The Agent Nobody Defined: AI Chatbots and the Limits of Indian Contract Law

Prem Kumar Vishwakarma is a 3rd-year law student at National Law School of India University, Bengaluru, with an interest in technology law and contract law. Their writing looks at how Indian law handles new technology, including AI chatbots, automated contracting and questions of liability.

A company deploys an AI chatbot to speak to its customer. The chatbot makes a representation that the customer relied on. The company later denies responsibility for the AI chatbot. Who, then, is liable for these representations? In 2024, a judgment was passed by the Civil Resolution Tribunal in Canada where a passenger relied on the information provided by an AI-automated chatbot, which was on the website of Air Canada, and booked a ticket.[1] This information was regarded as untrue and false by the authorities of Air Canada, who later also claimed that the chatbot was operating as an independent entity.[2] However, the tribunal held that this was negligent misrepresentation on the part of Air Canada and that the chatbot was part of its website.[3] This judgment brings to light the important question India never had to answer. Who is responsible for the actions taken by a non-human AI-automated chatbot? Indian law does not yet appear to have any legislation or reported case addressing this problem. This piece traces that question through the IT Act’s attribution rules, the Contract Act’s agency chapter, and the international model law India hasn’t yet engaged with and argues that all three currently fall short.

The Old Answer: Attribution Under the IT Act

Section 11 of the IT Act 2000 states that an electronic record shall be traced back to its originator, whether sent by himself,[4] a person authorised by him,[5] or “by an information system programmed by or on behalf of the originator to operate automatically.”[6] Section 10A of the IT Act 2000 states that when a contract is formed through an electronic means, it would be valid. However, provisions of the Information Technology Act, 2000, such as section 11, which talks about “attribution of electronic records” and section 10A, which talks about “validation of contracts formed through electronic means,” are not sufficient to tackle the problem of chatbots, which are not pre-recorded voice messages or texts. Even when Section 11(c) talks about “information system”, it is in the context that these are “programmed to act automatically”, like an auto-reply or EDI system, which does not fit rightly when we talk about generative AI chatbots which exercise judgment while acting. These chatbots are capable of making independent decisions and creating or modifying contractual obligations. That is precisely why a judgment-exercising chatbot falls outside what Section 11(c) was written to cover.

Can a Chatbot Be an “Agent”? Testing the Contract Act

Now that brings us to the question of whether these chatbots can qualify as agents under the Indian Contract Act, 1872. The simple answer would be negative as of now, as Section 182 of the Indian Contract Act strictly requires an agent to be a person.[7] AI chatbots are not persons since the statutory definition has not been extended to define AI under the definition of agents. However, on many occasions, these chatbots are capable of evaluating the situation and taking proper decisions like a person. Their functional role is similar to that of an agent, even though the statutory definition does not define it as an agent. One can argue that Indian Courts have attributed non-human entities like a company as legal persons via the General Clauses Act.[8] Why not AI chatbots? But no legislature has extended “person” to cover AI systems the way it did for companies.

Ostensible Authority: A Workaround, Not a Solution

The Supreme Court of India, in Trimex International FZE Ltd. v. Vedanta Aluminium Ltd. (2010), explained that a valid contract can be formed through an electronic medium like e-mail as long as there is an agreement on essential terms.[9] If we extend this understanding to AI chatbots, it can be understood that automated chatbots are capable of contracting on behalf of the operator. However, the distinction can be noted between a contract formed by two persons by email, as the facts are in Trimex International, and contracts formed by AI on behalf of a person. What Trimex established was much narrower, which was that Indian law does not require any particular medium for a valid contract. However, this does not answer anything about whether a decision made by a non-human chatbot counts as ‘agreement’ at all. This is a much harder question that AI chatbots raise. Section 237 of the Indian Contract Act states that the principal is liable for the act done by the agent if the principal, by conduct, has led the third party to believe that the act was authorised by him.[10] AI chatbots can be said to be under ostensible authority defined under section 237, since they are deployed by the principal to do the particular work, which leads the third party to assume that the principal has authorised it. In the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, Lord Justice Diplock established the principle of ostensible authority that the principal is bound by the actions of the agents who lack actual authority.[11] Indian courts have adopted the same principle in India. But this principle can be implemented only when we recognise AI chatbots as agents, which Indian Law does not do.

Not Just a Canadian Problem

As the facts show in the Canada case, Indian companies also use AI chatbots to interact with customers and help them navigate services. This might likely happen in India also. This does not have to be deliberate but rather a mistake on the part of the chatbot, which might lead to the same situation as the Canada case. HDFC Bank uses its AI chatbot EVA to address millions of customer queries,[12] while SBI Card employs the ILA assistant for making card payments, booking additional services and service requests.[13] The e-commerce and retail industries also rely heavily on chatbots to track customer orders and resolve queries. Lenskart uses bots to allow users to book services, make payments and raise complaints.[14] If Indian companies increasingly deploy automated systems in customer-facing functions, a chatbot’s representation may become indistinguishable to consumers from an authorised communication by the company itself.

What the Rest of the World Is Doing

International law has begun to develop a more specific framework for automated contracting. India is still waiting to tackle this problem. The UNCITRAL Model Law on Automated Contracting (MLAC), adopted on 11^th July 2024, aims to facilitate the use of automation in contracts.[15] It focuses on facilitating AI techniques and machine-to-machine transactions used in forming a contract.[16] It provides countries with the opportunity to set internationally acceptable rules to overcome legal obstacles related to automation in contracts.[17] Article 7(2) of the UNCITRAL MLAC states that actions taken by an automated system are attributed to the person who uses such a system.[18] Article 8 specifically talks about the unexpected actions taken by AI. It disavows parties of liability for the actions carried out by an automated system if it could not have been foreseen by the parties.[19] Indian IT law is derived from the UNCITRAL Model Law on Electronic Commerce (1996), which talks about facilitating legal obstacles arising from commerce using electronic means.[20] UNCITRAL Model Law 2024 builds directly on UNCITRAL Model Law 1996, the same 1996 framework that India’s own IT Act is based on. However, IT law is still not equipped with these changes and has yet to improve at tackling the problem of AI chatbots.

The Choice Before India

The problem, however, exists and will continue to grow as every industry is increasingly using automation in their business and using AI chatbots to handle their customer service. India has three choices to make to handle the situation at hand – (a) extend the IT Act’s automated-attribution logic under Section 11 to cover judgement-exercising systems like AI chatbots, (b) amend the Indian Contract Act’s agency chapter directly to include AI Chatbots as agents, or (c) adapt UNCITRAL Model Law 2024 to make the suitable changes under Indian Laws. However, none of these is costless, option (b), in particular, cuts both ways. It won’t be so easy to define AI chatbots as agents because it poses significant threats for the companies. Extending agency liability too readily could make companies liable for AI hallucinations they had no realistic way to anticipate. This is a real policy tension, not just a technical one. Either way, India is at that gate where it has to choose one gate to walk through. Air Canada found this out in a small claims tribunal in British Columbia. India can decide the answer in Parliament instead or wait for its own version of Moffatt to decide it in court.

References

Cases

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (CA) <https://vlex.co.uk/vid/freeman-lockyer-firm-plaintiffs-793476897>

Moffatt v Air Canada 2024 BCCRT 149 (British Columbia Civil Resolution Tribunal) <https://www.canlii.org/en/bc/bccrt/doc/2024/2024bccrt149/2024bccrt149.html>

Trimex International FZE Ltd, Dubai v Vedanta Aluminium Ltd, India (2010) 3 SCC 1 <https://indiankanoon.org/doc/658803/>

Legislation

General Clauses Act 1897 (India) <https://indiankanoon.org/doc/905940/>

Indian Contract Act 1872 (India) <https://www.legislative.gov.in/act/the-indian-contract-act-1872-9>

Information Technology Act 2000 (India) <https://www.meity.gov.in/static/uploads/2024/03/ITbill_2000.pdf>

International Instruments

United Nations Commission on International Trade Law, UNCITRAL Model Law on Automated Contracting (2024) (adopted 11 July 2024) <https://uncitral.un.org/en/mlac>; full text with Guide to Enactment <https://uncitral.un.org/sites/default/files/2424674e-mlautomatedcontracting-rev1-ebook.pdf>

United Nations Commission on International Trade Law, UNCITRAL Model Law on Electronic Commerce (1996) (adopted 12 June 1996) <https://uncitral.un.org/en/texts/ecommerce/modellaw/electronic_commerce>