Smart Contracts in India – Technology

With the advent of modern technology and innovation, we are moving towards a more digitalized world where automation is the name of the game. The ideas surrounding blockchain, artificial intelligence and big data are revolutionary and are on. the point of changing the way commercial and human infrastructure work. Today, these concepts are closer to us than we first think and will indelibly change our lives.

This brings us to a concept of smart contracts. Simply put, a smart contract is a self-executing contract that is triggered upon the occurrence of certain predetermined events. The concept of a smart contract dates back to an article written by American computer scientist Nick Szabo in 1996, titled “Smart contracts: building blocks of digital markets.1 In the article, Szabo explores the idea of ​​embedding certain types of contractual clauses in the hardware and software of a computer program, which are structured in such a way that breach of contract is, perhaps even prohibitive, costly for the offending party.2 He explains this concept by the analogy of a vending machine, in which smart contracts are passed through the machine in order to dispense the desired product: to operate a vending machine, you must enter an order (offer), you would need a certain amount of money (consideration), then the machine will dispense the product (acceptance).3 Basically, if you are using the same inputs to operate the machine, the same outputs should be reached every time. Intrinsically, vending machines are automated machines, and as such, smart contracts are the automation of its software.

Smart contracts today are programs that work and are stored on a blockchain, which automatically execute and execute when the encapsulated code, which contains certain predetermined conditions for the execution of the agreement, is fulfilled. . This process is usually done by following a simple “if / when.then.“. Following the analogy of the Szabo vending machine, if, when someone inserts money and enters a certain command on the machine, so the product corresponding to the order thus entered will be automatically dispensed by the machine, successfully executing the contract. Modern smart contracts run on blockchain, which is a public electronic ledger that creates an immutable record of transactions through a distributed and decentralized network of computers. Each transaction recorded on this network is written into a coded “block”, which is a set of information. Each block can store a certain amount of data per block, and once a block is filled, it will be closed and all subsequent data will be stored in a subsequent block. Each new block is connected to a previously filled block, forming a chain of blocks, or a blockchain. All of this stored data creates the electronic ledger we now know as the blockchain, an immutable and transparent public ledger of information, accessible at all times. Since contemporary smart contracts run on a blockchain, they imbue some of the properties of a blockchain, including immutability, which means they cannot be changed once they have been created. .

Importantly, the two main advantages of the self-executing and indisputable nature of smart contracts are “lack of trust” and efficiency, the second being a consequence of the first. The execution of traditional contracts depends on the execution of the terms of the agreement by the parties, while an automated smart contract should only be executed if the pre-established terms of the line of code that forms the contract have been met, by eliminating execution issues. terms ; if the predetermined conditions of the code are not met, the contract will not be executed. So, with smart contracts, the issue of non-performance does not arise, and the threat of a performance disagreement does not exist. However, smart contracts may not be a panacea for ensuring compliance with the terms of an agreement and come with their own set of problems. For example, several issues can arise due to the inherently unalterable nature of smart contracts which prevent parties from changing the terms of this agreement once it is concluded, leaving no room for negotiation of terms after the contract is created. In addition, jurisdictional issues may also arise. Since blockchains are registers accessible worldwide, a transaction may well span multiple geographies and jurisdictions, all with their own interpretation of contract law, and perhaps even their own laws relating to smart contracts and blockchains. As such, issues of applicable law and appropriate jurisdiction could likely lead to complications.

In the Indian context, we have had a turbulent past with the blockchain application, starting with the ban in 2018 from using virtual currencies,4 the cancellation of this notification by the Honorable Supreme Court,5central bank digital currency talks. Within the existing legal framework for contracts, a valid contract must meet the basic criteria of contract formation, namely: offer, acceptance and consideration. The Indian Contracts Act, 1872 (“Contract Law“) requires the existence of an indication by one party of its willingness to do or not to do something, in order to obtain the assent of another party for that act or omission.6 For smart contracts, the language of the self-executing code should indicate the existence of an intention to contract with another party, and releasing that line of code for a single smart contract on any blockchain, would be equivalent to to the communication of a
offer. Then, the assent of another party to the conditions set out in an offer is equivalent to the acceptance of that offer.7 For the performance of a smart contract, it is imperative that the other party or parties perform certain tasks or functions that the contract requires. As such, any party that performs the required functions, as described by the code for the execution of the smart contract (whether by entering certain orders into a vending machine), must have accepted the offer. Finally, in accordance with the law on contracts, consideration includes any act performed for the benefit or in the interest of one party, or may be qualified as damage or loss suffered by the other party.8 As part of a smart contract, since only if, when the act described in the code is performed, only so will the contract be executed. Consequently, the execution of the conditions provided for by the code of the smart contract will constitute valid consideration. In addition, the law on contracts states that “all agreements are contracts if they are entered into by the free consent of the parties competent to contract, for lawful consideration and with lawful object, and are not expressly declared void hereby. “9 Since smart contracts can only be executed when the predetermined conditions envisioned and encapsulated in the code are met, the parties seeking to make an agreement under this smart contract should therefore have consented to the execution of the terms of the code. . (or smart contract) and would therefore have agreed to enter into this contract.

In addition, the Indian Evidence Act, 1872 (“Evidence Law“) recognize “information stored, recorded or copied on optical or magnetic media produced by a computer“be a document admissible in evidence.ten While, under the Contract Law, a smart contract can be a valid contract, and the Information Technology Act 2000 (“IT law“) further recognizes electronic contracts as valid,11 Indian Law on Electronic Records and Contracts may not apply to smart contracts. According to the law of evidence, an electronic contract is only considered a valid agreement if it is authenticated by means of an electronic signature, as obtained by law.12 In addition, these digital signatures are only legally recognized and enforceable under the Data Protection Act,13 if they are created in accordance with the rules issued by the central government.14 However, although every smart contract on any blockchain could be specifically identifiable by the contracting parties, these identifiers do not use digital signatures in the form required by Indian law and therefore may not benefit from electronic contract status. under Indian law.

There is little doubt that actual applications of this technology, such as in cases of keeping land records thus avoiding title fraud, have the potential to automate and streamline processes and systems that are notoriously difficult to navigate. , and perhaps even help reduce the burden of title disputes on our justice system. However, with smart contracts comes a plethora of regulatory and policy issues, including jurisdictional issues and the potential for fraud resulting from the anonymity of the smart contract execution process. While the theoretical benefits of using blockchain technology and contract automation, at least in some areas, cannot be denied, concerns about such an application still exist and, at the very least, the regulatory framework. Indian should be amended and aligned with governing smart contracts.


1 Szabo, Nick, “Smart contracts: building blocks of digital markets“. 1996. Available at
Literature / LOTwinterschool2006 / / smart_contracts_2.html.

2 Same to 1.

3 Same to 1.

4Prohibition on trading virtual currencies“. Reserve Bank of India. April 26, 2018. Available at

5 Internet and Mobile Association of India v. Reserve Bank of India, WP (Civ.) 373/2018 (SC).

6 Section 2 (a) of the Law on Contracts.

7 Section 2 (b) of the Contracts Act.

8 Section 2 (d) of the Contracts Act.

9 Article 10 of the Law on Contracts.

ten Section 65B (1) of the Evidence Act.

11 Article 10A of the IT law.

12 Section 85B of the Evidence Act.

13 Article 5 of the IT law.

14 Article 10 of the IT law.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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