Bhagwandas Goverdhandas Kedia v. M/S Girdharilal Parshottamdas

In this landmark judgement, the Supreme Court of India considered the aspect of telephonic conversation in the making of a contract. The main point of consideration was when the acceptance would be deemed to be complete. Read this analysis to find out the answer!
CITATION1966 AIR 543
COURTSupreme Court of India
JUDGES/CORAMJustice J.C. Shah
DATE OF JUDGEMENT30.08.1965

Introduction

The instant case is of such nature, which makes it pertinent to understand the operation and applicability of offer and acceptance made under India Contract Act, 1872. An offer can be made at one geographical point while the acceptance can be communicated from another geographical location. This leads to myriad of layers of confusion and uncertainty regarding the place of contract. It is essential for every valid contract to determine the place where the contract was struck, as many other elements within the contract would depend on the place of contract. Every proceeding, judgment, reference and liability can arise depending upon the place of the contract. Another essential aspect is how the communication for offer and acceptance is made and when it is to be determined that the contract has been conveyed for an agreement by both parties. Under the instant case, Section 2, 3, 4, place of formation of contract and postal rule would be highlighted. Based on where the contract was entered into originally, jurisdiction can be ascertained as to which court is fit to decide on the matter arising out of breach of contract. 

Facts

The facts of the case are as follows: In the immediate case, the plaintiffs made an oral offer on phone from Ahmedabad for the purchase of cotton seed cake from the defendants. The defendants accepted this offer on phone Khamgaon. The defendants later having failed to supply the requisite cotton seed cake were sued by the plaintiffs. In order to get compensation for the monetary loss of the plaintiff, they (plaintiff) demanded for compensation amounting to Rs.31,150 for the breach of contract. The suit was filed at Ahmedabad. The defendants contended that the Ahmedabad Court had no jurisdiction as the contract was completed by the acceptance of offer on a telephone, at Khamgaon. On the other hand, the plaintiffs contended that the contract was struck when the acceptance was communicated to him (when he heard the acceptance through telephone) at Ahmedabad and, therefore, the suit was within the jurisdiction of the Ahmedabad Court. The Supreme Court, after considering the facts and evidence of the case held that the contract was made at Ahmedabad where the acceptance was communicated and the part of action for an action for the breach of contract in this case had arisen within the jurisdiction of the Ahmedabad Court.  

Issues

The main issues in the case were:

  1. Which court had the jurisdiction to try the case under Indian Contract Act, 1872?
  2. The question of ‘when’ the contract was complete is to be examined and finalized. This would help in fixing the liability of a party to another.

Summary of court decision and judgment

On the issue of jurisdiction, the Trial Court took cognizance of the fact that the plaintiffs had made an offer from Ahmedabad by long distance telephone to the defendants to purchase the goods and that the defendants had accepted the offer at Khamgaon, that the goods were under the contract to be delivered at Khamgaon and that payment was also to be made at Khamgaon. The court was of the view of the contract to be performed at Khamgaon, and because of the offer made from Ahmedabad to purchase goods the Ahmedabad Court could not be invested with jurisdiction to entertain the suit. However, the Trial Court held that when a contract is made by conversation on telephone, the place where acceptance of offer is intimated to the offeror, is the place where the contract is made, and therefore the Civil Court at Ahmedabad had jurisdiction to try the suit.

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There was a revision application filed by the defendants requesting the court to proceed on the merits against the order but it was rejected in limine by the High Court of Gujarat. Against the order, the appeal was preferred with special leave. The defendants contended that in the case of a contract by conversation on telephone, the place where the offer is accepted was the place where the contract was made and that Court alone had the jurisdiction within the territorial jurisdiction of which the offer is accepted and the acceptance is spoken into the telephone instrument. 

Upon examining the nature of the contract entered into by phone, the Supreme Court observed, that in case of a telephonic conversation, in a sense that parties are in the presence of each other, each party is able to hear and perceive the voice of the other party. There is an instantaneous communication of speech intimating offer and acceptance, rejection or counter-offer. Intervention of an electrical impulse which results in the instantaneous communication of messages from a distance does not alter the nature of the material of conversation so as to make it analogous to that of an offer and acceptance through post or by telegraph. Post office acts as an agent between the offeror and the offeree but in case of telephonic phone call, the intervention ends when the two parties are connected telephonically and can hear each other instantaneously.

Analysis

In the landmark case of, Adams v. Lindsell[1], an offer was made by defendants by post to sell certain goods. Though the acceptance was duly posted by plaintiff, it reached defendants nearly after a week when latter had already sold the goods to a third party. Court ruled that when parties are not in each other’s presence and when they communicate in long distance by post or telegram, both parties get bound by contract as and when the acceptor puts the letter of acceptance in the course of transmission to offeror so as to be out of his power to recall.

In Baroda Oil Cakes Traders case[2] and cases cited therein, a similar rule had been adopted when the offer and acceptance are by telegrams. The exception to the general rule requiring intimation of acceptance may be summarized as follows: when by agreement, course of conduct, or usage of trade, acceptance by post or telegram is authorized, the bargain is struck and the contract is complete when the acceptance is put into a course of transmission by the offeree by posting a letter or dispatching a telegram. The defendants contend that the same rule applies in the case of contracts made by conversation on telephone.

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Below are the four pertinent questions concerning case at hand the answers to which would help in better understanding the concept and the reasoning behind the Supreme Court’s decision in the present case.

  1. The court’s decision was appropriate and the case was decided correctly. The judgment of the case holds that the acceptance of the offer was sufficiently conveyed though the telephone call. The moment proposer heard the offer being accepted through the telephone, the contract was held to be formed and there was no time window for any revocation of the contract.
  2. However, court’s decision was not in conformity of the existing laws in the contemporary India as far as contracts through telephonic conversations are concerned. The Indian Contract Act was introduced in 1872. This was before the age of technological breakthroughs. There were no phones or fax machines. Although the reasoning was consistent with the other cases discussed above. The reasoning was that offer is said to be communicated when the offeree receives such offer through some external manifestation of the proposer’s will to offer a contract.
  3. The court did justify its reasoning adequately. It emphasized that a bargain is said to be struck and the contract is completed when the acceptance is put into a course of transmission by the offeree by posting a letter or dispatching a telegram or a telephone call. The Supreme Court of India rightly puts that in case of a telephonic conversation, the position was the same as in the case where the parties were in the presence of each other, and the rule of contract through post did not apply to such contracts. In case of acceptance sent by post, the contract is concluded when the letter of acceptance is posted, whereas in case of acceptance by phone, the contract is deemed to be complete when the offeror hears the acceptance at his end rather than when the acceptor speaks the words of acceptance. Therefore, in this case the interpretation of law is correct and just. The court is correct. The court did miss one point regarding the absence of any telephones during 1966 India but nevertheless it does not weaken the merit of the case.
  4. The policy implication of this decision is quite difficult to be made out considering the fact that this case was heard in 1966. Indian Contract Act, 1872 has been amended a lot of times since 1966 and carving out an alternative approach to have public policies committed towards this area is a far-fetched notion.
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The ratio decidendi of this case can be construed by analyzing the legality of Section 4 of the Indian Contract Act, 1872.  According to Section 4, the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete, as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer. The communication of a revocation is complete, as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge. In the instant case the intimation of acceptance was communicated over a telephone call which meant that the plaintiff had heard it instantaneously. The draftsmen of the Indian Contract Act did not suppose the possibility of contracts being struck over long-distance telephone calls but the courts have to follow what is convenient during the existing laws. The reason of this court’s decision is that the acceptance was conveyed as soon as the offeror heard the intimation, thereby forming the contract.

There is substantial opinion of dissent that I would like to put forward. Not many telephones permeated the Indian sub-continent during the time frame within which this contract was entered into by both parties. Even the Indian Contract Act, under section 4 states that the communication of acceptance is complete as against the proposer only when it is put into course of transmission to him. The draftsmen of this Act alluded at Post Offices and letters, not telephonic calls. In case of a telephone call the voices are heard instantly without any delay in time and when there is no delay in time, the contract would be formed the very next second of the offeree communicated his intimation. Moreover, if we exclude the ‘aspect’ of convenience and go by pure law, the place of formation of contract should have been Khamgaon.

Conclusion

The decision of this case has been a very widely referred. Sections 2, 3 and 4 of the Indian Contract Act are now seen with more legality. The question about which court would have jurisdiction is entirely linked with the place of formation of the contract, no matter how instantaneously. This case will most certainly have some influence over future cases where the dilemma is revolving around the place where the contract would deem to have been sealed. The cases of such nature should also reconsider the timeline of the events when the contracts had taken place otherwise there would be variance between ‘Law’ and ‘Applicability’.


[1]1 B. & Ald. 681.

[2] AIR 1954 Bom 491, (1954) 56 BOMLR 575, ILR 1954 Bom 1137.