A CRITICAL ANALYSIS OF “UNCONSCIONABILITY” IN MODERN TERMS OF SERVICE (ToS) AGREEMENTS

3 days ago

4 min read

Author- Rupsha Mitra

ABSTRACT

With the rapid expansion of digital platforms, the nature of contractual relationships has been transformed, with Terms of Service (TOS) Agreements emerging as the principal mechanism governing user-service provider interactions. These types of contracts are standard form contracts that are imposed unilaterally and usually accepted without negotiation. In this paper the doctrine of unconscionability and its relevance in regulating unfair terms embedded in modern Terms of Service Agreements have been examined critically. In this study, it is also evaluated whether traditional legal standards adequately address digital era contractual imbalances, and it argues for a more context-sensitive application of unconscionability.

Keywords: one-sided, oppressive, unconscionability, unenforceable, doctrine of unconscionability

INTRODUCTION

In today’s era of digital economy, the people’s access to essential services such as e-commerce websites, fintech applications, cloud-based services, etc. depends upon acceptance of Terms of Service Agreements. These types of contracts are often accepted by a single click and are rarely negotiated, which raises serious concerns about meaningful consent and fairness and creates structural imbalance between powerful service providers and individual users.

The doctrine of unconscionability serves as a defense that allows courts to invalidate or modify contracts that are excessively one-sided and oppressive. This doctrine was not developed with the growing era of digital contracts but traditionally applied in cases involving unequal bargaining power. However, clauses relating to unilateral modification, limitation of liability, mandatory arbitration, and extensive data usage are contained in modern Terms of Service Agreements, which significantly curtail user rights. This paper also critically analyses whether the traditional understanding of the doctrine of unconscionability remains effective in addressing such practices.

CONCEPT AND EVOLUTION OF UNCONSCIONABILITY

The doctrine of unconscionability is actually rooted in principles of equity, justice, and good conscience. In jurisdictions of common law, it is operated as a corrective mechanism against such contracts, which basically offend notions of fairness. There are generally two types of elements embedded in this doctrine; they are procedural unconscionability (which concerns inequality in the bargaining process) and substantive unconscionability (which focuses on the unfairness of the contractual terms themselves).

In India the doctrine of unconscionability is not directly enshrined under the Indian Contract Act, 1872, but courts have invoked sections 16 and 23 of the above act to invalidate contracts arising out of undue influence or opposing public policy. Thus, a crucial role has been played by the interpretation of the judiciary in incorporating the doctrine of unconscionability into Indian contract law.

STANDARD FORM CONTRACTS AND TERMS of SERVICE AGREEMENTS

Standard form contracts are basically pre-drafted agreements that are offered on a non-negotiable basis, whereas modern Terms of Service (ToS) agreements are digital extensions of standard form contracts. The indispensability of digital services in contemporary life often makes the user's freedom to accept or reject terms a false choice. The lack of alternative platforms, combined with complex legal language, wears away genuine consent.

It has also been acknowledged by the Supreme Court of India, which is India’s apex court, that contracts formed under conditions of gross inequality require a closer scrutiny by the judiciary. This is logically true for Terms of Service (ToS) agreements, as users face a take-it-or-leave-it situation with no other options.

JUDICIAL APPROACH TO UNCONSCIONABILITY IN INDIA

In the year 1986, the case of Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly laid the foundation of the doctrine of unconscionability in Indian jurisprudence. In this case the Indian Supreme Court said that arbitrary, unconscionable terms in employment contracts with government-owned bodies (treated as "State" under Article 12) are void, violating Article 14 (Equality) and public policy, thereby invalidating Rule 9(i) of CIWTC's service rules, which allowed termination without cause. The Court held such terms, especially in contracts of adhesion where one party has unequal bargaining power, are against distributive justice and void under Section 23 of the Indian Contract Act.

Similarly, in another landmark case of the Supreme Court of India, LIC of India v. Consumer Education and Research Centre, the court invalidated unfair insurance policy terms, emphasizing the need for fairness in standard form contracts. These cases demonstrate judicial willingness to intervene where unequal bargaining power, a principle highly relevant to modern ToS agreements, is exploited by contractual terms.

UNCONSCIONABILITY IN DIGITAL TERMS OF SERVICE

Modern ToS agreements often contain clauses that lack fairness if strict judicial scrutiny is done. Mandatory arbitration clauses limit access to courts, unilateral modification clauses allow service providers to alter terms without user consent, and exclusion clauses significantly restrict liability. Such provisions raise concerns of substantive unconscionability.

Equal evidence is provided by procedural unconscionability, as users are rarely informed adequately about the implications of legal terms. The click-wrap mechanism, while legally recognized, does not necessarily ensure informed consent. The cumulative effect of these practices necessitates a re-evaluation of how unconscionability is assessed in digital contracts.

COMPARATIVE PERSPECTIVE

In the courts of the United States, the doctrine of unconscionability is applied under the Uniform Commercial Code and common law principles. In the case of William v. Walker-Thomas Furniture co., the court recognised that inequality of bargaining power and oppressive terms could make a contract unenforceable.⁶ On the other hand, in the UK, courts rely on statutory mechanisms, such as the Consumer Rights Act, to deal with unfair contract terms. These jurisdictions demonstrate a shift toward stronger consumer protection in standard form contracts, offering valuable lessons for Indian law in addressing digital unconscionability.

CONCLUSION

The traditional perspectives of unconscionability must evolve to deal with the present realities of digital contracting. A contextual approach must be adopted by courts that considers technological dependence, data asymmetry, and the essential nature of digital services.

Unconscionability plays as a vital doctrine to ensure contractual fairness in a digitally dominated era of Terms of Service Agreements. As we know that every coin has its two sides, therefore when on one side Indian courts have laid a strong foundation through judicial interpretation, then on the other side there are unique challenges posed by digital contracts, which require adaptive legal standards. A reconceptualized application of unconscionability, sensitive to technological realities and consumer vulnerability, becomes necessary to ensure checks and balances to commercial efficiency with justice and fairness in modern contract law.