In the Supreme Court of India Equivalent citations 1966 AIR 543, 1966 SCR (1) 656 Appellant Bhagwandas Goverdhandas Kedia Respondent Girdharilal Parshottamdas & Co. & Ors. Decided on 30 August 1965. Bench J.C. Shah, K.N. Wanchoo and M. Hidayatullah, JJ
For the formation of a contract, an offer must be made and accepted. The contract is deemed to be complete only when the acceptance of such offer is expressly or impliedly communicated to the offeror. The earlier laws regarding contracts did not envisage the formation of contracts through instantaneous modes of communication such as telephone which facilitate formation of contract between parties in different territories instantaneously. Therein, the question of the place of formation of contract arises which was decided in this case.
On July 22nd 1959, Kedia Ginning Factory and Oil Mills (appellant) of Khamgaon entered into a contract over telephone to supply cotton seed cakes to M/s. Girdharilal Parshottamdas and Co. (respondents) of Ahmedabad. The respondents commenced an action against the appellant in the City Civil Court of Ahmedabad for failing to supply cotton seed cakes as per the aforementioned agreement. The respondents contended that the cause of action for the suit arose at Ahmedabad as the appellant’s offer to sell was accepted at Ahmedabad and the appellant was to be paid for the goods through a bank in Ahmedabad. The appellant contended that the respondents’ offer to purchase was accepted at Khamgaon; the delivery and payment of the goods were also agreed to be made in Khamgaon and the City Civil Court of Ahmedabad did not have jurisdiction to try the suit. The City Civil Court of Ahmedabad held that it had jurisdiction as the acceptance of the offer was intimated to the offerree at Ahmedabad and that is where the contract was made. The appellants filed a revision application in the High Court of Gujarat which was rejected. Then, the appellants preferred an appeal to the Supreme Court with special leave.
Contentions of appellant:
- In the case of a contract by telephone, only the court within whose territorial jurisdiction the acceptance of offer is spoken into telephone has jurisdiction to try any suit regarding the contract.
- Sections 3 and 4 of the Indian Contract Act (1872) are applicable in determining the place where a contract is made and not the decisions of UK courts.
Contentions of respondents:
- The making of an offer is a part of cause of action in a suit for damages for breach of contract. Hence, the court in whose territorial jurisdiction such offer was made can try such suit.
- The contract is formed where the acceptance of offer is intimated to the offerree. Hence, the court in whose territorial jurisdiction such acceptance of offer was intimated can try such suit.
A contract comes into existence when an offer is accepted and the acceptance of the offer is intimated through anexternal manifestation by speech, writing or other act recognised by law. However, an exception to this rule has been made in the interest of commercial expediency.When a contract is negotiated through post, the communication of acceptance is deemed to be complete when the acceptance of offer is put into a course of transmission to the offerer. The same rule is applicable in case of a contract by telegram. Mere making of an offer does not form part of the cause of action for damages for breach of contract which has resulted from acceptance of the offer (Baroda Oil Cakes Traders v. Purshottam Narayandas Bagulia and Anr. AIR1954Bom491).Though sections 3 and 4 of the Contract Act speak about the communication, acceptance and revocation of a proposal and acceptance respectively, the Act does not expressly deal with the place where a contract is made and in determining the same, the interpretation clauses in section 2 of the Act must be taken into consideration.
In the case of a telephone conservation, the contract is only complete when the answer accepting the offer is made[ Denning LJ in Entores Ltd. v. Mills Far East Corporation, (1955) 2 Q.B.D. 327]. In the majority of European countries and the US, the generally accepted rule based on the theory of consensus ad idem is that the contract is made in the district where the acceptance is spoken. The Indian Contract Act (1872) did not envisage the formation of contracts through an instantaneous mode of communication such as telephone. The exception of commercial expediency applicable to contracts formed via post is not applicable to contracts made through telephone.Hence, the Hon’ble Court held that the trial Court was right in taking that a part of the cause of action arose within the jurisdiction of the Civil City Court. Ahmedabad, where acceptance was communicated by telephone to the respondents. The appeal was dismissed with costs.
Dissenting Opinion by Justice Hidayatullah:
Though the Contract Act is applicable in India, it was drafted in England and English common law permeates it.In Entores Ltd. v. Mills Far East Corporation, it was held that a contract made by telephone is complete only where the acceptance is heard by the proposer [offeror in English common law] because generally an acceptance must be notified to the proposer to make a binding contract and the contract emerges at the place where the acceptance is received and not at the place where it is spoken into the telephone. In cases of contracts by correspondent or telegram, a different rule prevails and acceptance is complete as soon as a letter of acceptance is posted or a telegram is handed in for dispatch.
In Carrow Towing Co. v. The Ed Mc William, (46 D.L.R. 506), it was held: “Where a contract is proposed and accepted over the telephone, the place where the acceptance takes place constitutes the place where the contract is made. Acceptance over the telephone is of the same effect as if the person accepting it had done so by posting a letter, or by sending off a telegram from that place”. In an old English case Newcomb v. De Roos [(1859) 2 E & E 271], Hill J. observed: “Suppose the two parties stood on different sides of the boundary line of the district: and that the order was then verbally given and accepted. The contract would be made in the district in which the order was accepted.”
Where the speech is fully heard and understood there is a binding contract and in such a case the only question is as to the place where the contract can be said to be completed. The acceptance was put in the course of transmission at Khamgaon and under the words of the Contract Act, it is difficult to say that the contract was made at Ahmedabad where the acceptance was heard and not at Khamgaon where it was spoken. Section 4 of the Act covers in its language a contract through telephone. The decision in Entores case was based on interpretation of common law whereas in the instant case, the interpretation of statutory law is in question. Hence, the contract was completed at Khamgaon where the acceptance was spoken.
In this case, the court decided the question of the place of origin of the cause of action in a suit for breach of contract made over telephone. Here, the court also clarified the rules regarding the communication, acceptance and revocation of proposal and acceptance with respect to a contract made over the telephone. The decision further clarified that the rule of communication and acceptance of offer applicable to contracts made through post would not be applicable to contracts made over the telephone.
Edited by Parul Soni
Approved & Published – Sakshi Raje