TERMINATION OF A CONTRACT WITH THE CORPORATE DEBTOR DURING THE CIRPby Anoushka*&nbsp;&nbsp;Introduction Section 14 of the Insolvency and Bankruptcy Code (“The Code”) imposes a moratorium from taking certain actions against the corporate debtor from the date of the commencement of the Corporate Insolvency Resolution Process (“CIRP”). This includes a bar on the institution of new suits or continuation of them against the corporate debtor as well as any transferring or alienating of assets by the them along with other such restrictions. The goal of the moratorium is to protect the corporate debtor's assets and to resurrect the firm as quickly as feasible through a change of management. As a result, the moratorium ensures a smooth and quick resolution process. However, the code does not, in entirety, answer the question of whether contracts with the corporate debtor can be terminated during the CIRP and does not provide a blanket bar on the same. In the absence of an explicit clause on the subject, Indian courts have stepped in with their own interpretation of sub-sections of Section 14, primarily prohibiting third parties from ending contractual relationships with the debtor since it would have a negative impact on them and so goes against the spirit of the moratorium itself.Analysing Section 14<ol><li>Section 14(1)(d)</li></ol>This provision prohibits the“recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.” It is, thus, evident from this clause that a lease agreement cannot be ended with the corporate debtor during the resolution process. Further, the Supreme Court in Rajendra K Bhutta v. Maharashtra Housing and Area Development Authority and Anr(Civil Appeal No 12248 of 2018) clarifying the scope of this provision, held that Section 14(1)(d) prohibits an "owner" from reclaiming property while the corporate debtor is in actual possession of such property. However, "lessors" are prohibited from recovering the property whether the debtor has physical or constructive possession under the lease agreement.In Vijaykumar V Iyer v. Union of India(CP (IB)-298/(MB)/2018) the Tribunal also read into Section 14(1)(d) to allow the uninterrupted use of an intangible asset, thereby holding that in agreements where 'right to use' is granted, should remain, during the period agreed upon, with the Corporate Debtor since the same is beneficial for the company as well as for all stake holders. In Vasudevan v. State of Karnataka and Others (CP/39/2018) the Tribunal dismissed the termination of an iron ore mining lease since the corporate debtor's primary business was the privilege granted to mine iron ore.<ol><li>Explanation to Section 14(1)</li></ol>Added by an amendment in 2020, the Explanation to Section 14(1) clarifies that any licence, permit, registration, quota, concession, clearances, or a similar grant or right that is vested to the corporate debtor by the government or an authority established under law, will not be suspended or terminated due to insolvency. However, it also cautions that the provision does not apply in cases where the non-payment of dues is happening during the moratorium period therefore, carving out an exception.Additionally, the Supreme Court in the case of Gujarat Urja Vikas Nigam Limited v Amit Gupta and others had held that the incorporation of the Explanation to Section 14(1) demonstrates that Parliament has been revising the Code to ensure that a corporate debtor's standing as a 'going concern' is not jeopardised due to various conditions that may not have been considered at the time the IBC was enacted.<ol><li>Section 14(2)</li></ol>Section 14(2) of the Code expressly prohibits the termination of certain types of agreements with the corporate debtor during the moratorium; namely the suspension, termination, or interruption of the delivery of necessary goods or services to the corporate debtor.According to the CIRP regulations, the term “essential goods and services” includes electricity, water, telecommunication services and information technology services. These are regarded as fundamental necessities for any corporate debtor to stay in business. However, the regulation also states that these would be essential supplies to the extent that these are not a direct input to the output produced or supplied by the corporate debtor. For example, water supplied to a corporate debtor will be essential supplies for drinking and sanitation purposes, and not for generation of hydro-electricity.Further, the National Company Law Tribunals in various instances have not only restored the supply of these commodities to the corporate debtor, but have also gone beyond the scope of this provision to compel the continuance of additional supplies deemed important to the corporate debtor's activities. For example, in Canara Bank v. Deccan Chronicle Holdings Limited, (CP No IB/41/7/HDB/2017) the Tribunal held &nbsp;that water, electricity, prinking ink, printing plates, printing blanker, solvents etc. to also be under the purview of Section 14(2)&nbsp;as they are critical to the operations of the corporate debtor.Termination clauses in ppa agreements In the landmark case of Gujarat Urja Vikas Nigam Limited v Amit Gupta and others,(Civil Appeal No. 9241 of 2019) the Court gave an overriding effect to the Code even when the Power Purchase Agreement ( the “PPA”) allowed termination of contract on the grounds of insolvency. In this particular case, the PPA between the Appellant (GUVN) and the corporate debtor stated that in the case of an event of default, the Appellant would have the right to terminate the agreement. The event of default was also defined in the PPA under article 9.2.1(e) and stated that if the Corporate Debtor "becomes voluntarily or involuntarily, the subject of a proceeding in any bankruptcy or insolvency laws", it would be considered as an event of default.The termination clause of the PPA is produced below for reference.9.3.1 Termination for Power Producer's Default:“Upon the occurrence of an event of default as set out in sub-clause 9.21 above, GUNL may deliver a Default Notice to the Power Producer in writing which shall specify in reasonable detail the Event of Default giving rise to the default notice, and calling upon the Power Producer to remedy the same.At the expiry of 30 (thirty) days from the delivery of this default notice and unless the Parties have agreed otherwise, or the Event of Default giving rise to the Default notice has been remedied, GUVNL may deliver a Termination Notice to the Power Producer. GUVNL may terminate this agreement by delivering such a Termination Notice to the Power Producer and intimate the same to the Commission. Upon delivery of the Termination Notice this Agreement shall stand terminated and GUVNL shall stand discharged of all its obligations. The Power Producer shall have liability to make payment within 30 days from the date of termination notice towards compensation to GUVNL equivalent to three years billing based on first year tariff considered on normative PLF while determining the tariff by Hon'ble GERC.However, all payment obligations as per the Article 6 prior to the date of termination of the Agreement shall be met by the parties.Where a Default Notice has been issued with respect to an event of default, which requires the co-operation of both GUVNL and the Power Producer to remedy, GUVNL shall render all reasonable cooperation to enable the Event of Default to be remedied without any legal obligations.”The counsel for GUVNL contended that since it had followed the process provided in the clause 9.3 of PPA and had given notice of default, they thus acquired the absolute right to deliver the termination notice to the Corporate Debtor for termination of the PPA. The Tribunal observed that, through the default notice, GUVNL asked that the Corporate Debtor correct the default mentioned in clause 9.2.1(e), which implies that, in order to avoid contract termination, the Corporate Debtor must terminate or complete the CIRP within 30 days of receipt of the notice. However, timelines of the CIRP statutorily prescribed under the IBC 2016, is 330 days. Thus, the Tribunal concluded that clause 9.3.1 of the Power Purchase Agreement cannot be elevated above the statutory provisions of the Code&nbsp; in the context of establishing a timeframe for completion of the CIRP. When the matter went to Supreme Court on appeal, the Court held that the termination sought by the Appellant is solely on the ground of insolvency and going through with the same would affect the status of the corporate debtor as a going concern.It also agreed with Tribunal’s interpretation of Section 238 – which allows the Code to override other laws, and thus would also override the agreement between the parties in this case.Exceptions to non-termination of contract by third partiesduring cirp<ol><li>Nature of contract not barred under Section 14 </li></ol>The courts have, however, allowed third parties to terminate the contracts with the corporate debtor during the CIRP on various instances. As we have seen above, various provisions within Section 14 bar certain types of contracts from being terminated by third parties. Thus, it logically follows that if the nature of the contract is not barred under Section 14, such a termination is allowed.<ol><li>Non-Payment of Dues is for the Moratorium Period </li></ol>Further, it is also to be noted that the Code mandates that the dues owed for services provided to the Corporate Debtor during the CIRP be paid to the respective parties on an ongoing basis. In the event that the corporate debtor fails to make such payments, bankruptcy tribunals have granted third parties the right to terminate the underlying agreements. In the case of Uttarakhand Power Corporation vs ANG Industries, (Company Appeal (AT) (Insolvency) No. 298 of 2017) the NCLAT ordered the Appellant (Uttarakhand Power Corporation) in this case to pay the Respondent the on-going dues for electricity and also allowed the Respondent to terminate their agreement if the Appellant does not pay within stipulated time.<ol><li>Does not lead to Corporate Death </li></ol>However, the Apex Court, in the case of Gujarat Urja Vikas Nigam Limited v Amit Gupta and others,(Civil Appeal No. 9241 of 2019) warned the courts of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being the corporate debtor’s sole contract. Thus, in this case, the Court distinguished between a termination that would "dilute the worth of a corporate debtor" and one that would result in the corporate debtor's "corporate death," approving of the former and thus, creating a welcome balance between the rights of the corporate debtor and counterparties.Hurdles presentThus, in the absence of a definitive clause barring the termination of contracts with the corporate debtor, the Insolvency Tribunals have set aside contract termination if it has the effect of either triggering the moratorium clauses described in Section 14 or prohibiting the corporate debtor from operating as a going concern. However, a legislative intervention is needed in the light of such a lacunae as differing interpretations of Section 14 lead to varying outcomes and leave the question of termination to the discretion of the courts on a case-by-case basis. Furthermore, while the CIRP Regulations specify the phrase "essential supplies," the list is not exhaustive, and the courts have expanded the reach of this meaning to include supplies "critical" to the corporate debtor's operations. However, there are no defined yardsticks for measuring the same, and various stakeholders may understand "essential supplies" differently.A Way ForwardAssistance can be taken in this regard from the UNCITRAL Guide on Insolvency Law, which recommends to determine how contracts in which both the debtor and its counterparty have not yet completely completed their respective commitments should be dealt under the insolvency law. Furthermore, while UNCITRAL Recommendation 79 proposes mandating the counterparty to continue with the contract despite contractual breaches committed by the corporate debtor prior to the commencement of insolvency, it also requires the insolvency professional to cure the breach and return the counterparty to substantially the same economic position it was in, prior to the breach.Incorporating a clause of a similar nature in the clause would ensure that, in addition to safeguarding the corporate debtor and supporting a successful resolution, the law considers the concerns and interests of affected third parties.&nbsp;*Anoushka is a second year student at National Law University, Jodhpur.

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Termination Of A Contract With Corporate Debtor

Section 14 of the Insolvency and Bankruptcy Code imposes a moratorium from taking certain actions against the corporate debtor from the date of the commencement of the Corporate Insolvency Resolution Process.

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&nbsp;Are Judges over-reacting to the Use of AI by Lawyers&nbsp;By Joseph Pookkatt&nbsp;When S. A. Shwartz, a New York attorney, infamously filed a legal brief in a New York Federal Court that was&nbsp;<a href="https://www.law.com/legaltechnews/2023/06/02/the-problem-with-the-bogus-chatgpt-legal-brief-its-not-the-tech/" rel="noopener noreferrer" target="_blank">drafted by&nbsp;ChatGPT</a>, little did he realize that the said act would cause him significant embarrassment and infamy. Shwartz relied on ChatGPT to do his research and write the legal brief. The problem? It was full of fake case citations, which Shwartz never bothered to check before filing. This incident has led to several federal and state judges requiring explicit disclosures from attorneys using&nbsp;generative AI tools&nbsp;in legal work before their court. &nbsp;Shortly thereafter several federal and State judges in the United States have issued certifications and directives requiring explicit disclosures for attorneys using generative artificial intelligence tools in legal work before their court.&nbsp;Let me focus on 3 specific instances where the use of AI tools was singled out – &nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;The U.S. District Judge, Brently Starr in the Northern District of Texas&nbsp;issued a standing order requiring&nbsp;attorneys to file&nbsp;<a href="https://www.txnd.uscourts.gov/judge/judge-brantley-starr" rel="noopener noreferrer" target="_blank">mandatory certifications</a>&nbsp;attesting that they did not use generative AI, such as OpenAI’s ChatGPT or Google’s Bard, in drafting their court filings. Or, if they did use it, attesting that its output was checked for accuracy, using print reporters or traditional legal databases, by a human being.”2.&nbsp;&nbsp;&nbsp;&nbsp;The U.S. Magistrate Judge Gabriel Fuentes in the Northern District of Illinois followed suit,&nbsp;<a href="https://www.ilnd.uscourts.gov/_assets/_documents/_forms/_judges/Fuentes/Standing%20Order%20For%20Civil%20Cases%20Before%20Judge%20Fuentes%20rev'd%205-31-23%20(002).pdf" rel="noopener noreferrer" target="_blank">requiring that any party using AI</a>—not necessarily specifying generative AI—disclose its use to the court. (See - reason.com/volokh/2023/06/08/another-judicial-order-related-to-lawyer-use-of-generative-ai)3.&nbsp;&nbsp;&nbsp;&nbsp;A judge on the U.S. Court of International Trade immediately thereafter issued an order requiring lawyers to disclose their use of generative artificial intelligence tools to create legal documents, citing security concerns related to confidential information. (www.reuters.com/legal/transactional/another-us-judge-says-lawyers-must-disclose-ai-use-2023-06-08)Now several courts have required explicit disclosures from attorneys using generative AI tools in legal work before the court. Additionally, judges required attorneys using AI to provide information on the specific AI tool used, the data inputs used to train the tool, and any human involvement in the output.While the incident of filing a legal brief without cross-checking was not excusable, it does not warrant such a level of overreaction from the judges singling out the use or abuse of AI.&nbsp;Wrong Tool for the Job&nbsp;Generative AI has the potential to revolutionize the legal industry, offering benefits such as streamlining communications, assisting humans in creating new solutions, democratizing innovation, and&nbsp;increasing productivity. However, the blind reliance on AI, including ChatGPT, is using the wrong tool for the job. Different forms of&nbsp;generative AI&nbsp;may elicit different levels of reliability from the legal community. For example, ChatGPT can be reliable for summarization of a particular document while it can be unreliable for legal research. Lawyers need to recognize that generative AI is not ready for use in legal work and double down on their defences when it comes to evaluating the technology's reliability and accuracy.&nbsp;The issue is not solely with AI. It is with lawyers who do not recognize the limitations of the technology and fail to exercise due diligence in checking the accuracy of the outputs. The tendency to think of AI as magic and the impressiveness of its outputs do not absolve lawyers of their obligations in using any tool. AI is a tool, and like any tool, it does not replace the lawyer or the lawyer's&nbsp;ethical obligation&nbsp;to their clients and the court. Lawyers will need to use their professional common sense while working with such tools.&nbsp;It is for this reason that OpenAI warns of “hallucinations,” while using ChatGPT and Google acknowledges its Bard LLM is “<a href="https://policies.google.com/terms/generative-ai" rel="noopener noreferrer" target="_blank">experimental</a>.&nbsp;The common thread is that lawyers need to exercise caution and diligence when using AI in legal work. Lawyers should be aware of the limitations of the technology and take steps to verify the accuracy and reliability of the output.&nbsp;Lawyers need to recognize that the reliability of generative AI varies depending on the specific application and the quality of the data it is trained on.&nbsp;Whether the lawyer is using a public system versus a private, commercial, legal-specific system, preloaded and trained with trustworthy legal content or a generative AI model requires to be carefully understood. &nbsp;Duty of Care&nbsp;The problem is not with lawyers fully embracing AI and attempting to integrate it into every aspect of the legal profession. Rather, the issue is that lawyers fail to recognize that&nbsp;generative AI&nbsp;is not yet suitable for use in legal work. As a result, lawyers must exercise additional caution when evaluating the accuracy and reliability of&nbsp;AI technology, given its infancy.&nbsp;Schwartz's failure to verify the accuracy of his submissions to the court was a professional shortcoming. If he had used Westlaw or&nbsp;Lexis Nexis&nbsp;for traditional&nbsp;legal research, he would have been expected to read the judgment before citing it. Similarly, when using generative AI for legal research, one must not copy and paste the output without verifying its accuracy. The responsibility to fulfil&nbsp;ethical obligations&nbsp;as a lawyer remains regardless of the technology used. The impressive outputs of AI and the temptation to view it as a magic solution does not exempt lawyers from their responsibilities.&nbsp;Books are tools that do not replace lawyers or their ethical obligations to their clients and the court. Similarly, regardless of how powerful an&nbsp;AI tool&nbsp;may be, and even if it is specifically designed for legal practice (which ChatGPT is not), proponents of AI and those who create such tools do not suggest that lawyers should merely copy and paste the output. Lawyers must use their&nbsp;professional judgment&nbsp;when working with these tools.&nbsp;&nbsp;Legal AI tools are evolving.&nbsp;Google DeepMind Co-founder Mustafa Suleyman over the weekend in a LinkedIn Post said that hallucinations are a temporary problem and that by 2025 the problem will be largely solved. Whether Mustafa is correct or not, and for those not wanting to wait till 2025, several legal technology providers have been creating generative-AI-powered tools specifically designed for use in legal. Several traditional publishers have now begun to focus on fine-tuning publicly available AI models to meet the needs of the legal profession and appropriately power legal work through co-pilots.&nbsp;The incident involving the use of ChatGPT by Schwartz only highlights the need for caution when adopting new technologies. Many in legal tech are focused on fine-tuning AI models to meet the needs of the legal profession, but it is up to lawyers to use these tools responsibly and ethically.&nbsp;&nbsp;In my view, the judges' stance on the use of AI by lawyers was evidently an overreaction…&nbsp;lawyers need to exercise caution and diligence whether using traditional publishers or using AI in legal work. Let us not single AI for harsh treatment especially given its immense potential to revolutionise the legal industry.

Are Judges over-reacting to the Use of AI by Lawyers

Joseph Pookkatt

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Pandemic and the Force Majeure clauses

The COVID-19 pandemic has erected exceptional hurdles. It is important to note that this&nbsp;pandemic has been widely documented to have a detrimental effect not just on the&nbsp;global&nbsp;shipping.

Sneha Kumari

-Abhijeet SrivastavaWhat is a Smart Contract?The concept of “smart contract” was first introduced in 1994 by Nick Szabo. He defined a smart contract as&nbsp;“a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”&nbsp;In other words, it is a self-executing program that automates the actions required in an agreement or contract. Smart Contracts are computer programs in which a blockchain eliminates the requirement for the third-party entities by ensuring that all the parties of the contract are well versed with the details of the contracts and, due to the programming logic of smart contracts, the terms and conditions of the contract are automatically applied once the conditions are met.Benefits of Self-Executing Smart ContractsSmart contracts are digital programs that are designed to execute and enforce the terms of an agreement between parties automatically. The key part of smart contracts is that they self-execute, eliminating the need for intermediaries or intermediaries (such as banks, lawyers, third parties) to ensure compliance with the terms of the agreement. This feature reduces the costs and time associated with traditional contract execution and minimizes the risk of human error, making smart contracts a popular alternative to conventional legal agreements.Smart contracts also have the potential to mitigate the need for litigation, as they are based on blockchain technology, a decentralized and transparent ledger that ensures the immutability and authenticity of the transactions recorded on it. By removing the need for intermediaries, smart contracts minimize the risk of disputes arising from contract interpretation or breach, as the terms and conditions of the agreement are coded into the contract and executed automatically. In this way, smart contracts provide a reliable and efficient way to enforce contractual obligations, reducing the need for costly and time-consuming legal proceedings.Implementation of Smart ContractsThe implementation of smart contracts involves several steps. Firstly, the code for the smart contract is written using a programming language that is compatible with the blockchain platform being used. Popular programming languages for smart contract development include Solidity for Ethereum and Chaincode for Hyperledger Fabric. Next, the smart contract is deployed onto the blockchain network using a software tool called a smart contract compiler. The compiler converts the code into a machine-readable language and deploys it onto the blockchain. Once the smart contract is deployed, it is available for use by parties who wish to execute the terms of the contract. The parties must agree to the terms of the smart contract, and once those terms are met, the smart contract automatically executes the agreed-upon actions.Use CasesHere are some use cases of smart contracts in different sectors:1. Insurance:&nbsp;Smart contracts can be used to automate claim processes in insurance. The contract can automatically verify the validity of the claim and determine the payout amount based on the pre-defined conditions. This reduces the need for paperwork, making the process faster, cheaper, and more transparent. Additionally, smart contracts can also be used for parametric insurance, where the pay-out is triggered automatically based on the occurrence of a pre-defined event, such as a natural disaster.2.&nbsp;Banking:&nbsp;Smart contracts can be used to automate various processes in banking, such as loan agreements, trade finance, and payments. The contract can automatically verify the borrower's creditworthiness and determine the interest rate and payment schedule. Similarly, in trade finance, the contract can automatically release payment when the conditions of the contract are met, reducing the risk of fraud and default.3.&nbsp;Online Dispute Resolution:&nbsp;Smart contracts can be used to automate dispute resolution in online transactions. The contract can automatically initiate the dispute resolution process when the conditions of the contract are not met, such as non-delivery of goods or services. The contract can also specify the dispute resolution mechanism and the outcome, making the process faster, cheaper, and more transparent.4.&nbsp;Consumer Industry:&nbsp;Smart contracts can be used to automate supply chain management and improve product traceability. The contract can automatically track the movement of goods and verify their authenticity, reducing the risk of counterfeit products. Additionally, smart contracts can also be used for loyalty programs, where the contract can automatically issue rewards based on pre-defined conditions, such as the amount of purchase or the number of visits.Enforceability of Smart Contracts in IndiaPresently, India does not have any specific legal statute pertaining to smart contracts, however; there are provisions under the Indian Contract Act, 1872, the Evidence Act, 1872 and the Information Technology Act, 2000 which may be applied in smart contracts.1.The Indian Contract Act, 1872Section 10 of the Indian Contract Act, 1872 -&nbsp;“all agreements are contracts if they hold the free consent of parties willing to contract, for a lawfully accepted consideration and with an object.”&nbsp;Thus, any agreement can be legally enforceable as a contract if it includes an offer, acceptance, and consideration. Therefore, it can be argued that smart contracts should be enforceable under the Indian laws.2.The Information Technology Act, 2000Section 10A of the Information Technology Act, 2000 states that&nbsp;“Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose”. Thus, the Information Technology Act, 2000&nbsp;provides validity to contract where the contract has been accepted in electronic form. Hence, smart contracts should be enforceable.3.The Indian Evidence Act, 1872Section 65B of the Indian Evidence Act, 1872 states that&nbsp;“any information in an electronic record printed on a paper or stored or recorded or copied in optical or magnetic media produced by a computer shall be deemed by a document. It further states that such a document can be admissible as evidence in any proceedings without additional proof original”.&nbsp;It is pertinent to mention that as per Section 85B of the Indian Evidence Act, 1872; such e-contracts are only enforceable if these are digitally signed in accordance with the rules prescribed by the central government.ConclusionSmart contracts can simplify and streamline various legal processes, from contract drafting to execution and dispute resolution. With the legal industry in India undergoing a transformation towards digital adoption, the use of smart contracts can potentially revolutionize the way legal processes are conducted.However, the adoption of smart contracts poses several technology challenges that need to be addressed for their effective implementation. The use of blockchain technology and smart contracts require decentralized platform, which may pose challenges in terms of scalability, interoperability, and standardization. The complexity of smart contracts also raises questions around their security and resilience, given the risks of coding errors, hacking, and vulnerabilities. Additionally, the legal framework for smart contracts is still evolving, and there is a need to ensure compliance with existing legal and regulatory requirements.Despite these challenges, the potential benefits of smart contracts in various domains, including insurance, banking, online dispute resolution and consumer industry are significant. The challenges can be addressed through technical innovation, training algorithms and adopting legal ontologies for the purpose of standardization. It is essential to overcome the technology challenges involved in smart contracts to unlock their full potential, enhancing efficiency, transparency, and trust in various industries.*Abhijeet is a corporate lawyer with a passion for artificial intelligence and law. He has graduated from the School of Law at UPES Dehradun with honors, earning a gold medal and recognition as the best law student at his university. Apart from his legal career, he focuses on developing strategies for integrating artificial intelligence in legal functions.

Demystifying Smart Contracts in India

The concept of “smart contract” was first introduced in 1994 by Nick Szabo. He defined a smart contract as&nbsp;“a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”&nbsp;

Abhijeet Srivastava

IntroductionIn the preceding article, we discussed the potential of smart contracts, their multifaceted benefits, and their implementation across diverse industries. Now, as we continue this exploration, we delve deeper into the functionality of smart contracts, focusing on what makes them “smart” or “self-executing” in nature. We will also draw a comparative analysis with traditional online contracts to better understand the transformative potential of smart contracts. Understanding the "Smart" in Smart ContractsA smart contract is an evolution beyond conventional paper contracts or digital agreements. Coined as "smart," it possesses capabilities that surpass traditional contractual mechanisms, akin to how a smartphone transcends the functionalities of a regular mobile phone. A smart contract is essentially computer code hosted on Distributed Ledger Technology (DLT) such as Blockchain or Corda. The "smartness" comes into play when the contract, upon receiving specific data inputs, executes predefined actions. This process mirrors an excel spreadsheet formula, where upon input, the formula adjusts itself and performs the programmed actions.What is Distributed Ledger Technology ?Distributed Ledger Technology (DLT) serves as the foundation for smart contracts and is crucial for their operation, especially in the legal sector. DLT is a decentralized database managed by multiple participants or nodes, recording all transactions with an unalterable cryptographic signature, ensuring both transparency and security. In the context of smart contracts, DLT serves a dual role - a host and an executor. Smart contracts are self-executing contracts where terms of agreement are coded and reside on the DLT. When predefined conditions are met, DLT helps execute these contracts automatically, minimizing manual intervention and related errors or delays.Blockchain, a type of DLT, is the most well-known and commonly used platform for creating and managing smart contracts. These smart contracts are self-executing contracts with the terms of the agreement directly written into lines of code. This code, or contract, resides on the blockchain, and its execution is managed by the network of computers that run the blockchain, thereby removing the need for a central authority or intermediary.The inherent nature of DLT makes it an ideal platform for smart contracts. DLT's transparency ensures all parties involved can view transaction details, providing a single source of truth. Its immutability guarantees that once a contract is deployed, it cannot be altered or tampered with, ensuring the contract will be executed exactly as agreed unless otherwise mutually agreed between the parties. The decentralized nature of DLT enables peer-to-peer interactions, reducing dependencies on intermediaries, and potentially lowering costs and increasing efficiency.Comparing Smart Contracts with Online ContractsTo further appreciate the ground breaking potential of smart contracts, let's juxtapose them with conventional online contracts. Online contracts, typically found on internet forms, lay out the terms of a transaction but lack access to the actual value being exchanged. In the event of a breach, such as a failed delivery from an online retailer, the burden of initiating recourse falls on the purchaser, who must navigate through complaint procedures or claims for refunds, as dictated by the General Conditions of the contract.In contrast, smart contracts not only define the next steps but also execute them autonomously. For instance, in the event of a failed book delivery, a smart contract could autonomously re-order the textbook from an alternate supplier and levy a time penalty against the original seller by transferring value from the seller to the buyer. This level of automation is possible because the smart contract operates within a DLT that holds the value being transacted.The Role of Oracles in Smart Contract ExecutionIn order for a smart contract to be self-executable, it needs to be triggered by data inputs that both parties trust and have agreed in the contractual terms. These data inputs could come from various sources, such as official registers capable of providing electronic messages, the Internet, including the Internet of Things (IoT), and other business networks. These sources are connected to the DLT via connectors known as "Oracles". Oracles play a crucial role in the execution of smart contracts by providing a trusted bridge between the contract and the real-world data it needs to function. They also introduce a level of human oversight, ensuring that the data inputs are accurate and trustworthy.Let us understand this with a simple illustration. For instance, a SaaS service provider and a customer could agree on a smart contract that automatically renews the customer's monthly subscription if the payment is made by the due date. The smart contracts could be programmed to say, "IF the customer pays the subscription fee before the end of the current subscription month, THEN extend the customer's monthly subscription for the next period." Similarly, if the SaaS service provider fails to provide the agreed service level, the smart contract could automatically issue service credit or refund to the Customer. The versatility of smart contracts makes them a powerful tool in automating legal agreements and obligations. In case of a dispute, the smart contract automatically freezes the current state of the agreement and initiates the dispute resolution process. This could involve notifying mutually agreed arbitrator or ODR service provider giving them access to the blockchain record of all transactions related to the agreement. This automation and transparency offers a new way of enforcing and managing legal agreements that can increase efficiency, reduce the risk of disputes, and provide a secure record of all transactions.ConclusionBy automating contractual obligations, smart contracts drastically reduce the need for the parties to intervene after execution of the contract. It simply executes whatever was mutually agreed between the parties in the contract. Smart contracts stand at the forefront of a new era of contractual relations, providing a level of efficiency, security, and autonomy that is unparalleled. However, to harness their full potential, we need to overcome the challenges they present and develop robust legal frameworks for their enforcement. As we continue to explore and innovate, smart contracts have the potential to significantly transform the way we conduct transactions and agreements, setting the stage for a more efficient and transparent future.*Abhijeet is a corporate lawyer with a passion for artificial intelligence and law. He has graduated from the School of Law at UPES Dehradun with honours, earning a gold medal and recognition as the best law student at his university. Apart from his legal career, he focuses on developing strategies for integrating artificial intelligence in legal operations.

 Unravelling the Self-Executing Mechanism of Smart Contracts

A smart contract is an evolution beyond conventional paper contracts or digital agreements. Coined as "smart," it possesses capabilities that surpass traditional contractual mechanisms, akin to how a smartphone transcends the functionalities of a regular mobile phone.

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Termination Of A Contract With Corporate Debtor

Are Judges over-reacting to the Use of AI by Lawyers

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Demystifying Smart Contracts in India

Unravelling the Self-Executing Mechanism of Smart Contracts