This Article has been written by Jyotsana Singh of Symbiosis Law School, Hyderabad
INTRODUCTION
In 1994, legal scientist and encrypts Nick Szabo found that the decentralised nature of cryptography could be used on intelligent agreements, which are essentially self-executing agreements and ensure virtual agreements are performed by blockchain technology, so that contracts are carried out in a hassle-free way. The highlight of blockchain is its fragmented nature because it removes the need for intermediary services (intermediaries) and this in turn saves time and any possible conflicts arising from a third party.[1]
A smart contract is an auto contract in order to directly include the terms of the agreement between the buyer and a seller. A transmitted blockchain network includes a code consisting of all the terms and conditions of the agreement. The code also contains information to execute these transactions, in regards to the agreements, which ensures that they are tracked and unavoidable.[2]
Intelligent contracts currently offer the best way to execute two types of "transactions" in several contracts automatically: (1) ensure that funds are paid in response to certain triggering events and (2) charge for financial penalties when certain objective requirements are not met. In each case, human intervention is not required when the smart contract has been deployed and operational and, as a result, the execution and enforcement costs of the contracting process are reduced, including through an authentic escrow holder or the judicial system.[3]
Bitcoin, blockchain, and smart contracts — the terms that you simply hear within the banking and financial press with increasing frequency. The digital monetary blockchain technology variety of apparently uncompromising and long-term problems like reducing transaction costs, speeding up the time interval, expanding financial services and enhanced consumption are being resolved throughout Bitcoin. Bitcoin and Smart contracts are intended to potentially eliminate the necessity to implement laws extrinsically, thus reducing the value , speed and efficiency of business transactions. the planet Economic Forum has hoped that intelligent contracts using blockchain technology can codify and guarantee financial agreements during a shared platform. The manual effort needed to support financial agreements and thus accelerate business operations would be significantly decreasing. Other commentators suggested that smart contracts may cause contracts that not require courts to implement financial transactions without banks.[4]
RELATION BETWEEN BLOCKCHAINS AND SMART CONTRACTS
'Smart contracts' means a computer code that performs all or parts of the agreement automatically and is stored on a blockchain-based platform. As further discussed, the code may either be the only expression of agreement among the parties or could supplement a traditional textual contract and carry out certain provisions, such as the transfer of funds from Party A to Party B. The code itself is replicated through several nodes in a blockchain and thus enjoys the security, durability and immutability of the blockchain.[5]
This reproduction also means that the code is executed when every new block is added to the blockchain. If the parties indicated that certain parameters were met by starting a transaction, the code will execute the step that those parameters trigger. The code does not take any measures when no such transaction has been initiated. Most intelligent contracts are written directly for computer programmes such as Solidity in any programming language.
A technology such as Blockchain could be channelled for various uses in our everyday lives with this multi-dimensional ability. This brings us to Smart Contracts, the second topic of our article. Blockchain is a large area under which "intelligent contracts" are a small head.
Smart contracts in any Indian legislation until now do not exist, but, for a general idea, one of the Telecom Regulatory Agency of India (TRAI) notifications published in 2018 can be drawn from.
The Smart Contracts notification refers to the digitally encrypted Cryptographic Agreement. Intelligent contracts are intelligent because they function with regulatory compliance on the execution of predefined commands. They also specifically exclude room for human intervention or any kind of human error. All these procedures and steps are recorded and processed simultaneously on all systems.
Every party can therefore check whether the deal has been honoured properly or not and the stage on which it is currently functioning. For multiple reasons, the Contracting Party benefits from these contracts and will be debated later in this article. One of Smart Contract's primary advantages is that even though the party intends to change or alter the agreement for its own benefit, they will not be able to do that as soon as the agreement is finalised.
LEGAL MANAGEMENT OF SMART CONTRACTS IN INDIA
Basically, intelligent contracts provide a contracting platform with parties who can know each other or not and may take responsibility for risks. Intelligent contracts are often enforceable under Indian law, but if there's no precaution within the party you're contracting, you want to bear the results of the failed transaction alone as there's not an intrusive system in situ for regulating intelligent contracts within the system.[6]
The situation during which an intelligent contract isn't subject to Indian law might be if it's not mutually acceptable to think about the contract.
This may happen if the contract is one-sided. However, smart agreements without mutual consideration can still be enforced by code without the Indian courts, but breaches of such an agreement wouldn't be considered a breach in Indian courts, because, within the opinion of the court within the first place, a contract couldn't exist due to lack of mutual consideration, which are important factors within the contract the Indian courts don't leave without mutual consideration.
However, since there's no regulatory framework in situ to control intelligent contracts, the law will make a difference within the best sense if the smart contract falls within the bounds of jurisprudence , as is that the case in India, since the legality of smart contracts allows for the utilisation of smart contracts but also doesn't provide the law protection to those parties to the present smart contract.[7]
RULE OF FORCE MAJEURE AND SMART CONTRACTS
A unique combination of technology and law was created by the COVID-19 pandemic.[8] Domestic and international market turmoil, economic instability and travel restrictions have all meant that companies are heavily dependent on technological solutions to reduce personal contacts in the formation and performance of contracts. The technology of Blockchain and its intelligent contracts has become important tools for this trend. The COVID-19 crisis is nevertheless cited as an event of major force excusing parties from fulfilling their contracts.During the pandemic, the technological mechanisms of business contracts evolved and the legal concepts faced a challenge to keep pace.
In view of the many legal problems and problems caused by the pandemic, professionals who look for new solutions need to know what intelligent contracts are and how they will operate under COVID-19 in accordance with the legal doctrine of force majeure.[9] In cases where extraordinary circumstances beyond the control of the parties, the legal doctrine of force majeure ("superior force") frees the party from responsibility or obligation, prevents one or both of them from fulfilled their obligations in accordance with the agreement. Smart contracts are blockchain-based and distributed management mechanisms that execute, administer or record actions which are legally relevant under the terms of the agreement. Smart contracts would exclude centralised third parties from a transaction if fully implemented. The computer-based protocol, for example, could eliminate third-party escrow services by allowing the party to transfer the cash directly to a "smart" contract (i.e. code or chain) as a data-block. The intelligent contract would then process the contractual requirements automatically on the basis of certain inputs and take account of them and close the transaction. That is, the contract is automated and human participation is reduced (and the potential for human error). The intelligent contract is designed to be a simple formule "if it happens, it happens." So "if the deed is signed and submitted, the funds are released," in the case of the escrow.
[1]STA Law Firm, India: The Enforceability Of Smart Contracts In India, Mondaq, https://www.mondaq.com/india/contracts-and-commercial-law/874892/the-enforceability-of-smart-contracts-in-india [2]Cristina Poncibò & Larry A. DiMatteo, Smart Contracts: Contractual and Noncontractual Remedies, in The Cambridge Handbook of Smart Contracts, Blockchain Technology and Digital Platforms 118–140 (Larry A. DiMatteo, Michel Cannarsa, & Cristina Poncibò eds., 2019). [3] Stuart D. Levi and Alex B. Lipton, Skadden, Arps, Slate, Meagher & Flom LLP, on Saturday, May 26, 2018, An Introduction to Smart Contracts and Their Potential and Inherent Limitations, https://corpgov.law.harvard.edu/2018/05/26/an-introduction-to-smart-contracts-and-their-potential-and-inherent-limitations/ [4] Ahmad, Raja & Salah, Khaled & Jayaraman, Raja & Yaqoob, Ibrar & Ellahham, Samer & Omar, Mohammed. (2020). Blockchain and COVID-19 Pandemic: Applications and Challenges. 10.36227/techrxiv.12936572. [5] Barclays , ' Blockchain Revolution in Trade Finance ‘.https://www.barclayscorporate.com/insights/innovation/blockchain-revolution-in-trade-finance/ [6] Blockchain and Smart Contracts - Indian Legal, https://www.lexology.com/contributors/vaish-associates-advocates, https://www.lexology.com/library/detail.aspx?g=d7020de5-d816-431f-9459-e0191c96a522 [7]Supra 6 [8] WHO. Rolling updates on coronavirus disease (COVID-19). World Health Organization. https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen. Accessed 24 May 2021 [9] Ryan Hasting, Smart Contracts: Implications on Liability and Competence, Volume 28 Issue 2 Article 6, University of Miami Business Law Review, https://repository.law.miami.edu/cgi/viewcontent.cgi?article=1361&context=umblr
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