In The Supreme Court of India
Equivalent citations
1972 AIR 1242, 1972 SCR (3) 629
Petitioner
Haridwar Singh
Respondent
Bagun Sumbrui
Date of Judgement
25th February 1972

Bench
Hon'ble Justice K. S. Hegde, Hon'ble Justice K. K. Mathew

Section 5 of the Indian Contract Act 1872

Revocation of proposals and acceptances.

A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. 
An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. 

Revocation when

1. Withdrawal before expiry of fixed period 

2. Acceptance of proposal under voluntary retirement scheme [VRS]

3. Agreement to keep offer open for specific period

4. Communication of revocation should be from offeror himself 

5. Revocation of general offers

6. Superseding proposal by fresh proposal 

7. Cancellation of allotment of land 

8. Revocation of bid:

In the case of an auction, “the assent is signified on the part of the seller by knocking down the hammer”.

“A bid may be retracted before the hammer is down”.[1]

In a Madras case[2], the appellant made a bid at an auction (the highest bid that was made) but before the property was knocked down, he discovered that the property was subject to a mortgage and retracted his bid. But even so the auctioneer knocked down the property to him. The owner of the property sued him. 

The court held that “the plaintiff’s bid was no more than an offer and he was entitled to withdraw the same before it was accepted by the property being knocked down to him by the auctioneer”.[3]

Facts

1. There is a bamboo coup known as “Bantha Bamboo coup” in Chatra North Division of Hazaribagh district.

2. On July 22, 1970, the Forest Department of the Government of Bihar advertised for settlement of the right to exploit the coup by public auction.

3. The auction was held in the office of the Divisional Forest Officer on August 7, 1970. Five persons including the appellant participated in the auction. Though the reserve price fixed in the tender notice was Rs. 95,000/-, the appellant’s bid of Rs. 92,001/-, being the highest, was accepted by the Divisional Forest Officer.

4. The petitioner thereafter deposited the security amount of Rs. 23,800/and executed an agreement.

5. The Divisional Forest Officer reported about the auction sale to the Conservator of Forests, Hazaribagh Circle, by his letter dated August 25, 1970.

6. As the price for which the coup was provisionally settled exceeded Rs. 50,000/-, the Conservator of Forests forwarded the papers regarding the auction sale to the Deputy Secretary to Government of Bihar, Forest Department, for confirmation of the acceptance by the Government.

7. Since the provisional settlement was made for an amount less than the reserve price, the matter was also referred to the Finance Department.

8. The Finance Department invited comments from the Divisional Forest Officer as to why the settlement was made for a lesser amount.

9. The Divisional Forest Officer, by his letter, dated October 30, 1970, submitted his explanation for the provisional settlement at an amount below the reserve price. When the matter was pending before the Government, the appellant expressed his willingness to take the settlement at the reserve-price of Rs. 95,000 by his communication, dated October 26, 1970.

10. The appellant thereafter filed an application on November 3, 1970, praying for settlement of the coup on the basis of the highest bid.

11. The Minister of Forest, by his proceedings, dated November 27, 1970, directed that the coup may be settled with the highest bidder, namely the appellant, at the reserve price.

12. A telegram was sent by the Government to the Conservator of Forests, Hazaribagh Circle on November 28, 1970, with a copy of the same to the Conservator of Forest, Bihar, confirming the auction sale to the appellant at the reserve price of Rs. 95,000/-.

13. As no intimation was received by the Divisional Forest Officer, he did not communicate the proceedings of the Minister to the appellant.

14. One Md. Yakub, respondent No. 6, filed a petition on December 4, 1970, before the Government of Bihar, respondent No. 1, offering to take the settlement of the coup in Question for Rs. 1,01,125/-.

15. A telegram was sent by the Government on December 5, 1970, to the Divisional Forest Officer, directing him not to take any action on the basis of the telegram, dated November 28, 1970, sent to him in pursuance of the proceedings of the Government, dated November 27, 1970.

16. That telegram was received by the Divisional Forest Officer on December 10, 1970, and the Divisional Forest Officer, by his letter dated December 10, 1970 informed the Government that the previous telegram, dated November 28, 1970 was not received by him and so its content was not communicated to the appellant.

17. The whole matter was thereafter placed before the Minister of Forest and the Minister, by his proceedings, dated December 13, 1970, cancelled the settlement of the coup with the appellant and settled thy same with respondent No. 6 for Rs. 1,01,125/-.

18. The Government thereafter sent telegrams on December 21, 1970, to the Conservator of Forests and the Divisional Forest Officer, informing them that the coup had been settled with respondent No. 6.

19. The Divisional Forest Officer, by his letter, dated December 23, 1970, directed respondent No. 6 to deposit the security amount and to pay the first instalment. Respondent No. 6 deposited the same and executed an agreement. 

Procedural History

The appellant filed a writ petition before the High Court of Patna praying for quashing an order passed by the Minister of Forest, Government of Bihar, on December 13, 1970, and for issue of a writ in the nature of mandamus directing the Respondents 1 to 5 to give effect to the previous order of the Minister of Forest, dated November 27, 1970. The writ petition was heard by a Division Bench of the Court and the petition was dismissed. This appeal, by special leave, is from that judgment.

Issue

The question is whether by an acceptance which is conditional upon the occurrence of a future event a contract will become concluded?

Arguments

1. The contention of the appellant in the writ petition was that there was a concluded contract when the bid of the appellant was accepted by the Divisional Forest Officer though that was subject to confirmation by the Government and that, when the Government confirmed the acceptance by its proceedings, dated November 27 1970, it was no longer within the power of Government to make the settlement of the coup upon the 6th Respondent by its proceedings, dated December 13, 1970.

2. It was also contended in the alternative that the settlement of the coup in favour of. the 6thRespondent was in violation of statutory rules and, therefore, in any event, that settlement was invalid.

3. Provisional Acceptance: The special conditions in the tender notice makes it clear that the Divisional Forest Officer has the right to accept a bid of less than Rs. 5,000/-, that acceptance of a bid of more than Rs. 5,000/- by him is subject to confirmation by the Chief Conservator of Forests and the Forest Department of the Bihar Government, that an auction sale for an amount of more than Rs. 5,000/- would not be recognized until it is confirmed by the competent authority, and that a bid made in auction and which has been provisionally accepted by the Divisional Forest Officer shall be binding on the bidder for two months from the date of auction or till the date of rejection by the competent authority, whichever is earlier. 

4. Counsel for the appellant contended that there was a conditional acceptance of the offer of the appellant by the Divisional Forest Officer, that on confirmation by the Government, that acceptance became unconditional and, therefore, there was a concluded contract when the Government confirmed the acceptance, even though the continuation was not communicated to the appellant.

5. In support of this, he relied on The Rajanagaram Village Co-operative Society v. Veerasami Mudaly[4], There it was held that in the case of a conditional acceptance in the presence of a bidder, the condition being that it is subject to approval or confirmation by some other person, the acceptance, though conditional, has to be communicated and when thatis communicated, there is no further need to communicate the approval of continuation which is the fulfilment of the condition.

6. It was further held that a conditional acceptance has the effect of binding the highest bidder to the contract if there is subsequent approval or confirmation by the person. indicated, that he cannot resile from the contract or withdraw the offer, and if there is approval or confirmation, the contract becomes concluded and enforceable.

7. This decision was considered in Somasundaram Pillai v. Provincial Government of Madras[5], where Chief Justice Leach speaking for the court said that, to have an enforceable contract, there must be an offer and an unconditional acceptance and that a person who makes an offer has the right to withdraw it before acceptance, in the absence of a condition to the contrary supported by consideration.

8. He further said the fact that there has been a provisional or conditional acceptance would not make any difference as a provisional or conditional acceptance cannot in itself make a binding contract.

Judgment

1. In this case, it is not the want of communication of the confirmation by the Government to the appellant that really stands in the way of there being a concluded contract, but rather the want of confirmation by the Government of the conditional acceptance by the Divisional Forest Officer.

2. The appellant’s bid was for Rs. 92,001/-. The acceptance of the bid by the Divisional Forest Officer was, therefore, subject to confirmation by Government.

3. The proceedings of the Minister, dated November 27, 1970, would show that he did not confirm the acceptance of the offer by the Divisional Forest Officer. What the Minister did was not to confirm the acceptance made by the Divisional Forest Officer, but to accept the offer made by the appellant in his communication, dated October 26, 1970, that he would take the coup for the reserved price of Rs. 95,000/-.

4. There was, therefore, no confirmation of the acceptance of the bid to take the coup in settlement for the amount of Rs. 92,001/-.

5. If the offer that was accepted was the offer contained in the communication of the appellant, dated October 26, 1970, the court does not think that there was any communication of the acceptance of that offer to the appellant.

6. The telegram sent to the Conservator of Forest, Hazaribagh by the Government on November 28, 1970, cannot be considered as a communication of the acceptance of that offer to the appellant.

7. The acceptance of the offer was not even put in the course of transmission to the appellant; and so even assuming that an acceptance need not come to the knowledge of the offeror, the appellant cannot contend that there was a concluded contract on the basis of his offer contained in his communication, dated October 26, 1970, as the acceptance of that offer was not put in the course of transmission.

8. Quite apart from that, the appellant himself revoked the offer made by him on October 26, 1970, by his letter dated November 3, 1970, in which he stated that the coup may be settled upon him at the highest bid made by him in the auction.

9. Therefore, there was no concluded contract between the appellant and the Government. 

Conclusions

The question whether by an acceptance which is conditional upon the occurrence of a future event a contract will become concluded was considered by Willston[6] :
A nice distinction may be taken here between: (1) a so-called acceptance by which the acceptor agrees to become immediately bound on a condition not named in the offer, and (2) an acceptance which adopts unequivocally the terms of the Offer but states that it will not be effective until a certain contingency happens or fails to happen.

1. In the first case there is a counter-offer and rejection of the original offer; in the second case there is no counter-offer, since there is no assent to enter into an immediate bargain.

2. There is an acceptance in escrow, which is not to take effect until the future.

3. In the meantime, of course, neither party is bound nor either may withdraw.

4. If the time at which the acceptance was to become effectual is unreasonably remote, the offer may lapse before the acceptance becomes effective.

5. But if neither party withdraws nor the delay is not unreasonable a contract will arise when the contingency happens or stipulated event occurs.

Edited by Parul Soni

Approved & Published – Sakshi Raje

Reference:

[1]Per best J in Agra Bank v. Hamlyn, ILR(1890) 14 Mad 235.n should be from offeroithdraw. nt(1890) 14 Mad 235.

[2]Joravarmull Champalal v Jeygopaldas Ghanshamdas, AIR 1922 Mad 486.

[3]The court cited Raja of Bobbili v Suryanarayana Rao Gara, ILR (1917) 42 Mad. 776.

[4]The Rajanagaram Village Co-operative Society v. Veerasami Mudaly AIR I951 Mad. 322.

[5]Somasundaram Pillai v. Provincial Government of MadrasAIR 1947 Mad. 366.

[6]Willston: On Contracts, Vol 1,3rd Ed., Section 77A.