After-Effects of: Bhagwandas Goverdhandas Kedia v.

Girdharilal Parshottamdas AIR 1966 SC 543

LAW OF CONTRACTS-I

‘After Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. AIR
1966 SC 543

The objective behind the research work is to analyse the place of formation of contract
in the case of telephonic conversations and study the concept of jurisdiction of courts
with reference to the place of formation of contracts, in light of Bhagwandas
Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. along with its after effects.

 What is the difference between the communication of acceptance in English and

Indian laws?
 What is the difference between communication of acceptance between the one
through telephone and the one through post by letter?
 What is the principle in Indian Contract Law regarding the jurisdiction of Court
relating to the place of formation of contract?
 Is the place where the offer was made instrumental in determining whether a case
falls within the territorial jurisdiction of the court of that area?
Sec 2(b):When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a promise.

The definition clearly requires that the assent should be signified. It may be signified or
expressed by an act or omission by which the party accepting intends to communicate
his assent or which has the effect of communicating it. [S.3] The principle is that there
should be some external manifestation of acceptance. In words of SHAH J. (afterwards
CJ):1

An agreement does not result from a mere state of mind: intent to accept an
offer or even a mental resolve to accept an offer does not give rise to a contract.

1
In BhagwandasGoverdhandas Kedia v. Girdharilal Parshottamdas & Co., (1966) 1 SCR 656: AIR 1966 SC 543.

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

There must be... some external manifestation of that intent by speech, writing or other
act.

The communication of 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. 2 The only
difference that the section makes is in the position of the acceptor. In England, when
the letter of acceptance is posted, both the offeror and the acceptor become irrevocably
bound.3 But, in India, the acceptor does not become bound by merely posting his
acceptance. He becomes bound only when his acceptance “comes to the knowledge of
the proposer”. The gap of time between the posting and the delivery of the acceptance
can be utilised by the acceptor for revoking his acceptance by a speedier communication
which will overtake the acceptance.4

The rule, that the communication of acceptance is complete as against the proposer when
the letter is posted, is probably intended to apply only when the parties are at a distance
and they communicate by post. In England also its operation has been confined only to
cases where the post is used, and the illustration (b), appended to Section 4 also
supposes communication by post. “Where, however, the parties are in each other’s
presence or, through separated in space”, they are in direct communication, as, for
example, by telephone, no contract will arise until the offeror receives the notification of
acceptance.5 This was held in the Entores Ltd. V. Miles Far East Corporation.6

An offer is thus, accepted by the communication of the acceptance to the offeror. The
rule is modified where contracts are made through the post, for an offer made by letter
may be accepted by letter and the Post Office is in effect the agent of the offeror for
the purpose of communicating the acceptance.7 But the Court of Appeal has not extended
this exception from the general rule to the case of contracts made by the Post Office

2
Section 4.
3
Anson, “Principles of the English Law of Contract”, 22nd edn., A. G. Guest, pp. 50-51.
4
Section 5, which provides that “an acceptance may be revoked at any time before the communication of its
acceptance is complete as against the acceptor, but not afterwards.”
5
Singh, Avtar, “Law of Contract and Specific Relief”, Eastern Book Company, Lucknow, 9th edn., 2005, p.31.
6
(1955) 2 All E.R. 493; (1955) 2 Q. B. 327.
7
Entores Ltd. V. Miles Far East Corporation (1955) 2 All E.R. 493; (1955) 2 Q. B. 327.

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

Telex Services.8 In a contract concluded on the telephone or by teleprinter, the parties

will be taken to be in the presence of each other and the place of the acceptance will
be the place where the acceptance is received or where the offeror was. 9 The rule of
instantaneous communications between the parties is different from the rule about the
post. The rule for the place of formation of contract by telephonic conversation was laid
down by the leading case of Bhagwandas Goverdhandas Kedia v. Girdharilal
Parshottamdas & Co.10 In the case of communications by post, an acceptance is
complete as soon as it is put in the post box and that is the place where the contract is
made. In the case of instantaneous communications, the contract is only complete when
the acceptance is received by the offeror and the contract is made when the acceptance
is received. This is the rule in most of the European countries. But in the United States,
the rule is the same as that of postal communications.

In the case of telephonic communication, the rule in America is that even in the case of
telephones and telex, the contract is made in the District where the acceptance is spoken.
This is based on the deep rooted principle of common law that where the parties
impliedly or expressly authorise a particular channel of communication acceptance is
effective when it enters that the channel of communication.11

The principle of the Entores case has been endorsed by the Supreme Court in
Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. The case would
be discussed in detail further along with the cases which were relied upon and the
Sepulchre Brothers v. Sait Khushal Das Jagjivan Das Mehta 12, the decision of which
was disapproved. Further, the after effects of Bhagwandas Goverdhandas Kedia v.
Girdharilal Parshottamdas & Co. would be analysed with the help of various cases
where this particular case was relied upon and how the principle developed and
solidified over the years.

8
Ibid.
9
SupraNote 7.
10
(1966) 1 SCR 656: AIR 1966 SC 543.
11
Williston on Contracts (3rd Ed.), Vol. 1, p.271.
12
(1941) 2 MLJ 481.

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

Facts: Messrs Girdharilal Parshottamdas & Company- hereinafter called "the plaintiffs"-
commenced an action in the City Civil Court at Ahmedabad against the Kedia Ginning
Factory Oil Mills of Khamgaon-hereinafter called "the defendants" for a decree for Rs.
31,150/- on the plea that the defendants had failed to supply cotton seed cake which
they had agreed to supply under an oral contract dated July 22, 1959 negotiated between
the parties by conversation on long distance telephone. The plaintiffs submitted that the
cause of action for the suit arose at Ahmedabad, because the defendants had offered to
sell cotton seed cake which offer was accepted by the plaintiffs at Ahmedabad, and also
because the defendants were under the contract bound to supply the goods at
Ahmedabad, and the defendants were to receive payment for the goods through a Bank
at Ahmedabad. The defendants contended that the plaintiffs had by a message
communicated by telephone offered to purchase cotton seed cake and they (the
defendants) had accepted the offer at Khamgaon, that under the contract delivery of the
goods contracted for was to be made at Khamgaon. Price was also to be paid at
Khamgaon and that no part of the cause of action for the suit had arisen within the
territorial jurisdiction of the City Civil Court Ahmedabad.
Procedural History: On the issue of jurisdiction, the Trial Court found 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 contract was in the view of the Court to be performed at
Khamgaon, and because of the offer made from Ahmedabad to purchase goods the Court
at Ahmedabad could not be invested with jurisdiction to entertain the suit. But the 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. A revision
application filed by-the defendants against the order, directing the suit to proceed on the
merits, was rejected in limine by the High Court of Gujarat. Against the order of the
High Court of Gujarat, this appeal was then preferred with special leave.

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

Contentions of the Parties: The defendants contended that in the case of a contract by
conversation on telephone, the place where the offer is accepted is the place where the
contract is made, and that Court alone has jurisdiction within the territorial jurisdiction
of which the offer is accepted and the acceptance is spoken into the telephone
instrument. The plaintiffs on the other hand contended that making of an offer is a part
of the cause of action in a suit for damages for breach of contract, and the suit lies in
the court within the jurisdiction of which the offeror has made the offer which on
acceptance has resulted into a contract. Alternatively, they contended that intimation of
acceptance of the offer being essential to the formation of a contract, the contract takes
place where such intimation is received by the offeror.

Judgement: The first contention raised by the plaintiffs was without substance. Making
of an offer at a place which has been accepted elsewhere does not form part of the
cause of action in a suit for damages for breach of contract. Ordinarily it is the
acceptance of offer and intimation of that acceptance which result in a contract. By
intimating an offer, when the parties are not in the presence of each other, the offeror is
deemed to be making the offer continuously till the offer reaches the offeree. The
offeror thereby merely intimates his intention to enter into a contract on the terms of the
offer. The offeror cannot impose upon the offeree an obligation to accept, nor proclaim
that silence of the offeree shall be deemed consent. A contract being the result of an
offer made by one party and acceptance of that very offer by the other, acceptance of
the offer and intimation of acceptance by some external manifestation which the law
regards as sufficient is necessary.
By a long and uniform course of decisions the rule is well- settled that 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.13 referred to). The view to the contrary
expressed by a single Judge of the Madras High Court in Sepulchre Brothers v. Sait
Khushal Das Jagjivan Das Mehta14 cannot be accepted as correct.

13
AIR 1954 Bom 491, (1954) 56 BOMLR 575, ILR 1954 Bom 1137.
14
(1941) 2 MLJ 481.

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

In terms s. 4 deals not with the place where a contract takes place, but with the
completion of communication of a proposal, acceptance and revocation. In determining
the place where a contract takes place, the interpretation clauses in s. 2 which largely
incorporate the substantive law of contract must be taken into account. S. 4 does not
imply that the contract is made qua the proposer at one place and qua the acceptor at
another place. The contract becomes complete as soon as the acceptance is made by the
acceptor and unless otherwise agreed expressly or by necessary implication by the
adoption of a special method of intimation, when the acceptance of offer is intimated to
the offeror. If the offeror receives no such intimation even if the offeree has resolved to
accept the offer, a contract may not result. But on this rule is engrafted an exception
based on grounds of convenience which has the merit not of logic or principle in
support, but of long acceptance by judicial decisions. If the parties are not in the
presence of each other, and the offeror has not prescribed a mode of communication of
acceptance, insistence upon communication of acceptance of the offer by the offeree
would be found to be inconvenient, when the contract is made by letters sent by post.

It was held that making of an offer at a place which has been accepted elsewhere does
not form part of the cause of action in a suit for damage, for breach of contract.
Ordinarily it is the acceptance of offer and intimation of that acceptance which result in
a contract. The intimation must be by same external manifestation which the law regards
as sufficient. The draftsmen of the Indian Contract Act did not envisage use of the
telephone as a means of conversation between parties separated in space and could not
have intended to make any rule in that behalf. The trial Court was right in the view
which it took that a part of the cause of action arose within the jurisdiction of the City
Civil Court Ahmedabad, where acceptance was communicated by telephone to the
plaintiffs. Thus, the appeal was dismissed.

As per the dissenting opinion of Hidayatullah, J., in the Entores case Lord Denning no
doubt held that acceptance given by telephone was governed by the principles applicable
to oral acceptance where the parties were in the presence of each other and that the
analogy of letters sent by post could not be applied. But the Court of Appeal was not
called upon to construe a written law which brings in the inflexibility of its own

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

language. It was not required to construe the words found in s. 4 of the Indian Contract
Act. If time has marched and inventions have made it easy to communicate
instantaneously over long distance and the language of our law does not fit the new
conditions it can be modified to reject the old principles. But it is not possible to go
against the language by accepting an interpretation given without considering the
language of our Act.

CASES REFERRED TO:

In the administration of the law of contracts, the Courts in India have generally been
guided by the rules of the English common law applicable to contracts, where no
statutory provision to the contrary is in force.

Entores Ltd. v. Miles Far East Corporation (1955) 2 All E.R. 493; (1955) 2 Q. B. 327:

In England the Court of Appeal has decided in Entores Ltd. v. Miles Far East
Corporation that: “Where a contract is made by instantaneous communication, e.g. by
telephone, the contract is complete only when the acceptance is received by the offeror,
since generally an acceptance must be notified to the offeror to make a binding contract”

In Entores Ltd's case, the plaintiff made an offer from London by Telex to the agents in
Holland of the defendant Corporation, whose headquarters were in New York, for the
purchase of certain goods, and the offer was accepted by a communication received on
the plaintiff's Telex machine in London. On the allegation that breach of contract was
committed by the defendant Corporation, the plaintiff sought leave to serve notice of a
writ on the defendant Corporation in New York claiming damages for breach of contract.
The defendant Corporation contended that the contract was made in Holland. Denning L.
J., who delivered the principal judgment of the Court observed at p.332, “When a
contract is made by post it is clear law throughout the common law countries that the
acceptance is complete as soon as the letter is put into the post box, and that is the
place where the contract is made. But there is no clear rule about contracts made by
telephone or by Telex. Communications by these means are virtually instantaneous and
stand on a different footing” and after examining the negotiations made in a contract

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

arrived at by telephonic conversation in different stages, Denning L.J., observed that in

the case of a telephonic conservation the contract is only complete when the answer
accepting the offer was made and that the same rule applies in the case of a contract
by communication by Telex. He recorded his conclusion as follows “The rule about
instantaneous communications between the parties is different from the rule about the
post. The contract is only complete when the acceptance is received by the offeror and
the contract is made at the place where the acceptance is received.”

Adams v. Lindsell (1818) 106 ER 250:

In Adams v. Lindsell, it was ruled as early as in 1818 by the Court of King's Bench in
England that the contract was complete as soon as it was put into transmission. In
Adams's case, the defendants wrote a letter to the plaintiff offering to sell a quantity of
wool and requiring an answer by post. The plaintiff accepted the offer and posted a
letter of acceptance, which was delivered to the defendants nearly a week after they had
made their offer. The defendants however sold the goods to a third party, after the letter
of acceptance was posted but before it was received by the defendants. The defendants
were held liable in damages. The Court in that case is reported to have observed that
“if the defendants were not bound by their offer when accepted by the plaintiffs till the
answer was received, they the plaintiffs ought not to be bound till after they had
received the notification that the defendants had received their answer and assented to it.
And so it might go on ad infinitum.

The rule in Adam's case was approved by the House of Lords in Dunlop and others v.
Vincent Higgins and others. The rule was based on commercial expediency, or what
Cheshire calls "empirical grounds". It makes a large inroad upon the concept of
consensus, "a meeting of minds" which is the basis of formation of a contract. The
exception has long been recognised in the United Kingdom and in other countries where
the law of contracts is based on the common law of England. Dunlop v. Higgins(1) is
the leading case in English Common law and it was decided prior to 1872 when the
Indian Contract Act was enacted.

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

Sepulchre Brothers v. Sait Khushal Das Jagjivan Das Mehta (1941) 2 MLJ 481:

The suit was for damages for breach of contract for delivery of certain perforated steel
Sheets according to specification to the plaintiff who was a merchant trading at
Bezwada. The defendants who carried on business at Bombay were the representatives of
a Belgian firm of steel manufacturers. The plaintiff averred that the defendants broke the
contract by failing to deliver the goods and they sued in the District Munsif's Court at
Bezwada alleging that their cause of action arose in part at Bezwada. The defendants
pleaded inter alia that the Court had no jurisdiction to entertain the suit as no part of
the cause of action arose at Bezwada. The issue was tried by consent of parties as a
preliminary issue and the letters by means of which the contract was concluded have
been included in the record. The lower Court took the view that the indent form which
the defendants finally sent to the plaintiff to be duly completed and returned after the
specifications and quotations had been exchanged must be taken to be the offer and the
plaintiff's posting it duly signed and completed was the acceptance and that therefore the
contract was concluded at Bezwada.

The learned District Munsif was further of opinion that the Court had jurisdiction as the
goods were to be received finally at Bezwada via Madras. It was held that where an
offer is made and accepted through post, a part of the cause of action arises where the
letter accepting the offer is posted and a part where it is delivered. In this view, a part
of the cause of action in the present case must be taken to have arisen at Bezwada
where the defendant's telegram accepting the plaintiff's order was received by the
plaintiff. This decision was disregarded in Bhagwandas Goverdhandas Kedia v. Girdharilal
Parshottamdas & Co. case.

THE AFTER-EFFECTS OF THE CASE

The case of Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. clarified
the principle pertaining to the formation of contracts through telephonic conversations and
the jurisdiction of courts for that matter. Where the parties are in the presence of each
other the method of communication will depend upon the nature of the offer and the
circumstances in which it is made. When an offer is orally made by an oral reply, but

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

even a nod or other act which indubitably intimates acceptance may suffice. If the
parties are not in the presence of each other and the offeror has not prescribed the
mode of acceptance, insistence upon communication of acceptance of the offer by the
offeree would be inconvenient when the offer is made by post by a letter. In the case
of negotiations by post, the contract is complete when acceptance of the offer is put into
the course of transmission to the offeror. 15 If regard be had to the essential nature of
communication by telephone, it would be reasonable to hold that the parties being in a
sense in the presence of each other and negotiations are completed by instantaneous
communication of speech, communication of acceptance is a necessary part of formation
of contract and the exemption of the rule imposed by commercial expediency (of post
and telegraphs) is inapplicable.16

Republic Medico Surgical Company vs Union Of India And Anr. AIR 1980 Kant 168,
1979 (2) KarLJ 410:

The Supreme Court’s decision in Bhagwandas Goverdhandas Kedia’s case was relied
upon to conclude that "Mere making of an offer does not form part of the cause of
action for suit for damage for breach of the contract which has resulted from
acceptance of the offer." That being so, it was held that there was no substance in the
submission made by the learned counsel for the appellant that the place where the offer
is made is the place where part of the cause of action arose.

In this case, the tender was addressed to the second defendant in Bhuvaneshwar. It was
accepted by him in Bhuvaneshwar. Hence, the cause of action arose at Bhuvaneshwar.
Further, the stipulation is that the goods shall be delivered at Bhuvaneshwar and money
shall be received at Bhuvaneshwar. Therefore, it is obvious that no part of the cause of
action arises in Bangalore City. That being so, findings of the learned Civil Judge were
upheld and the appeal was dismissed.

Garware Nylons Limited v. Swastik Yarns (1997) 99 BOMLR 497:

15
SupraNote 1.
16
Jeevan Lal Kapur, “Pollock & Mulla on Indian Contract and Specific Relief Acts”, 10th edn., N. M. Tripathi Pvt.
Ltd., Bombay, 1986.

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

In this case, the decision in the case of Bhagwandas Goverdhandas Kedia v. Girdharlal
Parshottamdas & Co. and Ors. was relied upon and the holding that the contract can be
said to have been made over telephone when acceptance is received by the offeror was
upheld. R.M. Lodha, J said that, “ It is true that the Posts and Telegraph Department
has general control over communication by telephone and especially long distance
telephones, but that is not a ground for assuming that the analogy of a contract made
by post will govern this mode of making contracts. In the case of correspondence by
post or telegraphic communication, a third agency intervenes and without the effective
intervention of that third agency, letters or messages cannot be transmitted. In the case
of a conversation by telephone, once a connection is established there is in the normal
course no further intervention of another agency. Parties holding conversation on the
telephone are unable to see each other: they are also physically separated in space, but
they are in the hearing of each other by the aid of a mechanical contrivance which
makes the voice of one heard by the other instantaneously and communication does not
depend upon an external agency.”

In this case according to the Plaintiff, the Defendant used to place telephonic orders to
the Plaintiff at Bombay for supply of Nylons Filaments yarns and Polyester yarns, and
subsequently, the orders placed by the Defendants were confirmed. The Plaintiff's case is
that as per the various purchase orders placed by the Defendant to the Plaintiff, it sold,
supplied and delivered Nylon Filaments yarns and Polyester yarns to the Defendant
during the period from 30th June, 1992 till 19th June, 1993. The bills were raised by
the Plaintiff against each delivery upon the Defendant, and the Defendant used to make
part of amounts but never paid the complete amounts against each of the bills/invoices.
The Defendant carries on business activities at Surat, State of Gujarat. The Defendant
placed the purchase orders for supply of the materials upon the Plaintiff at Bombay. The
goods and materials were delivered by the Defendant to the Plaintiff at Surat. The
Defendant agreed to pay the price of the goods and materials to the Plaintiff at Bombay.
The Defendant has already made part payment against the invoices at Bombay, and thus,
the material cause of action has arisen in Bombay, and craves leave under Clause 12 of
the Letters Patent.

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

Sadhana Arun Kothari & ors. v. Mrs. Raj Bhalla 2007 (4) BomCR 61:

Placing reliance in the decisions in the matter of Bhagwandas Goverdhandas Kedia v.

Girdharilal Parshottamdas and Co. and Ors., and Entores Ltd. v. Miles Far East
Corporation, reported in 1955(2) All England Law Reports 493, and ICICI Limited,
submitted that the law on the point that the agreement arrived at in the course of
telephonic conversation stands concluded at the place of communication of the acceptance
to the plaintiff by the defendant is well settled and the same has been totally ignored by
the Learned Single Judge while passing the impugned order. It was also noted that the
point of territorial jurisdiction in relation to the agreement concluded by telephonic
conversation is well settled by the decision of the Apex Court in Bhagwandas
Goverdhandas Kedia’s case.

The plaintiff (appellant) was resident of Mumbai and the defendant (respondent) was
carrying on business in real estate, building construction and estate development in
partnership as also the other defendant. The appellants contended that the respondent had
held out to the appellants that she was the owner of the first and second floors of the
building constructed and situated on some plot in New Delhi, and that she had
developed the said property in collaboration and partnership with Satija Builders and
Financiers Pvt. Ltd. The appellants were looking for a flat. They visited the suit flat
where the respondent was introduced as the owner of the flat. After inspection of the
flat, plaintiff informed the respondent that his two sons would be interested in
purchasing the flat in equal shares. Having obtained the telephone numbers of the
respondent, the plaintiff assured her that he would let her know as to whether he would
be interested in purchasing the flat once he reaches Bombay. The appellants decided to
purchase the flat and from their residence at Mumbai had telephonic conversation with
the respondent, who was at New Delhi, and offered to purchase a flat for Rs.9 lakhs
with the earnest money of Rs.50,000/- (Fifty Thousand) and the said deal was to be
completed by 30th April, 1993. On the same occasion, the respondent instantaneously
communicated to the appellants, who were at the relevant time in Mumbai, her
acceptance of the said deal stating that it was final and done. On conclusion of the oral
contract to purchase the suit flat, the original plaintiff No.1 on 24th February, 1993

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

proceeded to New Delhi and paid a sum of Rs.54,000/- to her. On account of failure to
comply with the obligation on the part of the respondent under the said oral agreement,
a suit came to be filed for specific performance of the said agreement in this Court
Undisputedly, the appellants approached the Court for specific performance of an oral
agreement stated to have been arrived at and concluded on communication of acceptance
of an offer made by the plaintiffs to the defendant and that such communication was
received from the defendant by the plaintiff while the later was at Mumbai.
Undisputedly, based on these facts, the suit for specific performance of the oral contract
had been filed and the leave was obtained.

Quadricon Pvt. Ltd. vs Bajarang Alloys Ltd. AIR 2008 BOM 88, 2008 (3) MahLJ 407:
The decision given in Bhagwandas Goverdhandas Kedia’s Case and Entores case was
used to draw similarity between communication by telephone and fax. The Court noted
that communication by fax is similar to communication by telex. Communication by fax
is also instantaneous and is in fact through, by means of a telephone connection. The
Supreme Court has accepted that in the case of communication by telex the normal rule
would apply and the contract would be completed only when the acceptance is received
by the offerer. Accordingly, in case of communication by fax, also the normal rule
would apply and the contract would be completed only when the acceptance is received
by the offerer.
The case was regarding whether leave under Clause 12 of the Letters Patent can be
granted after the plaint is not only presented under Rule 1 of Order IV but is also
admitted and entered in the register under Rule 2 of that Order of the Code of Civil
Procedure, 1908 and whether the plaintiff is entitled to leave under Clause 12 even
assuming the first question is answered in the affirmative.

M/S. Besant Raj International v. M/S. Vishwa Bharathi Textiles (2009) Indlaw MAD
2759, (2009) 151 Comp Cas 294:
Holding that mere making of an offer does not form part of the cause of action, in AIR
1965 SC 543 Bhagwandas Goverdhandas Kedia v. M/s.Girdharlal Parshottamdas and
Co. and others, the Supreme Court held as under: Making of an offer at a place which

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

has been accepted elsewhere does not form part of the cause of action in a suit for
damages for breach of contract. Ordinarily it is the acceptance of offer and intimation of
that acceptance which result in a contract. By intimating an offer, when the parties are
not in the presence of each other, the offeror is deemed to be making the offer
continuously till the offer reaches the offeree. The offeror thereby merely intimates his
intention to enter into a contract on the terms of the offer. The offeror cannot impose
upon the offeree an obligation to accept, nor proclaim that silence of the offeree shall
be deemed consent. A contract being the result of an offer made by one party and
acceptance of that very offer by the other, acceptance of the offer and intimation of
acceptance by some external manifestation which the law regards as sufficient is
necessary.
M/s.Besant Raj International Limited (Appelllant) was the Management Consultancy
Company providing services to Indian Companies. Respondent requested the Appellant to
organise and arrange for funds from Foreign Banks for their business purposes to an
extent of 8 Millions US dollars. After negotiations, Appellant agreed to do so and given
terms of agreement. As per the letter dated 04.02.2000, it was indicated that the
professional fee payable to the Appellant would be 2% of the funds to be arranged apart
from Rs.1,00,000/- as non-refundable retainer fee and Rs.1,00,000/- towards the expenses
for preparation of the business plan. Respondent accepted the offer and sent Rs.2,00,000/-
under letter dated 05.02.2000 stating that they had agreed that the professional fee
payable to the Appellant would be 1% instead of 2%. It was now for the Respondent
company to comply with various conditions like furnishing of bank guarantee and get the
clearance of Reserve Bank of India etc. Respondent accepted the offer and confirmed
that they are taking steps to avail the loan. however, Respondent failed to procure
guarantee from the Bank in India. Grievance of Appellant is that Respondent was unable
to comply with the conditions and was merely taking time. Inspite of sending reminders,
there was no response from the Respondent.

In this case, the entire correspondence on record shows that there was no concluded
contract between the parties. In more than one letter, Respondent reiterated that
professional fee is payable only after the loan is availed by them. Even assuming that

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

there was a concluded contract, the commission becomes payable only after induction of
funds into the account of the Respondent.

CONCLUSION

The rule for the place of formation of contract by telephonic conversation laid down by
Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas has become a settled
principle of law in India. The rule that the communication of an acceptance is complete
as against the proposer when the letter is posted, is probably intended to apply only
when the parties are at a distance and they communicate by post. In England also its
operation has been confined only to cases where the post is used, and the illustration
(b), appended to Section 4 also supposes communication by post. “Where, however, the
parties are in each other’s presence or, through separated in space”, they are in direct
communication, as, for example, by telephone, no contract will arise until the offeror
receives notification of acceptance as was held in Entores case. The language of S. 4 of
the Indian Contract Act covers the case of communication over telephone. Our Act does
not provide separately for post, telegraph, telephone or wireless. Some of these were
unknown in 1872 and no attempt has been made to modify the law. It may be presumed
that the language has been considered adequate to cover cases of these new inventions.

An offer is thus, accepted by the communication of acceptance to the offeror. The rule
is modified where contracts are made through the post, for an offer made by letter may
be accepted by letter and the Post Office is in effect the agent of the offeror for the
purpose of communicating the acceptance. But the Court of Appeal has not extended this
exception from the general rule to the case of contracts made by the Post Office Telex
Services. In a contract concluded on telephone or by teleprinter, the parties will be taken
to be in the presence of each other and the place of the acceptance will be the place
where the acceptance is received or where the offeror was. The rule of instantaneous
communications between the parties is different from rule about the post. In case of
communications by post, an acceptance is complete as soon as it is put in the post box
and that is the place where the contract is made. In the case of instantaneous

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 After-Effects of: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543

communications, the contract is only complete when the acceptance is received by the
offeror and the contract is made when the acceptance is received. This is the rule in
most of the European countries contrary to the United States where the rule is the same
as that of postal communications.

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