Is Smart Contract Smart enough for India?

By Kirti Tapadiya, Student at National Law University, Nagpur.


Smart Contracts are the codes that “run on top of the Blockchain and encapsulate the business logic to be executed when certain conditions are met.”[1] Blockchain, as explained by Imran Bashir is “a peer-to-peer distributed ledger that is cryptographically secure, append-only, immutable (extremely hard to change), and updateable only via consensus or agreement among peers.”[2] Blockchain is quite literally a chain of blocks. ‘Blocks’ here denote a list of records or transactions which is cryptographically connected to a previous block in the series of transactions. Each block is encrypted with a unique ‘hash’ which is time-stamped. A hash can be equated to a key using which a block can be accessed. There are both public and private keys for security purposes.[3]

The idea of a smart contract was first proposed by Nick Szabo in 1996 but got exposed in recent years with the development of blockchain technology. The distinguishing feature of a Smart Contract is its drafting, which is computer programs and codes. The codes are a series of if-then conditions leaving nil scope for ambiguity in the interpretation of the contract. Once these coded if-then conditions are fulfilled, the smart contract gets self-executed. The executory agent is called ‘Oracle’. The oracle verifies the happening of a pre-defined condition of the smart contract in the physical world and feeds the information unto the Blockchain. Therefore, each transaction gets recorded on the Blockchain.

One must not confuse them with artificial intelligence as smart contracts cannot self-modify with changing requirements. These codes are drafted in advance by the programmers,[4] however, it doesn’t matter who prepared them, the party itself, a trade or professional association, etc. All the parties have a similar copy owing to the blockchain technology which cannot be edited upon being registered on the blocks.[5] This ensures the credibility of smart contracts.

Enforceability of Smart Contracts in India:

For a contract to be valid, it must satisfy the prerequisites delineated under the Indian Contract Act, 1872. Apart from a valid offer, communicated acceptance, and lawful consideration, parties must exercise free will for a contract for a lawful object. Regard is to be given to section 10 of the Act which mentions that “all agreements are contracts” if the aforementioned conditions are fulfilled. Thus, there’s no embargo for a smart contract to be enforceable as a legal contract under the Indian Contract Act, 1872. Sections 5 and 10A of the Information Technology Act, 2000, authenticates the use of digital signature for the execution of contracts. The hash or signature key come under the ambit of the definition of a digital signature.[6] The Indian Evidence Act, 1872 also permits the admissibility of electronic records, signatures, and agreements in the court. The embargo on the enforceability of the smart contract is section 35 of the Information Technology Act, 2000 which allows digital signatures obtained only from a designated certifying authority of the central government. Thus, the government will have to amend legislation or make specific regulations for the implementation of the smart contract.

Challenges with the Smart Contracts:

Like any other technology, smart contracts technology executing over Blockchain are also not free from shortcomings.[7] Not only is it complicated and difficult to understand for first-time users or prospective buyers,[8] but also it is limited in its application in varying real-world situations.[9] Smart Contracts are full of limitations when it comes to their application in even slightly demanding circumstances,[10] which also makes smart contracting less efficient than traditional semantic contracts in circumstances when there is ex-post uncertainty.[11]

Smart Contracts are codes recorded on Blockchain which executes automatically and reliably once the pre-determined conditions are fulfilled.[12] However, since these codes are “immutable, unstoppable and irrefutable,”[13] and are “decentralized” and recorded onto “every Blockchain node,” [14] they know exactly what to do but in given conditions only, thus closing the possibilities for “second thoughts” in unpredictable circumstances.[15]  Thus, the smart contracts between two parties are designed completely and defined so peculiarly per se, that it quashes forms of flexibility[16] that are important to the contracting process.[17] This elimination of flexibility in smart contract marks an important duty upon the parties to determine the terms as to the mode of execution of smart contracts through “uncertain” or “volatile environments”, so as to draft an agreement that is more accurately defined with respect to future execution of the contract.[18] Hence, allowing parties in circumventing unpredictable outcomes and bad faith litigation, henceforth, fostering business ties.[19]

Impact of Smart Contract on the Economy

The traditional transactions are based on trust wherein parties prefer knowing each other. On the contrary, a smart contract is solely based on performance where the parties need not know each other. It is a decentralised peer-to-peer network that is immutable and highly secured. These characteristics associated with the smart contract and blockchain led to prediction estimating its business value to be $3.1 trillion by 2030.[20]

One of the prime purposes of using a smart contract is automation. It has also been frequently cited that smart contracts are used for “cross-border” trade, with the “automated payment” procedure.[21] The upsurge of e-commerce along with smart contracts would build greater avenues for Indian businesses in becoming global. It would have an impact on the transport, logistics and supply chain management, changing contours of import-export, health care and pharmaceuticals supply chain, and manufacturing industry. NITI Aayog, in partnership with PwC and Intel, has introduced blockchain to regulate and optimise the fertilizer subsidy supply chain. [22]

Blockchain and smart contract are in their nascent stage having an unexplored scope for technological development. It thus can bring an evolution in the technology and media industry including telecom. The Financial Sector market players along with the government have started using smart contracts and blockchain technology. The National Payment Corporation of India launched ‘Vajra’, a blockchain-based payments platform for automated payment clearing and settlement process.[23] The financial service providers have started using it for loan tracking and contract execution, and insurance providers for claims processing.

Apart from the private sector, it is equally useful in the public sector. It can be used for government surveillance and certifications, as India already has an infrastructure ready in the form of Aadhaar, UPI, e-Sign and Digilocker. It can be useful in regulating “digitally-enabled tax governance networks like Goods and Service Tax Network (GSTN) and digitally-enabled health coverage such as Pradhan Mantri Jan Arogya Yojana (PM-JAY)”[24] The smart contract can revolutionise the real estate sector of the country with a digitalised, and self-executory transfer of property. It can help reduce property-related disputes.[25] The Union Territory of Chandigarh and the State Government of Telangana has implemented it to keep track of land records including the transactional history associated with a piece of land.


India, as of now ranks 63rd in the Ease of Doing Business index. The factors for its poor ranking include but not limited to the poor score of enforcing contracts, property registration, cross-border trade. Smart contracts and Blockchain, like every technological marvel, have their pros and cons. Yet, it presents an avenue for new operating and business models. Regardless of to mention it would reduce the role of intermediaries and create a transparent process. India has the potential to exploit the technology for its economical advantage. This would be only possible with a pro-active governmental involvement. The role of the government has to be redefined along with necessary amendments in the legislations for a conducive implementation of Smart Contracts in India.


[1] Imran Bashir, MASTERING BLOCKCHAIN, 58, (2017).

[2] Imran Bashir, MASTERING BLOCKCHAIN, 54, (2017).

[3] Scott A. McKinny, Rachel Landy, and Rachel Wilka, Smart Contracts, Blockchain, and the Next Frontier of Transactional Law, 13 Wash. J.L. Tech. & Arts 313 (2018).

[4] Joost de Kruijff & Hans Weigand, An Introduction to Commitment Based Smart Contracts using Reaction
Rule ML, available on

[5] Jerry I-H Hsiao, Smart Contract on the Blockchain-Paradigm Shift for Contract Law, 14 US-China L. Rev.
686-87, (2017).

[6] § 2(p) and § 3, Information Technology Act, 2000.

[7] Eliza MIK, Smart contracts: Terminology, Technical Limitations and Real-World Complexity, 9(2), Law,
Innovation and Technology, 269-300, (2017), available on

[8] Kathryn M. Bennett, HealthTech: How Blockchain Can Simplify Healthcare Compliance, 25 Wash. & Lee J.
Civ. Rts. & Soc. Just. 287, 314 (2018).

[9] Eliza MIK, Smart contracts: Terminology, technical limitations and real-world complexity, 9(2), Law,
Innovation and Technology, 269-300, (2017), available on

[10] Jerry I-H Hsiao, Smart Contract on the Blockchain-Paradigm Shift for Contract Law, 14 US-China L. Rev.
685, 690, (2017).

[11] Jeremy M. Sklaroff, Smart Contracts and the Cost of Inflexibility, 166 U. Pa. L. Rev. 263, 291, (2017).

[12] Ibid.

[13] Larry D. Wall, Smart Contracts in a Complex World, Federal Reserve Bank of Atlanta, (July, 2016), available

[14] Henning Diedrich, ETHEREUM, 168, (2016).

[15] Ibid.

[16] Karen E. C. Levy, Book-Smart, Not Street Smart: Blockchain-Based Smart Contracts and the Social Workings
of Law, 3 ENGAGING SCI., TECH., SOC'Y 1, 6-7 (2017).

[17] Jerry I-H Hsiao, Smart Contract on the Blockchain-Paradigm Shift for Contract Law, 14 US-China L. Rev.
685, 690, (2017).

[18] Jeremy M. Sklaroff, Smart Contracts and the Cost of Inflexibility, 166 U. Pa. L. Rev. 263, 279, (2017).

[19] Ibid.

[20]–of-current-enterprise- blockchain.

[21] Scott A. McKinney, Rachel Landy, & Rachel Wilka, Smart Contracts, Blockchain, and The Next Frontier of
Transactional Law, 13 Wash. J.L. Tech. & Arts 313,315 (2018).

[22] Niti Aayog, Draft Discussion Paper, Blockchain: The India Strategy, Part 1, (Jan, 2020).


[24] Niti Aayog, Draft Discussion Paper, Blockchain: The India Strategy, Part 1, (Jan, 2020).

[25] Subhashish Das, How Blockchain Will Transform the Indian Real Estate Sector, PropStory, available on

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