When Code Meets Court: Navigating Smart Contracts Under Indian Commercial Law

Author: Adya Akankshya Mishra
Student, SOA National Institute of Law, Bhubaneswar

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Abstract

The convergence of blockchain technology and contract law has introduced a new paradigm in commercial transactions. Smart contracts—computer programs designed to execute predefined actions automatically—have the potential to transform how parties enter into, perform and enforce contractual obligations. In India, where the Indian Contract Act, 1872, provides the principal framework for contractual relationships, smart contracts offer opportunities for greater efficiency, transparency and cost reduction while raising questions about consent, enforceability, jurisdiction and dispute resolution.

This article examines the legal status of smart contracts under Indian law, focusing on the Indian Contract Act, 1872, the Information Technology Act, 2000, and the evidentiary framework governing electronic records. It considers traditional contractual requirements, including consensus ad idem, consideration and the intention to create legal relations, alongside the distinctive characteristics of smart contracts, such as immutability, pseudonymity and automated execution. Comparative approaches in the United Arab Emirates, Singapore, the United Kingdom and the United States are considered to identify possible regulatory approaches for India. The article concludes by proposing legislative clarification, regulatory experimentation, hybrid contracting and greater technological competence among legal professionals to address the challenges associated with smart contracts.

Keywords: Smart Contracts, Indian Commercial Law, Blockchain, Contractual Enforceability, Electronic Records, Comparative Jurisprudence

💡 3 Quick Takeaways

Smart contracts are not automatically enforceable merely because they operate on a blockchain. Their validity depends on whether the applicable requirements of Indian contract law are satisfied.
The Information Technology Act, 2000, supports the recognition of electronic transactions, but issues concerning consent, contractual interpretation, jurisdiction and technical errors remain.
Legislative clarification, hybrid agreements, regulatory sandboxes and technological training can help bridge the gap between automated performance and conventional legal remedies.

Introduction

The term “smart contract” was popularised by cryptographer Nick Szabo in the 1990s to describe digital protocols designed to facilitate, verify or enforce the performance of contractual arrangements.[1] A smart contract can be understood as a computer program or transaction protocol that automatically executes predefined actions when specified conditions are satisfied.

Unlike conventional contracts, which are commonly expressed in written documents and performed through human action, smart contracts use computer code to automate particular obligations. When deployed on a blockchain, their execution can be recorded on a distributed ledger, providing a verifiable record of transactions.

Smart contracts have applications in decentralised finance, supply-chain management, insurance claims processing and digital asset transactions. For example, a smart contract may automatically release payment to a supplier once a specified delivery condition is confirmed. Such automation can reduce the need for manual intervention and facilitate faster commercial transactions.

As India’s digital economy develops, an important question arises: can existing Indian contract law accommodate agreements whose performance is governed, wholly or partly, by computer code?

The Indian Contract Act, 1872, establishes the general principles governing contractual validity, while the Information Technology Act, 2000, recognises electronic records and electronic signatures within its statutory framework. Nevertheless, the absence of a comprehensive statutory framework specifically addressing smart contracts leaves questions concerning consent, interpretation, jurisdiction, liability and dispute resolution. These issues require an examination of how traditional contractual principles apply to technologically automated agreements.

Effectiveness and Advantages of Smart Contracts over Traditional Mechanisms

Smart contracts offer several potential advantages over conventional contractual arrangements, particularly in efficiency, transparency and transaction management.

Automation and efficiency. Once deployed, a smart contract can execute predefined instructions without requiring repeated human intervention. This can reduce administrative work, processing delays and the costs associated with monitoring contractual performance. In supply-chain management, for instance, a programmed arrangement may release payment following confirmation that goods have been received and update the relevant transaction records.

Research has suggested that blockchain-based smart contracts may reduce certain financial-service costs by 20–35%.[2] However, such figures depend on the sector, implementation costs and the nature of the transaction. They should not be treated as universal estimates.

Transparency and verifiability. Blockchain-based transactions can provide a shared record of contractual actions. Depending on the network and its configuration, authorised participants may be able to verify the transaction history without relying entirely on a central intermediary.

Security and reliability. Blockchain architecture can make unauthorised alteration of recorded transactions difficult. However, immutability does not guarantee that the original code is accurate, that the information supplied to it is correct, or that the underlying transaction is legally valid. A smart contract may execute precisely as programmed while producing a result that differs from what the parties intended.

Limitations and implementation costs. Smart contracts are not necessarily more economical in every situation. Their development, testing, auditing and deployment may involve substantial initial expenditure. Nor can they independently resolve every factual question. Determining whether goods are defective, whether consent was obtained through misrepresentation, or whether a party acted fraudulently may require human assessment.

Accordingly, smart contracts are best understood as tools for automating suitable contractual obligations rather than as universal substitutes for conventional agreements and legal institutions.

Global Adoption and Regulatory Frameworks for Smart Contracts

Different jurisdictions have approached smart contracts through a combination of electronic-transactions legislation, general contract law and technology-specific regulation.

United Arab Emirates

The Dubai International Financial Centre (DIFC) enacted its Digital Assets Law in March 2024, introducing the concept of “Coded Contracts” within its legal framework.[3] This development illustrates how a jurisdiction can address code-based arrangements through targeted legislation.

The legal position within the DIFC should, however, be distinguished from the position under the broader federal law of the United Arab Emirates. The existence of electronic-transactions legislation does not, by itself, resolve every issue concerning the formation, interpretation or enforcement of a smart contract.

Singapore

Singapore’s Electronic Transactions Act provides a statutory framework for electronic records and electronic signatures. Sections 7 and 8 address the recognition of electronic records and signatures, respectively.[4] Singapore’s approach demonstrates how technology-neutral electronic-transactions legislation can accommodate digital commercial practices without requiring every technological development to be regulated through a separate statute.

Nevertheless, recognition of an electronic record does not automatically establish that every agreement executed through code satisfies all the requirements of contract law.

United Kingdom

The UK Jurisdiction Taskforce’s Legal Statement on Cryptoassets and Smart Contracts (2019) and the Law Commission’s subsequent work have examined how existing principles of English law apply to smart contracts. The general approach recognises that established contractual principles may accommodate agreements formed or performed through technological systems.

The Law Commission’s 2021 analysis concluded that the existing law of England and Wales was capable of accommodating smart legal contracts without the need for wholesale reform.[5] This illustrates the potential for established legal doctrines to adapt to technological change.

United States and European Union

In the United States, certain states, including Arizona and Tennessee, have enacted legislation addressing blockchain technology and smart contracts. These state-level developments must be distinguished from federal law, and their scope varies.

The European Union has pursued a broader regulatory approach to digital finance and crypto-assets. However, rules governing crypto-assets and digital financial services should not automatically be treated as a comprehensive legal framework for all smart contracts.

These comparative examples suggest that India could consider a combination of technology-neutral contract law, targeted legislative clarification and regulatory experimentation. Any reform must nevertheless account for India’s existing statutory framework and the practical requirements of commercial transactions.

Indian Legal Framework: Statutory Foundations and Judicial Interpretation

The legal position of smart contracts in India must be examined primarily through the Indian Contract Act, 1872, the Information Technology Act, 2000, and the law governing electronic evidence.

Contractual validity under the Indian Contract Act, 1872

Section 10 of the Indian Contract Act establishes the principal requirements for an agreement to become a contract, including competent parties, free consent, lawful consideration, a lawful object and the absence of a statutory provision rendering the agreement void.

The provision does not generally make contractual validity dependent on the use of a particular technological medium. Consequently, an agreement involving a smart contract may be enforceable if it satisfies the applicable requirements of Indian contract law.

However, the use of computer code raises questions about how offer, acceptance and consent are communicated. A party may agree to a transaction without fully understanding the code governing its performance. This does not automatically invalidate the agreement, but it may become relevant where the facts raise questions about free consent, misrepresentation, mistake or the parties’ actual intentions.

Sections 13 and 14 of the Contract Act address consent and free consent. Their application to smart contracts requires attention to the circumstances in which the parties agreed to the transaction, the information disclosed to them and the relationship between the coded instructions and the agreed contractual terms.

The central issue is therefore not whether an agreement is expressed in code, but whether the legal requirements for a valid contract have been met.

Recognition of electronic transactions under the Information Technology Act, 2000

Section 10A of the Information Technology Act, 2000, provides that a contract is not to be considered unenforceable solely because electronic means were used in its formation. The provision supports the recognition of contracts formed through electronic records and electronic communications.

Sections 4 and 5 address the legal recognition of electronic records and electronic signatures, subject to the requirements of the Act. Sections 3 and 3A separately address digital signatures and electronic signatures.

These provisions provide a foundation for electronic contracting, but they do not independently settle every question concerning smart contracts. In particular, statutory recognition of an electronic record does not establish that the underlying transaction contains valid consent, lawful consideration or an enforceable object.

A distinction must also be drawn between the electronic formation of an agreement and its automated performance. A smart contract may use code to execute an obligation, but the legal relationship between the parties continues to depend on the applicable contract and other relevant laws.

Electronic evidence and proof in court

Smart-contract disputes may require parties to establish the contents of the code, the timing of transactions, the identity or authority of participants, and the events that triggered execution.

The original article refers to Sections 65A and 65B of the Indian Evidence Act, 1872, and to decisions including State (NCT of Delhi) v. Navjot Sandhu, commonly known as the Parliament Attack case, and Harpal Singh v. State of Punjab.[6]

These authorities must be understood in their statutory context. The Indian Evidence Act, 1872, has been replaced by the Bharatiya Sakshya Adhiniyam, 2023, which came into force on 1 July 2024. Accordingly, current disputes must be analysed under the applicable provisions of the Bharatiya Sakshya Adhiniyam, subject to the relevant transitional rules. Earlier decisions interpreting the former Act may remain relevant to the extent that their reasoning applies to the current statutory framework.

For smart-contract disputes, the practical challenge is to establish the authenticity, integrity and evidentiary relevance of the records relied upon. A blockchain entry may help establish that a transaction was recorded, but it does not necessarily prove the truth of every external fact associated with that transaction or resolve every question concerning the parties’ legal obligations.

The position of Indian courts

The author’s research identifies no direct Indian judicial precedent conclusively establishing a comprehensive set of rules for the enforcement of smart contracts. In the absence of a directly applicable decision, the enforceability of a particular arrangement must be assessed through the relevant statutory provisions and established principles of contract law.

This absence of a specific precedent should not be confused with a finding that smart contracts are inherently unenforceable. Their legal treatment will depend on the terms of the agreement, the manner of formation, the obligations undertaken and the relief sought.

Hybrid agreements, which record the parties’ legal obligations in natural language while using code to automate selected functions, may help reduce interpretive uncertainty. They can also specify how discrepancies between the code and the written terms are to be addressed.

Challenges and Limitations: Legal, Technical and Practical Hurdles

Despite their potential, smart contracts present several challenges that cannot be resolved through automation alone.

Immutability, coding errors and liability

Once a smart contract is deployed, modifying its code may be difficult or may require procedures built into the system. A programming error can therefore cause unintended transactions or financial loss.

The resulting legal questions include whether the loss arose from defective code, inadequate testing, inaccurate information, a party’s conduct or an external event. Depending on the facts and the applicable law, issues of contractual breach, negligence, misrepresentation or other legal liability may arise.

The mere fact that a developer wrote the code does not automatically make the developer liable for every loss. Liability depends on the relevant duties, representations, contractual terms and evidence.

The original submission cites Polygon Labs v. Investor Dispute (2022) as an example of developer liability. This citation requires verification against a reliable primary legal source before publication and should not be relied upon as established Indian judicial authority without confirmation.

Jurisdiction and conflict of laws

Blockchain networks may involve participants, developers, servers and validators located in different jurisdictions. This can make it difficult to determine the appropriate court, the governing law and the place where contractual obligations should be treated as having been performed.

The traditional principle of lex loci contractus—the law of the place where a contract is made—may not, by itself, resolve every dispute involving a decentralised network. The analysis may also depend on the parties’ chosen governing law, jurisdiction clauses, the place of performance and applicable conflict-of-laws rules.

For cross-border transactions, carefully drafted governing-law and dispute-resolution clauses can provide greater certainty, although their effectiveness remains subject to applicable law.

Dispute resolution and contractual interpretation

Traditional judicial processes examine contractual language, the parties’ intentions, the surrounding circumstances and available remedies. A smart contract, by contrast, executes instructions according to its programming.

This creates a potential gap between technical execution and legal interpretation. A program may execute a transaction automatically even where one party alleges mistake, fraud, breach or another legal ground for relief.

Blockchain-based dispute-resolution mechanisms have emerged as possible alternatives for certain digital disputes. However, their procedures, enforceability and relationship with national courts must be considered carefully. Automated or decentralised decision-making does not necessarily replace the authority of courts or remove the need to comply with applicable law.

Privacy and confidentiality

Public blockchains may expose transaction histories and other information to network participants. Even where the identities of participants are represented by pseudonymous addresses, transaction patterns may sometimes reveal information about their activities.

This can create difficulties where a commercial arrangement involves confidential information or sensitive personal data. Private networks and privacy-enhancing technologies, including zero-knowledge proofs, may help address particular concerns. Their suitability depends on the design of the system and the legal obligations applicable to the transaction.

Technical competence

Smart-contract disputes may require courts and legal practitioners to understand code, blockchain records, cryptographic verification and the interaction between on-chain and off-chain information.

Without appropriate technical assistance, the parties may struggle to explain how a transaction occurred or why the program produced a particular result. Training and access to independent technical expertise can assist courts in evaluating evidence without treating technical explanations as substitutes for legal analysis.

The Way Ahead: Proposals for Legal and Regulatory Reform

India can support innovation in blockchain-based commerce while maintaining contractual certainty and access to legal remedies. This requires cooperation among policymakers, regulators, legal professionals, businesses and technology experts.

Legislative clarification

Parliament could consider clarifying how existing contract-law principles apply to smart contracts. Any reform should address the relationship between coded instructions and natural-language terms, the evidence required to establish assent, and the treatment of programming errors.

Such clarification need not imply that every smart contract requires a separate statutory regime. A targeted approach could preserve the flexibility of general contract law while addressing recurring problems that are difficult to resolve through existing provisions alone.

Regulatory sandboxes

Regulatory sandboxes can provide controlled environments in which businesses test innovative products under appropriate supervision. The Securities and Exchange Board of India’s regulatory-sandbox framework offers a relevant starting point for considering how regulated experimentation may be conducted within its jurisdiction.

The design of any sandbox should reflect the particular sector, risks to participants and applicable regulatory requirements. A sandbox should not be treated as a general exemption from the law.

Programmable money and digital infrastructure

The Reserve Bank of India’s exploration of central bank digital currency may provide opportunities to study how programmable features could support particular payment arrangements.[7] However, programmable money and smart contracts are distinct concepts: a digital currency does not necessarily incorporate a smart contract, and not every smart contract requires a digital currency.

Any implementation should be evaluated against requirements concerning financial stability, security, privacy, consumer protection and regulatory compliance.

Hybrid contracts and technical standards

Hybrid agreements can combine conventional written terms with code that performs clearly defined tasks. The written agreement should identify the obligations being automated, the conditions triggering execution, the procedure for handling errors and the method for resolving disputes.

Where appropriate, parties could also establish independent auditing, testing and certification practices for smart-contract code. Common technical standards may improve interoperability and reliability, although technical certification alone cannot establish legal validity.

Capacity building and international cooperation

Judges, lawyers and law students would benefit from training in blockchain systems, electronic evidence and the legal implications of automated transactions. The National Judicial Academy, Bar Councils and academic institutions could contribute through specialised programmes and interdisciplinary courses.

India should also continue engaging with international work on electronic commerce and digital trade, including relevant initiatives of the United Nations Commission on International Trade Law (UNCITRAL). International cooperation may help improve consistency in cross-border transactions while allowing India to retain appropriate domestic safeguards.

Conclusion

Smart contracts represent an important development in the relationship between technology and commercial law. Their capacity to automate performance, maintain transaction records and reduce administrative intervention offers potential benefits for businesses and other participants in the digital economy.

Nevertheless, technical execution and legal enforceability are not identical. A transaction may execute exactly as programmed without necessarily satisfying every requirement of contract law or resolving questions of consent, liability, jurisdiction and remedies.

The Indian Contract Act, 1872, and the Information Technology Act, 2000, provide a foundation for evaluating electronically formed agreements. The evidentiary framework under the Bharatiya Sakshya Adhiniyam, 2023, must also be considered when electronic records are presented in current proceedings. Yet, questions concerning the relationship between code and contractual intention, the allocation of responsibility for technical errors and the resolution of cross-border disputes remain significant.

India’s response need not involve replacing established contract law with an entirely new system. Legislative clarification, hybrid contracting, appropriately supervised regulatory experimentation, technical standards and professional training can help make the law more responsive to technological developments.

Ultimately, the challenge is to ensure that automation strengthens commercial certainty without displacing the legal principles of consent, accountability and access to justice. Smart contracts can become useful instruments of Indian commercial law when technological efficiency is supported by a clear and enforceable legal framework.

References and Endnotes

Dr. Ravindra Kumar Singh, “Are Smart Contracts Really Smart? Decrypting the Issues of their Legality, Enforcement and Interpretation,” 10 NLS Business Law Review 7 (2024).
A. M. Tairu, A. O. Junior, T. E. Akindele and S. Akeem, “The Role of Blockchain-Based Smart Contracts in Enhancing Financial Transparency and Efficiency in the Emerging Market,” 10 International Journal of Research and Innovation in Applied Science 509 (2025). The reported cost-reduction estimate should be checked against the study’s methodology and findings.
Dubai International Financial Centre, “DIFC Announces Enactment of New Digital Assets Law, New Law of Security and Related Amendments,” 13 March 2024, https://www.difc.com/whats-on/news/difc-announces-enactment-of-new-digital-assets-law—new-law-of-security-and-related-amendments.
Electronic Transactions Act, Cap. 88 (Singapore).
UK Jurisdiction Taskforce, Legal Statement on Cryptoassets and Smart Contracts (2019); Law Commission of England and Wales, Smart Legal Contracts: Advice to Government (2021).
State (NCT of Delhi) v. Navjot Sandhu, (2005) 11 SCC 600; Harpal Singh v. State of Punjab, (2017) 1 SCC 734. These decisions arose under the former Indian Evidence Act, 1872; their relevance must be assessed alongside the current statutory framework.
Reserve Bank of India, Concept Note on Central Bank Digital Currency, 7 October 2022, https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CONCEPTNOTEACB531172E0B4DFC9A6E506C2C24FFB6.PDF.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of The Lawscape.

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