WHAT MAKES CONTRACT VOIDABLE UNDER INDIAN LAW

In India, The Indian Contracts Act of 1872 (“the Act”) governs the essential elements of a contract, and dictates that parties entering into a contract should do so with free consent (aka free will). Parties entering into a contract are said to consent when they agree upon the same thing in the same sense.

Section 14 of the Act defines “free consent” as consent free from coercion, undue influence, fraud, misrepresentation, and mistake. This article explains the meaning of the following terms that, if found, will vitiate consent in a contract.

  • Coercion

A party cannot persuade another party to enter into a contract through the use of threat or force. Section 15 of the Act defines Coercion”  as  “committing, or threatening to commit, any act forbidden by Section 45 of The Indian Penal Code of 1860, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”

It is important to note that any threatening action or act of threatening can vitiate the contract, not just those actions forbidden by the Indian Penal Code. The party alleged to have committed coercion bears the onus of proving such act was not committed.

  • Undue Influence

When a party uses its position of dominance to obtain an unfair advantage over the other party and enter into a contract, the contract is vitiated by undue influence.

Section 16 of the Act defines undue influencewhere , “relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.”

The section further stipulates that the party accused of using its undue influence to enter into a contract bears the onus of proving otherwise.

  • Fraud

When a party maliciously intends to defraud another party to enter into a contract, the contract is considered vitiated by fraud.

Section 17 of the Act defines Fraudas including any of the following  acts “committed by a party to a contract, or with his connivance, or by his agent , with intent to deceive another party thereto of his agent, or to induce him to enter into the contract:— (1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it; (4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent.”

Suggesting untrue facts, concealing facts, and making promises without fulfilling them are all considered fraud. The party alleged to have committed fraud bears the onus of proving no such fraud nor malicious intent existed at the time of making the contract.

Litigation arising out of contracts cannot be foreseen, but dispute resolution should be to be kept in mind during drafting a contract. Essential elements to ascertain that parties are entering into a contract are without coercion, fraud or undue influence and are through free will should be incorporated in the contract, so as to aid dispute resolution. Apart from the rudimentary clause(s) of date, time and place of entering the contract, including the clear intention and objectives of the parties helps in establishing that consent was through free will. Even though coercion, undue influence and fraud have to be proved through circumstantial evidence, a clause on the clarity of intent and circumstance of entering into the contract certainly helps in establishing free consent. An efficiently drafted contract should ensure that it provides a roadmap for enforcement, which effectively helps in the establishment free consent. Essentially, all words of the contract should have a meaning and they should all be framed to show that the parties are entering at their own free will. Any inadvertent inconsistency might make the contract redundant if they fail to establish free consent.

  • Misrepresentation

A party cannot enter into a contract with another party on the basis of false or misleading facts and promises. Section 18 of the Act defines Misrepresentation” as including   “(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; (2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him; (3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.”

The difference between misrepresentation and fraud is the lack of malicious intent to induce a party into entering a contract.

Herein it becomes essential that during the drafting of a contract, it should become clear from the language of the contract that either parties have understood the intention of the contract, and are entering into the contract based on clear terms and conditions as laid out. This specifically applies to addendums or amendments incorporated into contracts, wherein it is usually seen that contentions of misrepresentation are usually raised. It is usually contended that addendums or amendments are based on misrepresentations and thus the contract is void of free consent. It should be clearly established in the contract that the interaction between the parties was crystal clear and based on such interaction the parties entered into the contract, thus aiding the counsel in negating contentions of misrepresentation.  Lastly, what best safeguards against any ambiguity and aids in establishing free consent is also eliminating ambiguities through definitions that can be both specific and detailed.

In sum, if coercion, undue influence, fraud, or misrepresentation is used to induce another party to enter into a contract, the victim party could seek a decree of rectification or cancellation of the contract from the court, rendering the contract or agreement voidable. When drafting a contract, it is essential the contract drafter ensures the agreement is based on free will and consent, and should take precaution to customize the clauses of the contract in such way that it does not prejudice the contract.

A MORE UNIFIED LABOUR LAW REGIME WITH THE NEW LABOUR CODES: INDIA

Older than the nations’ independence is its labour laws, and the Central Government is finally attempting to consolidate, unify and improve them through 4 (four) new Acts.  Hailed as modern labour law, the Codes are drafted and designed to improve working condition and more importantly augment ease of doing business in India. The codes consolidate various definitions such as wages, employee, employer as well as new definitions such as fixed term employee and homebased worker have been introduced.

The 4 new labour codes that will replace the current central labour laws are discussed below however the Code of Wages and Code on Social Security are discussed more elaborately.

The Code on Wages, 2019

The Code focuses on simplifying laws related to payment of wages, overtime, bonus and minimum wages, etc. The most important aspect of this Code read with The Code on Social Security is that both of them consolidate the definition of wage which was entangled in different meanings under the old regime. Wage shall mean to include all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes basic pay; dearness allowance; and retaining allowance, if any. The Code also clarifies that bonuses, conveyance allowance, house rent alliance and overtime allowances shall not be included in wages, though provided the Government notifies otherwise and also for the purpose of equal wages to all genders conveyance allowance and overtime allowances could be considered for computation of wages.  

Section 3(1) of the Code prohibits discrimination in an establishment or any unit thereof among employees on the ground of gender in matters relating to wages by the same employer, in respect of the same work or work of a similar nature done by any employee.

The Code on Social Security, 2020

The objective of the Code is to amend and consolidate the existing labour laws relating to social security with a wider goal of extending social security benefits to all employees and workers irrespective them working in an organized or an unorganized sector. The Code brings, within itself the self-employed workers, home workers, wage workers, migrant workers, gig workers and platform workers for the purpose of social security schemes, including life insurance and disability insurance, health and maternity benefits, provident fund.

An important and a new definition under the Code is that of ‘fixed term employment’ which is defined as engagement of an employee on the basis of a written contract of employment for a fixed period provided that hours of work, wages, allowances, and other benefits shall not be less than that of a permanent employee doing the same work or work of a similar nature and further he shall be eligible for all benefits, under any law for the time being in force, available to a permanent employee proportionately according to the period of service rendered even if the period of employment does not extend to the required qualifying period of employment. The contribution to the provident fund has been reduced to 10% of the wages payable towards each of the employees, whether employed by him directly or by or through a contractor.

The Occupational Safety, Health and Working Conditions Code, 2020

This Code consolidates and amend the laws regulating the occupational safety, health and working conditions of the persons employed in an establishment and for matters connected therewith or incidental thereto. The Code is applicable to establishments with 10 or more workers. The Code also empowers women to be employed in all kinds of establishments and at night (between 7 PM and 6 AM) subject to their consent.

The Industrial Relations Code, 2020

The Code essentially repeals the long standing Industrial Disputes Act, 1947 and essentially is an Act to consolidate and amend the laws relating to Trade Unions, conditions of employment in industrial establishments or undertaking, investigation and settlement of industrial disputes and for matters connected therewith or incidental thereto.

The new reforms are positive amendment in the progress of the nation and fundamentally improves ease of doing business. Attempts have been made to ensure that no discrimination is based on gender, though the same shall mostly depend on the implementation of the Codes. The Central Government plans of implementing these reforms on 01.07.2022.

Compliances, Tech Companies, proposed Indian Data Protection Act

The Data Protection Bill, 2021 (“Bill”) was introduced in Lok Sabha by the Minister of Electronics and Information Technology in December, 2019, which was tabled before the Joint Parliamentary Committee.  The Bill seeks to provide for protection of personal data of individuals. The Bill governs the processing of personal data pertaining to characteristics, traits or attributes of identity, which can be used to identify an individual. The Bill provides that processing of data will be subject to certain purpose, collection and storage limitations, and further provides several measures and steps that shall have to be taken by technology companies to ensure protection of personal data of users. The following are few compliances that technology companies would have to incorporate in terms of the Bill as well as the report submitted by the Joint Parliamentary Committee.

Processing and Retention of personal data

a. Protection of data of the employee:

The Bill provides greater protection to employees and their personal data that is processed by their employer. The Bill creates an additional safeguard, requiring the employer to show that the processing is not only necessary but can be reasonably expected by the data principal/employee

b. Consideration before processing personal data for other reasonable purposes:

The non-consent based processing of personal data of the data principal for other reasonable purposes must be proceeded only after giving due consideration to the following factors that includes but is not limited to: (i) the legitimate interest of the data fiduciary in processing for that purpose; (ii) whether it is practicable for the data fiduciary to obtain the consent of the data principal; (iii) the degree of any adverse effect of the processing activity on the rights of the data principal.

Transparency and accountability measures:

The Bill recommends that data fiduciaries in the interest of transparency, (i) provide information in relation to ensuring fairness of the algorithm or method used for processing of personal data and (ii) submit their privacy by design policy to be certified by the Data Protection Authority, as envisaged under the Act.

Disclosure of data quality

Data fiduciary to notify the individual or entity, including a data fiduciary or processor, to whom personal data has been disclosed, if such data disclosed is incomplete, inaccurate, misleading or not updated.

*Data fiduciary is an entity or individual who decides the means and purpose of processing personal data

Storage of data

The Bill recommends that sensitive and critical personal data be stored within India and be transferred outside the country only if it satisfies certain conditions.

Reporting data breaches Data breaches shall have to be reported “as soon as possible” but within 72 hours from when the data fiduciary becomes aware about the breach. The information is to be reported to the Data Protection Authority. Further the data fiduciaries are obligated to take urgent measures, and not just appropriate remedial actions, to remedy the data breach and mitigate the harm caused to data principals because of such an event.

CHATBOTS, PRIVACY AND DATA: INDIAN PERSPECTIVE

It is a widely appreciated and accepted concept that customer is king, and following this concept, solving customers’ problems and queries is an essential part of every business. A customer expects flexible engagement and fast resolution(s), and to resolve this, technology companies are developing AI based powerful chatbots. A chatbot is a software based on artificial intelligence that stimulates a text based online chat conversation, similar to messaging.

With the advent of this flexible and easy engagement software, that uses data provided by the customer, the concern for such data collection, usage, storage and transmission also arises. In the following paragraphs we will analyze, in brief, the rules and regulations that technology companies which provide and/or utilize chatbot services will have to adhere.

1. Incorporate Chatbot data collection, usage, transmission, possession in Privacy Policy

Section 43A of the Information Technology Act, 2000 read with the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 requires every body corporate and/or individual in India, which collects, receives, possesses, stores, transmits, processes or can associate pretty much any other verb with ‘personal information’ directly under a contractual obligation with the provider of information, to have a privacy policy clearly displayed on their website or medium of usage. Apart from above several other international laws, such as Australian Privacy Act, 1988, the UK Data Protection Act, 1998, General Data Protection Regulations of the European Union, California Consumer Privacy Act specifically California’s Bot Disclosure Law (California Business and Professions Code § 17940) etc., also provide from similar obligations of displaying privacy policy.

Majority of technology companies, intermediaries, websites etc. (technology companies) in terms of the above mentioned provide a detailed privacy policy, elucidating the kind of data that is collected by them, the wat in which it shall be used and whether or not it shall further be transmitted to third party(ies).

It becomes essential for technology companies to incorporate within their privacy policy, the data that the Chatbot shall collect. Further the privacy policy shall have to incorporate how the data collected shall be utilized, processed, transmitted to a third party and whether or not it shall be stored. If, the Chatbot service it sourced through another third party, then the privacy policy shall include the details in which the third party provider shall process and utilize the data provided by the user and whether cookies shall be stored on the user’s machine.

2. Incorporate safeguards in terms and conditions of use

There could be an instance wherein the Chatbot could provide an incorrect information to the user which would lead to the user making a decision based on the information provided. Such decision made on wrongful information could lead to financial losses and or any other damage(s), which increases the chances of potential litigation. The technology company could thus incorporate clause(s) in its terms and conditions of use that could eventually safeguard its interest in the given circumstances.

3. Ensuring the Chatbot does not infringe or violate any law

The Chatbot, being a software driven by artificial intelligence, must be programmed in such a way that it does not violate any law of the land. Any communication conducted by the Chatbot based on the information fed to it shall be a civil communication and should neither be obscene, invasive of another’s privacy, libelous, harmful to children nor contain software virus or any other computer code designed to cause damage.

4. Compliance of the proposed Personal Data Protection Laws of India

The Personal Data Protection Bill, 2019 was introduced in Lok Sabha by the Minister of Electronics and Information Technology in December, 2019. The Bill seeks to provide for protection of personal data of individuals. The Bill governs the processing of personal data pertaining to characteristics, traits or attributes of identity, which can be used to identify an individual. The Bill provides that processing of data will be subject to certain purpose, collection and storage limitations, and further provides several measures and steps that shall have to be taken by technology companies to ensure protection of personal data of users.

The liability, reputational risk and accountability that is connected with the use of Chatbot(s) should be minimized by technology companies by keeping, amongst others, the above mentioned in mind while engaging with a user through AI.