahead from mere accessibility of the website. The well known Hindi News Channel of India TV filed an action for passing off in the Delhi High Court against the defendant for using IndiaTV logo on their website indiatvlive.com. The defendants after initiating their action in Arizona claimed that they do not do business in India, hence cannot be made liable.

Thus, the courts considered the substantial connection and the effects test. It was found that it was held that the website of the defendant was not merely passive but was interactive permitting the browsers to not only access the contents thereof but also to subscribe to the services provided by the owners.

Thus, the courts found a substantial presence of the defendant company in India. Hence, the Court exercised its jurisdiction.

Purposeful Availment Test finally Applied

Both these were Single Judge views. In Banyan Tree Holding (P) Limited v. A. Murali Krishna Reddy[31], the court held that for ascertaining jurisdiction the plaintiff would have to show that the defendant ‘purposefully availed’ itself of the jurisdiction of the forum court.

This was majorly in the context of passing off actions and trademark infringement actions. But the inference for resolving the jurisdictional issues in e-contracts can definitely be borrowed.  The court further held that the nature of the activity must be prima facie concluding in India with such intention in the mind of the maker.

IT Act

Section 13 of the IT Act talks about the provisions relating to time and place of dispatch and receipt of an electronic record, and addresses the issue of deemed jurisdiction in electronic contracts, as under:

(1)    “…Save as otherwise agreed to between the originator and the addressee, the despatch of an electronic record occurs when it enters a computer resource outside the control of the originator.

(2)    Save as otherwise agreed between the originator and the addressee, the time of receipt of an electronic record shall be determined as follows, namely:

(a)      if the addressee has designated a computer resource for the purpose of receiving electronic records,

(i)              receipt occurs at the time when the electronic record enters the designated computer resource; or

(ii)           if 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;

(b)     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.

(3)    Save as otherwise agreed to between the originator and the addressee, an 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.

(4)    The provisions of subsection (2) shall apply notwithstanding that the place where the computer resource is located may be different from the place where the electronic record is deemed to have been received under subsection (3).

(5)    For the purposes of this section:

(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.”

The landmark judgment of PR Transport Agency vs. Union of India[32] is also to be remembered in the end to complete our understanding of the jurisdictional issues involved in the e-contracts. The party sent the letter of acceptance through electronic mail.

Later, another e-mail was sent to cancel the e-auction in favour of the petitioner “due to some technical and unavoidable reasons”. This communication was duly challenged before the Hon’ble Allahabad High Court.

The defence taken was obvious as it was taken on the jurisdiction of the court. Since the transaction happened online, the respondents claimed that the cause of action did not arise in the territorial limits of the court (UP).

But, the court rejected the argument of the respondent. The simple logic was the place of business of the petitioner being in UP itself (Varanasi/Chandauli,). U/§ 13 (3), the acceptance of the tender by e-mail was deemed to have been received by the petitioner at Varanasi/Chandauli. This is how the court, even in the absence of any long-arm statute, assumed the jurisdiction over the dispute.

This shows that the place of contract in an e-contract is very important to determine jurisdiction. That place is deemed to be where the originator has his place of business and where the addressee has his place of business.[33]

Conclusion

The electronic acts as have got pace and recognition, lead to binding legal effects. But, for the sake of certainty, a uniform commercial code can be implemented in India. One exists in the US already. Along the lines of Convention on International Sales of Goods, uniformity in the sphere of e-contracts and their jurisdictional aspect would be cherished by all.[34]

The strict definition of jurisdiction cannot be applied when it comes to transactions concurred virtually. To the extent of jurisprudential clarity, courts have done enough labour to carve out creative doctrines. But from the side of the legislature, some key reforms and amendments in the Civil Procedure Code, the Information Technology Act and the Indian Contract Act are required. If happened, it will provide guided wisdom to the courts in adjudging the disputes related to e-contracts in future.


[1] Wendy A. Adams, Intellectual Property Infringement in Global Networks: The Implications of Protection Ahead of the Curve, 10 Int’l J.L. & Info. Tech. 71 (2002).

[2] Cheryl L Conner, “CompuServe v PattersonCreating Jurisdiction Through Internet Contacts, 4 Rich. J.L. & Tech. 9, (Spring 1998)<https//www.richmond.edu/~jolt/v4i3/conner html>.

[3] Ujjam Bai v. the State of U.P., AIR 1962 SC 1621.

[4] Union of India v. Tarachand Gupta and Bros., (1971) 1 SCC 486.

[5] A.R. Antulay v. R.S. Nayak, (1988) 2 SCC 602: 1988 SCC (Cri) 372.

[6] Delhi Special Police Establishment v. S.K. Loraiya, (1972) 2 SCC 692.

[7] Church of South India Trust Assn. v. Telugu Church Council, (1996) 2 SCC 520.

[8] CIT v. Pearl Mech. Engg. & Foundry Works (P) Ltd., (2004) 4 SCC 597.

[9] Justice S. Muralidhar, Jurisdictional Issues in Cyberspace, 6 IJLT (2010) 1, Page 2.

[10] Pennoyer v. Neff, 95 US 714, 722 (1877).

[11] 14th Amendment to the US Constitution.

[12] Hess v. Pawloski, 274 US 352 (1927).

[13] International Shoe Co. v. Washington, 326 US 310 (1945).

[14] World-Wide Volkswagen Corpn. v. S. Woodson, 1980 SCC OnLine US SC 7 : 62 L Ed 2d 490 : 444 US 286, 291-92 (1980).

[15] Michael A. Geist, Is There a There? Toward Greater Certainty for Internet Jurisdiction, 16 Berkeley Tech LJ 1345, 1356 (2001).

[16] Justice S. Muralidhar, Jurisdictional Issues in Cyberspace, 6 IJLT (2010) 1, Page 5.

[17] See Boschetto v. Hansing [539 F 3d 1011 (9th Cir. 2008).

[18] Hanson v. N.R. Denckla, 1958 SCC OnLine US SC 128 : 2 L Ed 2d 1283 : 357 US 235 (1958).

[19] Burger King Corpn. v. Rudzewicz, 1985 SCC OnLine US SC 126 : 85 L Ed 2d 528 : 471 US 462 (1985).

[20] Id.

[21] Thomas SchultzCarving up the Internet: Jurisdiction, Legal Orders, and the Private/Public International Law Interface, 19 Eur. J. Int’l L. 779 (2008).

[22] §20, Code of Civil Procedure, 1908.

[23] Abhishek Krishnan and Rakshithaa, E-Contracts’ in Sairam Bhat (ed) Law of Business Contracts in India (Sage Publications India Pvt Ltd, New Delhi, 2009), p. 210.

[24] §13, Code of Civil Procedure, 1908.

[25] §44A, Code of Civil Procedure, 1908.

[26] Electronic Contract Formation and Regulation: An Appraisal, 22 ALJ (2014-15) 9, Page 16.

[27] Casio India Co. Ltd. v. Ashita Tele Systems Pvt. Ltd., 2003 27 PTC 265 Delhi.

[28] Rediff Communication Ltd. v. Cyber booth, 1999 SCC OnLine Bom 275 : AIR 2000 Bom 27.

[29] Dow Jones & Co. Inc. v. Gutnick, (2002) HCA 56 (Austl.).

[30] India TV Independent News Service Pvt. Ltd. v. India Broadcast Live LLC, 2007 35 PTC 177 Delhi.

[31] Banyan Tree Holding (P) Limited v. A. Murali Krishna Reddy, 2008 38 PTC 288 Delhi.

[32] PR Transport Agency v. Union of India, AIR 2006 All 23: 2006 (1) AWC 504.

[33] Id.

[34] T Ramappaa, Legal Issues in Electronic Commerce 65 (Macmillan India Ltd., New Delhi 2003).


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