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Humans have sought to make their lives easier since the dawn of creation, studying, experimenting, and developing. This desire for progress, knowledge, and convenience has prompted human intellect and ingenuity to develop ever-more-advanced technology to make living simpler for them. The rapid expansion of machines and blockchain technologies, designed to maximize efficiency and eliminate human errors, is a consequence of this. Smart contracts, which are based on blockchain technology, are becoming incredibly common. These contracts are written in such a way that they can be completed on their own if the specified conditions are met. Smart contracts are becoming increasingly popular. These are self-executing and are preferred for their transparency and security. Smart contracts, which are based on blockchain, a quickly evolving technology, are being lauded as a breakthrough in the legal and financial spheres.


Decentralized, tamper-evident, or tamper-proof ledgers stored digitally are what blockchain technology is all about. The system has achieved widespread adoption and acceptance due to its ability to show when, how, and by whom modifications were made, resulting in a transparency ledger that cannot be manipulated. As a result, a group of users can utilize the blockchain to preserve their transactions, which will become irreversible and tamper-proof. Cryptocurrencies, which are digital currencies that are not backed by a central bank, are the most common users of blockchain technology that have been upgraded with other computational breakthroughs, with Bitcoin becoming the first to do so. Nick Szabo, a well-known cryptographer, created the term smart contract in 1997[1]. A smart contract is a type of code in a specific sequence.  To make it trustless and safe, it is encoded and performed in a blockchain[2].  To carry out the trade, such contracts integrate computer guidelines and user interfaces. Smart contracts have the right to acquire, store, and transmit money according to a set of regulations. They are fairly simple to the program since they use “if-then” semantics. Because the human factor is believed to be the most error-prone element, smart contracts strive to eliminate the human element from the decision-making mechanism.

As a result, the degree of contractual error can be reduced using smart contracts. It’s difficult to undo a smart contract. The technique is rather strict. This is done to safeguard the contracting party from any possible ambiguity. Smart contracts have also been deployed for the transfer of tangible and intangible properties, in addition to cryptocurrency. The financial sector views the concept as a game-changing breakthrough, with smart contracts capable of implementing contracts in a more cost-effective, hassle-free, and error-free manner with minimal human involvement. It may also eliminate the need for third parties such as solicitors and registrars. A smart contract ensures that all components of a contract are met, in addition to being simple to understand. Smart contracts may lower the risk of forgery and ensure the integrity of transactions. In the case of traditional contracts, however, there is always the risk of people failing to meet their promises. Smart contracts do not need to be executed by a third party. As a result of the absence of third parties, smart contracts are a more cost-effective alternative than traditional contracts, which sometimes necessitate the use of expensive lawyers.


“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful intent, and are not hereby explicitly pronounced to be void,” according to section 10 of the Indian contract act of 1872[3]. This means that any contract made without the intervention of a third party and consisting of an offer agreement and consideration made by competent parties will be considered legitimate by the law. As a result of the definitions, it is clear that smart contract are well-recognized under The Indian Contract Act. A smart contract is an intangible, self-executing contract in which the lines of agreement between the buyer and seller are laid down in writing a code. Smart contracts are merely a type of electronic contract. Smart contracts are taken into account in the form of ‘cryptocurrency.

A digital signature is a legitimate signature, and a contract made using digital signatures is valid and enforceable on both parties to the contract, according to section 5[4] and section 10[5] of the Indian information and technology act, 2000. Since these contracts are legal, and section 65b[6] of the Indian Evidence Act acknowledges digital contacts as valid, action can be taken against any of the parties to a digitally signed contract. While the technology behind smart contracts is far superior to our current laws, the issue is that attempting to prove such a contract in a court of law is incredibly difficult. Although the smart contract technically does not infringe any laws, there is insufficient legislation to govern it. Sections 17[7], 18[8], and 19[9] of the information and technology act also include provisions that make smart contracts simpler to be used in India.

“When the promisor, promisee, or any other person has completed or abstained from doing or does or abstains from doing or promises to do or abstain from doing something at the desire of the promisor, promisee, or any other person, such act, abstinence, or promise is called a consideration for the promise,” as per section 2(d)[10] of the Indian Contract Act. As a consequence, for a contract to be legitimate, it must include mutual consideration. However, there is unilateral consideration in the case of smart contracts. Smart contracts can still be enforced through a code; however, the Indian contract act does not recognize a breach of a contract based on a unilateral transaction because such a contract would not be a genuine contract in a court of law due to the absence of reciprocal consideration. Smart contracts make it much easier to form contractual relationships between parties that don’t know each other, which means that the risk element in such contracts is indeed very high. If one of the parties fails to exercise sufficient precaution while entering into such contracts, the risk of a failed transaction will be incurred by that party, because while Indian law recognizes smart contracts, it makes no provision to mitigate the risk associated with them. Although smart contracts are recognized by Indian law, the law does not provide any protection to the parties who enter into contracts utilizing this technology. Smart contracts are not governed by any laws. Only until the smart contract meets the conditions of an Indian contract will the law become effective.


Smart contracts are a thing that isn’t going away anytime soon. Technology, like its application, is rapidly evolving. As a result, it is critical that the law catch pace with it. The selling features of smart contracts are transparency and confidentiality. However, such contracts frequently produce difficulty because they may be obvious to computers but not to humans. However, the benefits far outweigh the drawbacks. As previously stated, India has failed to enact legislation governing smart contracts. While there may not be major ramifications in the short term, smart contracts are still uncommon in India, and the lack of legislation could lead to serious problems in the long run. Enabling courts to revise the terms of smart contracts by developing new contracts that overrule the provisions of the previous one would be a step in the right direction, as smart contracts are irreversible. In the domain of cross-country contracts, India is likewise lagging behind. Despite the existence of international principles, India still lacks a dedicated law on contracts involving India and other nations.

Author(s) Name: Abhishek Chadha (Guru Gobind Singh Indraprastha University, Delhi)


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