What Are Smart Contracts?
In a world that’s rapidly digitizing, smart contracts are emerging as a powerful tool for automating and securing transactions especially in block-chain ecosystems like cryptocurrencies, NFTs, and DeFi (Decentralized Finance).
But what exactly are they?
A smart contract is a self-executing agreement where the terms are written directly into code and stored on a block-chain. Once certain conditions are met, the contract automatically carries out the agreed action without needing human intervention or a middleman.
Think of it like a vending machine: you insert money; the machine delivers the snack. No negotiation, no human to confirm the deal. That’s how smart contracts work.
How Do Smart Contracts Work?
Smart contracts follow basic “if then” logic:
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- If the buyer sends the payment,
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- Then the ownership of the digital asset automatically transfers to the buyer.
This process is:
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- Immutable (can’t be altered once deployed),
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- Transparent (visible on public block-chains),
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- Autonomous (executes without external control).
They are most commonly built on platforms like Ethereum, which supports programmable block-chain functions.
Why Smart Contracts Matter for Businesses & Creators?
From supply chain automation to real estate, intellectual property licensing, and even insurance claims, smart contracts can:
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- Reduce human error
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- Cut costs by eliminating intermediaries
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- Speed up execution and settlement
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- Enhance trust through transparency
For example, digital creators using NFTs can embed automatic royalty payments via smart contracts, ensuring they get paid every time their work is resold.
Are Smart Contracts Legal in India?
Currently, smart contracts are not explicitly defined under Indian law. However, under the Indian Contract Act, 1872, a valid contract must include:
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- An offer and acceptance
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- Lawful consideration
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- Competent parties
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- Free consent
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- A lawful object
If a smart contract fulfills these conditions, especially intention and consent, it could be considered legally binding though practical enforcement and dispute resolution are still grey areas.
Key Challenge: Indian courts are yet to recognize code based agreements as formal contracts in a consistent way. The lack of a regulatory framework makes enforcement tricky, especially when disputes arise involving cross border or pseudonymous parties.
Use Cases of Smart Contracts in India
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- NFT Royalties
Artists can embed resale royalties in NFTs to receive a percentage every time their work changes hands.
- NFT Royalties
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- Supply Chain Management
Businesses can track products and release payments automatically upon verified delivery.
- Supply Chain Management
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- Real Estate Transactions
Property deals could be completed without manual paperwork once title verification is automated.
- Real Estate Transactions
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- Insurance Claims
Claims can be processed automatically upon receipt of predefined evidence like accident reports or medical bills.
- Insurance Claims
Legal Concerns & the Way Forward
Despite the advantages, smart contracts raise critical legal questions:
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- How do courts interpret contracts that are purely code?
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- Can bugs in the code void a contract?
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- What jurisdiction applies when parties are anonymous or located globally?
The future solution lies in hybrid models where smart contracts are paired with traditional, legally drafted documents. Regulatory reforms, judicial awareness, and standardization are necessary to fully embrace this technology in India.
Final Thoughts
Smart contracts have the potential to revolutionize legal agreements making them faster, cheaper, and more secure. For lawyers, creators, entrepreneurs, and tech companies, understanding their strengths and limitations is key.
As India gradually moves toward digital governance and block-chain adoption, smart contracts may soon become a regular part of our legal and commercial systems.
Author by,
Pavithra Sai Pasumarthy
Associate Advocate, RVR Associates, IPR Attorneys and Advocates