top of page


Prospective Inclusions for The Indian Contract Law

Enacted in 1872, the Indian Contracts Act has been amended a number of times since then. Sundry changes have been brought in via multiple Amendments. But do these amendments nowmake the Act exhaustive? Do these amendments fulfil all the possible shortcomings of the Act? Certainly not. Because a law can never be exhaustive as it has to keep up with the changing requirements and circumstances of the Society. According to Professor Hart, “Law is not what ‘itis’. It is what ‘it should be’”. By his statement, he means to state that Law is not just a mere list of rules. It should rather represent and include the changes made according to the evolving requirements of the societal conditions and needs. Having been conferred with right in rem, the Contract Law must ensure protection of the contracting parties by including all the possible conditions in a codified manner.

The recommendations of the 13th Law Commission, evolution of the concept of Hypothecation, Autonomous Smart Contracts, Comic Contracting are some of the freshly emerging concepts which are eligible to be codified under the ICA, 1872. This article will highlight the importance and need of codification of Smart Contracts in the current era.

Smart Contracts are a form of ‘contract adhesion’ i.e. Standard form of Contract whereby one party has already fixed the terms and conditions of the agreement and the other party is left with the option to either choose or reject the offer. But there is a slight difference in Standard form of Contract and Smart Contracts. The difference being that only one-sided human interaction is involved, a smart contract enforces a relationship with cryptographic code and does not really outlines the terms of a contractual relationship. A smart contract is a self-enforcing agreement embedded in computer code which contains a set of rules under which the parties of the contract agree to interact with each other. If and when the predefined rules are met, the agreement is automatically enforced. Smart Contracts deals in cases with different range of complexity. It is very often used in industries like Banking, e-government, Telecommunications, Music, Education, and other industries, not necessarily es-judem generiswith any of these. They can be used for simple economic transactions like paying any bill (e-bill) or sending money to someone, and also for somewhat complex transactions like registering title for any property (the smaller version of which includes e-shopping). Smart Contracts have the potential to disrupt many industries.Smart Contracts work on the mechanism of tokenized assets (like bitcoin) and manages it effectively. If implemented correctly, Smart Contracts can provide a better transactional security as compared to a traditional contract, and thereby reducescurricular costs like costs of auditing and enforcement, cost of performance tracking, cost of controlling and various miscellaneous costsof such agreements. Smart Contracts specifically reduce the costs of reaching, formalization of, and enforcement of an agreement. Smart Contracts also surpass the principal-agent relationship of organizations, which generally causes dilemma,providing more transparency and accountability and less bureaucracy.

The term “Smart Contract” is not to be equated with Legal Contract as there is no legal provision backing the practice. But it can be evidently observed that it is a widely practiced principle, which will only enhance after codification. Though certain specific Smart Contracts can be legally enforced, other Smart Contracts are generally unenforceable. Furthermore, along with being troublesome due to its unenforceable nature, Smart Contract security is also an issue that needs to be resolved on a technical level. Be it inclusion of sophisticated clauses in the inbuilt agreement or the direct codification of Smart Contract, both the measures are the most suitable ones and eventually require backing of substantial legal principles. While such developments might take more time to mature, some interesting dispute resolution solutions are already under development. Noticing the trends, we will probably see a fusion of Legal Contracts and Smart Contracts emerge over the next few years as the technology becomes more mature and widespread, and as legal standards are adopted. This fusion may later end up into being a complete legally-backed combination. However, best practices have still not been adopted and Smart Contracts continue to venture into the market with their embedded cons. It will require a collective learning phase to eradicate the issues and make it a successful flawless type-of-contract.

So, it can be concluded that though Smart Contracts are functioning prudently even without being codified, but its codification will ensure a sense of security in the people involved in it and a certainty of remedy in case of any mishap. Also, codification will do away with all the hindrances that Smart Contracts currently face by providing it with the aid of legal backing. This will certainly widen the already existing pervasive control area of Law and will add another ensemble to its grandeur.

Navin Kumar Jaggi

Kalyani Rathi


Rated 0 out of 5 stars.
No ratings yet

Add a rating
bottom of page