Author: Swastika Dauthal, a student of ILS Law College, Pune
To the Point
A smart contract is a self-executing agreement in which the terms are written directly into computer code and stored on a blockchain. Once the pre-defined conditions in the code are met, the contract automatically performs the agreed actions, such as transferring funds or delivering digital assets, without the need for intermediaries. This makes transactions faster, more transparent, and less prone to human error or manipulation. Unlike traditional contracts, which require manual enforcement through legal processes, smart contracts rely on technology for execution.
However, in India, their legal status depends on compliance with existing laws like the Indian Contract Act, 1872, and the Information Technology Act, 2000, since there is no dedicated law specifically for smart contracts yet.
Relevant Provisions
Indian Contract Act, 1872
For a contract to be valid, it must have an offer, acceptance, and consideration (something of value exchanged).
In smart contracts, these can be shown through code, digital currency, or tokens. But if there is no clear “give and take,” it may not be considered a valid contract.
Information Technology (IT) Act, 2000
This law allows contracts to be made electronically and recognizes digital signatures.
However, the digital signature must be from a government-approved certifying authority. Blockchain signatures do not yet have this recognition.
Indian Evidence Act, 1872
Electronic records can be used in court if they meet certain conditions (Section 65B).
Blockchain records may be admissible, but proving who created or approved them can be difficult.
Abstract
The smart contracts eliminate the need for intermediaries, reducing costs and delays, and are increasingly being explored in sectors like finance, supply chain, and real estate. In the Indian context, while current laws such as the Indian Contract Act, 1872 and the Information Technology Act, 2000 provide a framework for electronic agreements, there is no specific legislation for smart contracts. This creates legal uncertainties, particularly regarding recognition of blockchain-based signatures, authentication of parties, and admissibility of evidence in court. Despite these challenges, smart contracts hold significant potential for transforming contractual relationships, provided legal reforms and technical standards are developed to ensure their enforceability.
Challenges for Smart Contracts in India:
No law specifically for smart contracts.
Blockchain signatures are not officially recognized.
It is challenging to establish the true identity of individuals involved in a blockchain transaction.
Judges and lawyers might require deeper technical knowledge of blockchain to deal with such cases effectively.
The Proof
Authentication: You must prove that the smart contract belongs to the parties involved.
Challenge: If the digital signature is not approved under the IT Act, its value as proof can be questioned.
Best Practice: Keep extra proof, like emails, written agreements, or screenshots, along with the blockchain record.
Case Laws
Trimex International FZE v. Vedanta Aluminium Ltd. (2010)
Facts: A contract for supply of bauxite was negotiated and finalized entirely through email. Vedanta later refused to perform, claiming no formal contract was signed.
Issue: Can a contract concluded solely through email exchanges be legally binding?
Judgment: The Supreme Court held yes, if essential terms (price, quantity, obligations) are agreed by email, it forms a valid contract under Section 10, Contract Act.
Anvar P.V. v. P.K. Basheer (2014) 10 SCC 473
Facts: Dispute over admissibility of CDs containing speeches; the CDs were produced without a Section 65B certificate.
Issue: Are electronic records admissible without compliance with Section 65B Evidence Act?
Judgment: The Supreme Court ruled no, electronic records are admissible only if accompanied by a proper 65B certificate.
Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal (2020) SCC OnLine SC 571
Facts: Election dispute where electronic evidence (video recordings) was sought to be relied on without a Section 65B certificate.
Issue: Does the admissibility of electronic evidence require a mandatory Section 65B certificate under the Indian Evidence Act?
Judgment: Constitution Bench held yes, mandatory; without it, secondary electronic evidence is inadmissible (unless original device is produced).
Quoine Pte Ltd v. B2C2 Ltd (Singapore CA, 2020)
Facts: Automated crypto trades executed by algorithms on a platform caused abnormal pricing; platform tried to reverse them.
Issue: Can automated algorithmic contracts be set aside for “mistake”?
Judgment: Court held smart/algorithmic contracts are still subject to normal contract law. No mistake was established, so the trades stood.
Conclusion
Smart contracts can make business faster and more transparent, but in India, they still need more legal clarity. Current laws can support them if:
They have offer, acceptance, and consideration.
Parties use proper digital signatures.
Extra evidence is kept for court.
The future will be smoother if laws are updated to recognize blockchain-based signatures and clearly define smart contracts. For smart contracts to achieve full legal enforceability, India must update its legal framework and establish technical standards. Until then, parties should combine smart contracts with traditional agreements and maintain robust evidence to ensure legal protection.
FAQs
Q1) Are smart contracts legal in India?
Yes, if they follow the rules of the Indian Contract Act and IT Act. But blockchain signatures are not yet fully recognized.
Q2)Can smart contracts be used as proof in court?
Yes, but you must provide a Section 65B certificate under the Evidence Act and prove who created the contract.
Which laws apply to smart contracts in India?
Indian Contract Act, 1872
Information Technology Act, 2000
Indian Evidence Act, 1872
Q3)What’s the main risk?
If the blockchain signature is not recognized under Indian law, it may not have full legal value.
Q4)How can the legal validity of a smart contract be strengthened?
Use both code and a traditional written agreement, include proper signatures, and keep detailed records.
