A.P.LEGAL SERVICES PVT. LTD.			LEGAL EMPOWERMENT THROUGH PROFESSIONAL EXCELLENCE

E-Commerce and Law

By Prof. V.Nageswar Rao

Senate Advisory Board Member
A.P.Legal Services Pvt. Ltd.

E-Commerce

U.N.General Assembly in its Resolution no. 51/162 of 16 December 1996 recommended "that all states give favorable consideration to the Model Law when they enact or revise their laws, in view of the need for uniformity of the law applicable to alternatives to paper based methods of communication and storage of information." It also recommended that "all efforts should be made to ensure that the Model law together with the guide become generally known and available." The resolution noted that "increasing number of transactions in International trade are carried out by means of Electronic Data Interchange and other means of Communication, commonly referred to as `Electronic Commerce'" . It also mentioned "the legal value of Computer records" and the need to "ensure legal security in the context of the widest possible use of automated data processing in International Trade." It expressed the conviction that " the establishment of Model law facilitating the use of Electronic Commerce that is acceptable to states with different Legal, Social and Economic Systems, could contribute significantly to the development of harmonious International Economic relations."

As can be seen from the above "E-Commerce" consists of Electronic Data Interchange (EDI) and other means of Communication in carrying out International Trade transactions. While it is true that, even at personal level, we enter into many transactions orally and without reducing them to writing. Buying bus tickets, vegetables, provisions etc. are all done through oral transactions and legally these transactions are all contracts which have formal validity and, hence enforceability. The same is true of International Trade and Commercial transactions and Commercial agreements may be entered into orally if they are not legally required to be in writing or parties decide not to reduce them to writing.

ERA OF WRITTEN AGREEMENTS AND DOCUMENTS

When human relations become more complex, and questions of authenticity, reliability, proof and enforceability arise, persons prefer to have evidentiary support to their transactions, commercial or otherwise, by way of documents. For thousands of years, marriages are being solemnized without documentary proofs, even though marriages have been recognized as the most fundamental and primordial social institution in all religions and personal laws. Proof of marriages was available through only oral invitations, rituals in the presence of invitees, bridal processions and dinners. But now for various reasons marriages performed according to traditional rights are also registered in the office of the registrar of marriages.

Especially in commercial transactions, documents, deads etc have become the standard mode of entering into relations. We have become so used to conducting trade and commerce through paper-based documents that any other mode becomes unthinkable. But the fact is that though two millennia of commerce has been based on written documents, we have become accustomed to negotiations and striking of deals through telegraph, and even telephone and wireless, and fax and Xerox have become part of our routine inter personal communication and dealings. Though even now, written word has its own unique importance and sanctity, there are many forms of non-written communications which infact predominate business transactions.

Infact, the definition of the term "Document" in the Indian evidence act is flexible enough to include many forms of records of transactions which are not in "written" form. The Indian Evidence Act enacted as early as 1872 defined the terms as follows in

Section 3 :

" Document means any matter expressed or described upon any substance by means of letters, figures, or marks or by more than one of those means , intended to be used or which may be used for the purpose of recording that matter."

The illustration to Section 3 mentions that words printed, lithographed or photographed are also documents. Courts have held that tape records were also documents though obviously they are not "written". So also gramophone records, compact discs, microfilms and floppies. Hence, there would obviously be no difficulty in holding that communications through email etc. are also "Documents" and are capable of being used as evidence to prove what they contain. (Sri Ram Reddy vs V.V.Giri, AIR 1971 S.C. 1162; S.Pratap Singh vs State of Punjab, AIR 1961 S.C. 72). The courts have held: "if a statement is relevant, an accurate tape record of the statement is also relevant and admissible. The time and place and accuracy of recording must be proved by competent witnesses and voices must be properly identified. One of the features of the magnetic tape recording is the ability to erase and reuse the recording medium. Because of this facility of erasure and reuse the evidence must be received with caution. The court must be satisfied beyond the reasonable doubt that the record has not been tampered with."

(Usuf Ali vs State of Maharastra, A.I.R. 1968 S.C 147).

Hence, the caution that the courts exercise regarding admissibility of tape records etc. is not because they are technologically different from the manually written word but whether they are authentic and reliable. But, it is submitted that the tests of authenticity, genuineness and reliability apply with equal force to any document whether it is hand- written or mechanically produced. Handwriting and signatures on wills, cheques and other deeds and documents frequently encounter challenges in courts of law, and occasions are not rare where the courts have held the handwriting or signature on a document has been forged or otherwise tampered with.

LEGAL ISSUES REGARDING DOCUMENTS :

More often than nought, the real legal issues that confront courts, lawyers and litigants regarding documents or "written" communications are :

1. Is it Genuine? The question is whether what was sent was infact what was received; whether the matter was tampered, altered or modified in any manner by any person other than the maker.

2. Is it authentic? The question is whether it was sent by the person who was supposed to have sent it. Here the geniuneness of the signatures, facsimiles etc comes in.

3 Is it possible to secure the documents against tampering? Here watermarks, letterheads, logos, color sequences (on currency notes etc.), indelible inks etc. become important as means of security of documents and its contents.

4. Are they reliable as evidence in a court of law?
In other words, is genuineness, authenticity and security susceptible to proof that stands the requisite tests of a court of law?

5. Are the date and time of sending and receiving written communications legally provable ?
These issues may become very relevant and crucial in deciding the questions regarding whether offer or acceptance have been sent and received in forming a contract; whether a party has acted within a prescribed time-limit etc.

ELECTRONIC COMMUNICATION AND COMMERCE

A "BORDERLESS WORLD"

Use of Electronic Communication (EC) in the conduct of business and commerce has brought about great changes and challenges. Electronic Data Exchange (EDI) has revolutionised the whole system of business transactions. EDI has been defined as "the computer to computer transmission of business data in a standard format" ( The United Nations Trade Interchange Directory (UNTDID) , TRADE/W.P.4/R 721). Art. 2(b) of United Nations Commission on International Trade Laws (UNCITRAL) Model Law on Electronic Commerce defines EDI as : " The electronic transfer from computer to computer of information using an agreed standard to structure the information". It is a means of communication which replaces paper with structured electronic messages. (Encyclopedia of Information Technology, p.5009) It is said that it would be perhaps uneconomical to set up exclusive EDI links with each of the trading partners. The common way for business to communicate using EDI is through a Value Added Network (VAN) Service so that the sender routes the message to the recipient through the network rather than by a direct line between the sender and receiver computers.

However, EDI is more secure than simple E-mail. It is said that " its security is obtained through such matters as the technical procedures used, the protocols for message formats, data storage logs and acknowledgement of messages and confirmation of their contents". It is obvious for lawyers that these special features of EDI have considerable legal significance in determining the formation of contracts , identity of sender and receiver , receipt of communications etc.

EDI VIS-A-VIS PAPER _ BASED DOCUMENTS :

Boss and Ritter observe :

" In International Trade , EDI introduces changes fascilitating the of a global economy. ..... Geographical distances , time requirements and language barriers fade into the background as national barriers become transparent and a borderless world emerges."

But, is this new electronic angel better or atleast as good as the known devil of paper-based communication? As Bajaj and Nag observe :

"The current legal practice has paper documents and signatures affixed there on as foundation. Electronic documents and messages, without the familiar signatures and marks, has changed the scene.

However, trade still wants to be assured that the electronic world is safe. The EC system must, therefore, offer at least the same level of reliability as that which obtains in the paper world, not-withstanding the significant differences between the concept embodied in electronic messages and paper documents". ( Kamlesh K.Bajaj and Debjam Nag, E-Commerce ; The Cutting Edge of Business ( New Delhi, 1999 p.259)

But, then EDI has certain advantages over paper-based communications Walden and savage point out :

"Paper transfers can cause business hold-ups, with documentation often moving more slowly than the goods. In International Trade the absence of the right documentation can cause delays at the port of entry and expose the goods to the risk of deterioration and damage and may account for high demorage costs. Within a sophisticated business environment the more complex the production process the more paper is needed. Such communications can take time where the relationship is a continuing one....." (J.Walden and N.Savage, The Legal problems of Paperless Transacions(1989) BL, P.102).

Paper-based documents have three basic funcions, which would be required in any substiute system like EDI. They are :

1. Infromation Function

2. Evidential Function

3. Symbolic Function

Communication and dissemination of information or "news" is the least problematical of the three functions. In the event of a dispute, the other two functions have great legal significance and it is here that EDI appears to some as suspect. As Walden states, " a disadvantage of electronic messaging system is their fleeting nature, it can be difficult to produce an acceptable record of what has occured between trading parties in the event of a dispute". ( Van Walden " EDI and Law", in Edwards, Savage and Walden eds. Information Technology and the Law, 2nd Edition (1990), p.231.

The all important question is the weight and evidencary value that a court would attach to a document as against electronic record, with regard to identity, geniuneness and authenticity. The UNCITRAL report on the legal value of electronic records says that States were aware of the need for building safeguards and security procedures. The report stated :

" Almost all countries that replied to the questionaire appeared to have legal rules which were at least adequate to permit the use of computer evidence and to permit the court to make an evaluation necessary to determine the greater weight given to data" (UNCITRAL, A/C N 9/265)

The symbolic function of paper documents mainly consists of the importance that law attributes to the physical possession of a documents like the Bill of Lading or Bill of Exchange. For instance the transfer of a bill of lading represents the legal transfer of title to goods. Though attempts at creating electronic alternatives for such "negotiable instruments" are being presently explored, such instruments cannot yet be completely replicated through EDI.

It is not that the paper documents are totally free of legal problems relating to geniuneness etc. It is said :

" it is well known that frauds do take place in the traditional paper based commercial transactions, signatures can be forged, paper documents can be tampered with, and even the most secure marks, impressions , embleams and seals can be forged." ( Kamlesh k BaJAJ and Debjani Nag, Op.Cit., p.259)

Benjamin Wright highlighted the problems associated with a paper-document : There is no standard method for signing in ink : signatures could anyway be strange, nondecipherable scribbles, with different signatures for every transaction. Moreover, signatures are seldom compared against specimens for authenticity. We often accept signatures on face value and without question though they may be forgoed. Forentsic science is not yet 100% fail-proof. The originator of a document may repudiate his handwriting or signature and discown a transaction. So also, the receiver may raise myriad objectives. Every page of a document may not be signed, or may have been altered after signature. ( Benjamin Wright, The law of Electronci Commerce(1991) p.101)

( But, then , " The world is comfortable with these problems since they have been there far as long as we have been trading " because these problems "are known, and trade as well as the legal community knows, how to deal with these problems " ; ( Ibid)

EDI AND LEGAL SAFEGUARDS

Necessity is the mother of law Mankind has learnt to develop new rules of law as and when man has put his surroundings or thing to new uses. Air Law and Space Law developed from the redimentary stage of law of tresspass and nuisance when man invented a balloon or an air craft or a spac ecraft. Similarly, the modern complex law of the sea was developed when he has learnt to put sea and its resources to new uses. As Nani Palkhiwala once said : " Lawyers are resistant to change and particularly to change for the better". The initial resistance or mental blocks or reservations regarding new technologies and new legal principles will crumble because of the sheer compulsions of modern requirements. As Benjamin Wright puts it emphatically, " the attitude that technology deserves suspicion" should be rejected and " if implemented intelligently, electronic communication can confidently be used for legal transactions ." (Benjamin Wright, ibid. )

Hence there was a felt need for building security measures for EDI with regard to communications :

1. Having Contractual significance ( eg. Bill of Lading, Contract of insurance, warranty etc)

2. Effecting transfer of ownership etc ( Title deeds etc)

3. Required by law to be in writing.

To meet the above requirements various attempts have been made to safeguard EDI as various levels.

1. Network Provider :

As has been pointed already, EDI is normally carried out through a network provider. The resposibilities of the provider have been identified as

a. Conveyance of the message in the correct format and protocol;

b. Safeguarding against the corruption of message

c. Ensuring that the message is conveyed to the addresses;

d. Pressuring the confidentiality and security of the message.

As the network provider is basically providing services, his primary duty is to exercize due care and caution.

2. Interchange Agreements :

The parties using EDI to enter into contractal relations may enter into interchange agreemants to govern their relationship, mainly covering structure for using EDI. This may consist of complying with VAN providers user Handbook, protocol for message, need for acknowledgement of receiver of confirmatrion of contents, The International Chamber of commerce has brought out uniform Rules of Conduct for the Interchange of Trade Data by Teletransmission (UNCID Rules) and the EC has also adopted a Model Interchange Agreement ( 94/820/EC/OJL 338/98-28 December 1994)

EDI AND LEGAL FORMALITIES

1. DOCUMENT :

The legal fomality that certain transaction must be reduced to "writing " can be meet by EDI. But, then it depends on how " writing" is defined. If "writing" means modes of representing or reproducing words in a visible form (Schedule I of the english interpritation Act of 1978)

EDI may not satisfy the test but if "writing" means that the transaction should be evidenced in written words, than undertaken in writing, then a hard copy of EDI may satisfy the condition.

2. SIGNATURE :

In law, signature perfoms the following functions :

a. Identifies the writer

b. Authenticates the contents

c. Constitutes proof of signatory responsibility for correctness and completeness of contents.

All these funcitons can be carried out in EDI by way of "digital signatures" achieved through cryptography. For this purpose, three numbers can be used : one number forms the sendrs `private key' which is used to encrypt his message; the other numbers may be used as " public keys" which are used to deciiffer the messages but cannot be used to encrypt them. The use of Trusted Third Parties (TTP's) may be used for non-repudiation purposes , a function similar to that of notary public . It is also worth notyng that the cryptography process is such that the message cannot be altered once the signature has been added to it, even by the receiver.

FORMATION OF CONTRACT THROUGH EDI

As pointed out at the outset UNCITRAL Model Law on Electronic Commerce adopted by the General Assembly in 1996 is one example of how law keeps pace with the changing needs of time. New uses and users reqyire reformulation of existing laws and redifinition of definations. New International Minimum Information Order ( NIMIO) to maintain and sustain uniform legal rules at global level regarding use of new information and Technologies has to be worked out keeping in view the present and projected demands of developed and developing motions. The Indian Inforamtion and Technology Bill of 1999 closely follows jthe UNCITRAL Model law in the light of similar legislation of other states and the special requirements of our country. The Model Law as well as the Indian I&T Bill have redefined terms like "document" "writing", "Signature" etc. to bring them in line with the compulsions of new technologies. They provide for recognition if electrinic records and Art 5 of the Model Law declares : " Information shall not be denied legal effect, validity or enforcability solely on the grounds that it is in the form of a data message" Art.11 " dealing with " formation and validity of contracts" provides that " an offer and acceptance of an offer may be expressed by means of data messages" Rules regaring recognition of parties. (Art.12) , attribution of Data Messages (Art. 13) , Acknowledgement of Receipt(Art. 14) time and place of dispatch and receipt of data messages (Art. 15) have been evolved keeping in view the demands of the new technology.

The new law is certainly going to be tested to its limits by the lawyers, litigants and law courts. The stresses and strains of forensic battles and the judicial interpretation of the new legal texts and new legal contexts are surely going to provide illuminating insights into the parameters of new technology and its ability to meet with new challenges.

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