SUPREME COURT HOLDS THAT A CONDITIONAL CONTRACT IS CONCLUDED WHEN THE CONDITION IS ACCEPTED ABSOLUTELY

Recently, the #SupremeCourt of India in the case of Padia Timber Company (P) Ltd. v. Visakhapatnam Port Trust (2021 SCC Online SC 1), vide its Judgment dated 05-01-2021 held that the #acceptance of a #conditionaloffer with a further #condition results in a concluded #contract, until the offerer absolutely accepts the further condition proposed by the acceptor. 

Facts: The Visakhapatnam Port Trust (‘Respondent’) issued a Tender for supply of Wooden Sleepers. Padia Timber Company (P) Ltd. (‘Appellant’) submitted its Offer with a specific condition that inspection of the Wooden Sleepers would have to be conducted only at the depot of the Appellant. It further deposited earnest money amount of Rs 75,000/- as per the terms of the Tender along with its quotation. However, the opening of the Tender was postponed for another date by the Respondent. As a result, the Appellant submitted its Revised Offer reiterating the same specific condition with respect to the inspection of the Sleepers. It further stipulated that in the event inspection would conduct at General Stores of the Respondent then the Appellant would charge 24% extra.

Thereafter, the Respondent had accepted the Offer of the Appellant and agreed that the Inspection Committee would inspect the Wooden Sleepers at the site of the Appellant. However, the Respondent imposed a further condition that the Appellant would have to transport the Wooden Sleepers to the General Stores of the Respondent by road at the cost of the Appellant and the final inspection would be made at the General Stores of the Respondent.

Consequently, the Appellant rejected the proposal of the Respondent and requested that the earnest money deposited by the Appellant must be returned, vide Letter dated 30.10.1990. On the same day, the Respondent issued the Purchase Order for the supply of the Wooden Sleepers. The Respondent also warned the Appellant that if supply was not made as per the Purchase Order then the Earnest Money Deposit of Rs 75,000 would be forfeited.

Thereafter, several correspondences were exchanged between the Respondent and the Appellant. In response to one of the Letters, the Appellant contended that there was no concluded contract between the Appellant and the Respondent. Therefore, the Appellant again requested for refund of the Earnest Money Deposit.

In this regard, the Respondent had filed a Suit for Damages for breach of contract against the Appellant before the Additional Senior Civil Judge, Visakhapatnam. The Appellant had also filed a Suit for Recovery of Earnest Money Deposit before the same Trial Court.

Trial Court: The Additional Senior Civil Judge, Visakhapatnam, vide its Order dated 31.03.2000 allowed the Suit filed by the Respondents for damages and dismissed the Suit filed by the Appellant for recovery. The Trial Court held that the Contract was enforceable till its completion or its abandonment. Accordingly, the rescission of the Contract and consequential forfeiture of Earnest Money Deposit was proper and within the terms of the Contract. It also held that the Appellant committed breach of its obligations under a concluded Contract, therefore the Respondent is entitled to damages as claimed.

The said Order of the Trial Court dated 31.03.2000 was challenged before the High Court of Judicature at Hyderabad in Appeal Nos. 2196 and 2197 of 2000.

High Court: While hearing the Appeals, the High Court of Judicature at Hyderabad, vide its Order dated 10.10.2006, upheld the Trial Court Order dated 31.03.2000 and findings thereof.

Being aggrieved by the High Court Order dated 10.10.2006 confirming the Order of the Trial Court dated 31.03.2000, the Appellant approached the Supreme Court, vide Civil Appeal No 7469/2008.

Supreme Court:

The Supreme Court observed that “With the greatest of respect, the High Court has cursorily dealt with the contentions of the Appellant and has not even discussed the cases that had been cited on behalf of the Appellant.

The Supreme Court discussed the Section 7 of the Indian Contract Act, 1872 which is related to -acceptance to be absolute in order to convert a proposal into a promise. It observed that the cardinal principle of the law of contract states that the offer and acceptance of an offer must be absolute. It can give no room for doubt. The offer and acceptance must be based or founded on three components i.e., certainty, commitment and communication.

The Supreme Court relied upon the following cases:

  • Haridwar Singh v. Bagun Sumbrui and Ors (AIR 1972 SC 1242), wherein it was held that an acceptance with a variation is no acceptance. It is, in effect and substance, simply a counter proposal which must be accepted fully by the original proposer, before a contract is made.
  • Union of India v. Bhim Sen Walaiti Ram [(1969) 3 SCC 146], a three-Judge Bench of Supreme Court held that acceptance of an offer may be either absolute or conditional. If the acceptance is conditional, offer can be withdrawn at any moment until absolute acceptance has taken place.

Based on the aforesaid cases and provision of the law, the Supreme Court held that the Appellant submitted its Offer to the Respondent’s Tender with a condition, which was duly accepted by the Respondent however with a further condition. This further condition was not accepted by the Appellant. Therefore, the Contract between the Respondent and the Appellant could not be said to be a concluded contract. Thus, the Supreme Court held that the Appellant was not in breach and not liable to pay damages. The Appellant was entitled to refund of its Earnest Money deposited with the Respondent.

Lakshmi Vishwakarma

Associate

The Indian Lawyer & Allied Services

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