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The debate around the legality and enforceability of Smart and Ricardian Contracts in India is filled with ambiguities and misunderstandings. The usage of such contracts in India has increased in recent times due to the outbreak of the COVID-19 pandemic. Along with increased demand and increased usage of Smart Contracts comes increased responsibility. But unfortunately, there are no legal regulations in place that could regulate Smart and Ricardian Contracts in India for better protection of the consumers.


Smart Contracts are computer programs that automatically document and execute agreements and the transactions or other events related to a contract. A Smart Contract is a pragmatic set of logic fed into the computer that helps trigger the pre-defined outcome based on the input provided by the consumer. The terms and conditions of the agreement are stored digitally on the Ethereum blockchain which was specifically designed for Smart Contracts. For initiating a financial transaction in a Smart Contract Ether Cryptocurrency is used by the Ethereum Blockchain platform. Similarly, Ricardian Contracts are digital contracts that act as agreements between the two parties. Both Smart and Ricardian Contracts are cryptographically signed and verified. These digital contracts merge the legal contracts with blockchain technology.


The difference between Smart and Ricardian Contracts is that any Ricardian Contract can be a Smart Contract but a Smart Contract cannot be a Ricardian Contract. A Smart Contract is programmed into a special programming language called Solidity which was specifically created for the Ethereum platform. It is written in coded language and is not readable by everyone except the programmers. While a Ricardian Contract is available in Human-readable text and is easy to understand.


When a transaction is requested in a Smart Contract, it is validated by all the participants of that blockchain network. The terms and conditions are visible and accessible to all the relevant participants. This ensures transparency. Smart and Ricardian Contracts operate mostly on Cryptocurrency which is a decentralized form of digital currency. There is no need for a 3rd party or an intermediary in these contracts. The terms and conditions of an agreement once recorded into a Smart Contract are immutable. Any of the parties cannot tamper with the agreement in the future for its profit. Given the fact that such a contract is immutable, all the details of the agreement are recorded and documented in explicit detail which in the end benefits both parties. The transactions on a Smart or a Ricardian Contract are executed very quickly because they run on a software code, unlike traditional contacts which might take several days to be finalized, signed, and executed. Smart and Ricardian Contracts use the highest level of data encryption which ensures the privacy and security of the parties’ personal affairs. Above all, digital contacts eliminate the need for vast reams of paper as required by traditional contacts. Thus, there are many benefits of using a Smart Contract. They can be summed up as follows:

  1. No need for an intermediary: The absence of intermediaries results in cost savings and reduces the cost of signing up a contract.
  2. Easy Back-up: All the documents of a smart contract are duplicated multiple times in a blockchain. So, any contract can easily be restored in case any of the documents are lost.
  3. Confidentiality is maintained: Smart Contracts offer the highest level of data encryption. Thus, confidentiality and privacy are ensured at all times.
  4. Quick Execution: All the details and the terms of the contract are recorded digitally and run on a software code. This ensures quick execution of the contract and saves time as compared to traditional contracts.
  5. Reliable and Accurate: Given the fact that the entire process is digitally controlled there are minimal to no chances of mistakes. There’s more accuracy in the signing of the contracts as mistakes that occurred due to manual filling of forms are eliminated. Thus, they are more reliable compared to traditional contracts.



The Uniform Electronic Transactions Act (UETA) of the USA, which was adopted by around 47 states in 1999, validated the use of Electronic Contracts and e-signatures as a valid form of consent for the formation of contracts. Separate laws, legalizing the use of Smart Contracts, have also been passed in various states of the USA. Arizona State Law states that “Smart contracts may exist in commerce. A contract relating to a transaction may not be denied legal effect, validity or enforceability solely because that contract contains a smart contract term”.

In India

In India, the legality of Smart Contracts is in dispute. Section 5 of the Information Technology Act, 2000 states that e-signatures are a valid form of consent for the formation of contracts but such an e-signature could only be obtained from a certifying authority designated by the government. This obscures the validity of the e-signatures of the Smart Contracts as the signatures here are produced via the blockchain technology as hash-key instead of being authenticated by a government-designated certifying authority.

Section 85B of the Indian Evidence Act, 1872, validates the legality of e-contracts only if the digital signature has been obtained in accordance with the provisions of the Information Technology Act, 2000. But as the IT Act allows only government-certified e-signatures, the signatures generated via the blockchain technology are rendered invalid.

Similarly, Section 88A of the Indian Evidence Act, 1872, allows admissibility of e-contracts in courts of law, but such contracts need to be in accordance with the IT Act. This renders smart contracts inadmissible in courts as they do not comply with Section 5 of the Information Technology Act, 2000.


Even though these forms of contracts are more efficient than the traditional forms of contracts, there are at present no legal regulations in place to regulate them. A notification released by the Telecom Regulatory Authority of India in 2018 defined the term ‘Smart Contract’. Other than that, there has been no mention of Smart or Ricardian Contracts in the entire Indian Legal System. With the onset of the COVID pandemic, the usage of Smart Contracts and Cryptocurrency has increased. But the Indian regulatory framework has not kept pace with the technological advancement and no rules and regulations have been framed to regulate them. Due to this, the consumers have to suffer. When those consumers who are aggrieved after entering into Smart Contracts seek legal recourse, they are faced with the uncertainity of the contract being unenforceable in the Court of Law. It is high time that these contracts are legitimized and promoted by the Indian Government to ensure zero hindrance for the technological advancements that could provide a boost to our Industrial sector and insurance and security to the consumers.

Author(s) Name: Monika Sheoran (Rajiv Gandhi National University of Law, Patiala)