Author: Shaan Shaikh, Kirit P Mehta School of Law Navi Mumbai (NMIMS)
To the Point
Smart contracts are self-executing digital agreements coded on blockchain and are transforming how transactions occur without intermediaries. While jurisdictions like the UK, US, and Singapore have begun recognizing their enforceability under existing contract law, India still lacks clear legal recognition or regulatory framework. This article explores how smart contracts are recognized and enforced under the law, looking at recent court decisions and legal developments. It also compares India’s approach with leading global practices to understand where it stands on the international stage. It also highlights the challenges around consent, code errors, and jurisdiction, and suggests legal reforms to accommodate this emerging technological shift.
Use of Legal Jargon
Smart contracts challenge traditional notions of contractual autonomy, as the terms are not negotiated in plain language but coded into self-executing scripts, often incomprehensible to the average party. This brings up important questions about whether both parties truly understand and agree to the terms a core principle known as consensus ad idem, or the ‘meeting of minds,’ in traditional contract law. Similarly, traditional elements like offer and acceptance, and consideration recognized under the Indian Contract Act, 1872 must now be interpreted in the context of automated transactions, where actions rather than explicit agreements trigger contractual obligations. The issue of enforceability becomes central when parties question whether a coded agreement, once deployed, can be challenged, paused, or voided through conventional legal means.
Smart contracts also complicate doctrines such as mutuality of obligation, since obligations are often triggered unilaterally by code execution without ongoing party consent. The decentralised nature of blockchain introduces jurisdictional ambiguity, making it difficult to determine applicable laws and leading to potential conflict of laws scenarios. Moreover, the doctrine of privity of contract is tested when smart contracts interact with or affect third parties not originally part of the agreement.
In assessing the legal validity of these contracts, courts may question the intention to create legal relations, especially when parties claim ignorance of the code’s full implications.
Traditional contractual defences like force majeure and frustration become difficult to apply in systems designed to operate autonomously and immutably. Similarly, remedies such as rescission or rectification are often impractical due to the immutability of blockchain records, which resist alteration post-deployment.
When disputes arise, determining mens-rea especially in cases of fraud, coercion, or misrepresentation is increasingly complex, as human intent may be obscured behind layers of algorithmic logic. Finally, in litigation or arbitration, questions of evidentiary admissibility surface when blockchain data or smart contract logs are introduced as digital evidence, potentially conflicting with standards under the Indian Evidence Act, 1872.
The Proof
Practical Emergence of Smart Contracts
Smart contracts are no longer abstract concepts; they are being actively deployed across industries such as finance, logistics, insurance, and real estate. These self-executing digital agreements operate on blockchain networks, minimizing the need for intermediaries. However, their recognition under traditional legal frameworks remains inconsistent.
Recognition in Foreign Jurisdictions
United States: States like Arizona, Nevada, and Tennessee have passed legislation recognizing the legal validity of smart contracts and blockchain-based records.
United Kingdom: The UK Jurisdiction Taskforce (UKJT) confirmed in its 2019 Legal Statement that smart contracts can satisfy traditional contract law requirements such as offer, acceptance, consideration, and intention to create legal relations and are therefore legally enforceable.
Singapore: Adopts a technology-neutral legal approach, assessing smart contracts under existing contract principles without requiring specific legislation.
Indian Legal Framework
India lacks explicit statutory recognition of smart contracts. The Indian Contract Act, 1872 governs all contracts and requires essentials like lawful consideration, free consent, and clear terms. Although the Act is broad, it does not directly account for self-executing or coded contracts.
Judicial Silence in India
As of now, there are no landmark judicial pronouncements by Indian courts that directly address the enforceability or validity of smart contracts. This absence of precedent creates uncertainty and legal ambiguity in dispute scenarios.
Role of the Information Technology Act, 2000
Section 10 of the IT Act recognizes electronic records and digital signatures. While this could theoretically support smart contracts, it falls short of addressing their automated and decentralized nature, particularly around accountability and performance.
Practical Legal Workarounds in India
Due to the lack of clear legal backing, businesses in India often use hybrid legal models, where smart contracts are embedded within or supplemented by traditional written agreements. To ensure they can be legally enforced, smart contracts often include elements like arbitration clauses, choice of governing law, and supporting off-chain documents.
7. Challenges Faced in Enforcement
Legal issues arise around consent, error in code, lack of human oversight, and jurisdiction, especially in cross-border transactions. Moreover, remedies like rescission, rectification, or force majeure are hard to apply to immutable code once deployed.
8. Need for Reform
Comparative trends indicate that India must either amend existing legislation or issue interpretative judicial rulings to recognize and regulate smart contracts. This would provide clarity, encourage innovation, and align India with global best practices.
Abstract
Smart contracts are self-executing agreements encoded on blockchain platforms and are rapidly transforming the legal and commercial landscape by automating transactions without the need for intermediaries. While these digital contracts offer enhanced efficiency, transparency, and security, they simultaneously challenge traditional legal doctrines rooted in human consent, interpretation, and enforceability. This article explores the legal status of smart contracts under Indian law, highlighting the absence of express statutory recognition and judicial interpretation. It compares India’s position with progressive jurisdictions such as the United States, the United Kingdom, and Singapore, where smart contracts are gradually being accommodated within existing legal frameworks. The article critically examines issues related to offer and acceptance, consideration, mutual consent, jurisdiction, and remedies, emphasizing the limitations of the Indian Contract Act, 1872, and the Information Technology Act, 2000 in regulating such technology. Ultimately, this study argues for proactive legal reform and judicial clarity to ensure that India keeps pace with global innovation while safeguarding legal certainty and consumer protection.
Case Laws
Trimex International FZE Ltd. v. Vedanta Aluminium Ltd. (2010)
The Supreme Court held that a contract formed via email communication is valid if essential elements like offer, acceptance, and mutual consent are satisfied.
Application: This case supports the validity of electronically formed agreements and lays foundational legal reasoning for the enforceability of smart contracts, even in the absence of traditional documentation.
2. Shakti Bhog Foods Ltd. v. Kola Shipping Ltd. (2009) 2 SCC 134
The Court recognized that a binding contract can arise from informal exchanges or correspondences without a signed document, as long as there is a clear intention to be bound.
Application: This aligns closely with the nature of smart contracts, which are often executed without express written agreements, instead relying on code-based triggers and implied consent.
3. Larsen & Toubro Ltd. v. State of Gujarat (1998) 4 SCC 387
This case discussed when a contract is deemed to be concluded and legally binding, emphasizing the significance of mutual agreement at the point of formation.
Application: It is particularly relevant for smart contracts, where performance is automatically triggered, and legal enforceability must be determined at the moment of code execution.
4. Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas,
The Court held that in cases like phone conversations, a contract is considered to be formed at the location where the acceptance is actually heard or received.
Application: This case is useful in addressing the jurisdictional complexity of smart contracts executed on decentralized platforms involving geographically dispersed parties.
5. (2019) UK Jurisdiction Taskforce (UKJT) Legal Statement on Smart Contracts
The UKJT concluded that smart contracts can be legally binding under English law if they satisfy the basic contractual elements, regardless of their form.
Application: This authoritative opinion from a common law jurisdiction provides a persuasive comparative benchmark for India to consider recognizing smart contracts within its existing legal framework.
6. Quoine Pte Ltd. v. B2C2 Ltd., [2020] SGCA(I) 02 (Singapore)
The Singapore Court of Appeal addressed a coding error in an automated trading platform, assessing whether the contract could be voided for unilateral mistake.
Application: This case illustrates the complexity of applying traditional doctrines like “mistake” to self-executing smart contracts and underscores the need for legal adaptation.
7. Zhang v. Dentons Canada LLP, 2021 BCSC 2399 (Canada)
A Canadian court upheld the validity of contracts executed with digital documents and e-signatures, confirming that form does not override intention and mutual consent.
Application: Reinforces the international trend of legally recognizing non-traditional forms of contract formation, strengthening the case for the legal validity of smart contracts.
8. R (on the application of DPP) v. Blake [2020] EWCA Crim 2344 (UK)
This criminal law case allowed digital records as admissible evidence in court.
Application: Demonstrates a judicial openness to accepting blockchain logs and smart contract transactions as valid digital evidence, which is crucial for enforcement in legal proceedings.
Conclusion
Smart contracts are changing how legal agreements are created, carried out, and enforced, marking a major shift from traditional methods. Their ability to automate transactions, eliminate intermediaries, and ensure immutable records offers substantial advantages in a digital economy. However, this technological evolution has outpaced legal development, particularly in jurisdictions like India where traditional contract law frameworks do not yet expressly recognize such automated agreements.
While foreign jurisdictions such as the United Kingdom, Singapore, and parts of the United States have taken proactive steps to accommodate smart contracts within existing legal systems, India remains in a state of legal ambiguity. The Indian Contract Act, 1872, and the Information Technology Act, 2000, offer partial support but fall short of addressing the complexities of coded contracts such as intent, consent, mistake, and jurisdictional challenges. The lack of judicial precedents in India further adds to the uncertainty surrounding enforceability.
To foster innovation and ensure legal certainty, there is a pressing need for statutory reform, judicial clarification, and regulatory guidance. Recognizing smart contracts under Indian law either through amendments or interpretive rulings would not only modernize the legal framework but also align India with global best practices in digital commerce.
FAQS
Q. What is a smart contract?
A. A smart contract is a self-executing agreement written in code and deployed on a blockchain. They automatically carry out the terms of the agreement without needing middlemen or human supervision.
Q. Are smart contracts legally enforceable in India?
A. As of now, smart contracts are not expressly recognized under Indian law. However, if they meet the traditional elements of a contract offer, acceptance, lawful consideration, and mutual consent they may be enforceable under the Indian Contract Act, 1872.
Q. Which laws are relevant to smart contracts in India?
A. The Indian Contract Act, 1872, and the Information Technology Act, 2000, are the primary laws that indirectly relate to smart contracts, particularly in terms of contract formation and electronic records.
Q. What are the legal challenges associated with smart contracts?
A. Key challenges include proving mutual consent in coded transactions, jurisdictional issues in cross-border deployments, handling errors in code (bug liability), lack of remedies like rescission, and admissibility of blockchain-based evidence.
Q. Are there any judgements on smart contracts by Indian courts yet?
A. No, Indian courts have not yet delivered any landmark judgment specifically addressing smart contracts. However, several judgments on electronic contracts and digital communication provide indirect support.
Q. How are other countries handling the legal status of smart contracts?
A. Countries like the United Kingdom, Singapore, and some U.S. states have recognized smart contracts as enforceable under existing contract law frameworks, provided basic legal requirements are fulfilled.
Q. Can smart contracts be modified or terminated once deployed?
A. Typically, smart contracts are immutable after deployment. However, developers can build in upgrade or termination mechanisms within the code itself. Legal remedies outside the blockchain remain complex.
Q. Are smart contracts an admissible evidence in court?
A. Blockchain transactions can be admissible as electronic evidence under the Indian Evidence Act, but procedural clarity is still evolving regarding how such data is to be authenticated and presented.
Q. What reforms are needed in India to recognize smart contracts?
A. India needs either legislative amendments to existing laws (e.g., defining and validating smart contracts in the Contract Act) or judicial interpretation to align the law with technological developments.
Q. Are smart contracts safe to use in commercial transactions?
A. While smart contracts offer speed, transparency, and automation, they are only as reliable as their code. Legal and technical due diligence is essential before using them for high-value or complex transactions.
