Contracts

LAW OF CONTRACTS – ICA PAPER

SEMESTER III

After Effects of: Bhagwandas Goverdhandas Kedia v.

Girdharilal Parshottamdas & Co. AIR 1966 SC 543

SUBMITTED TO:
Prof. TANMAY TRIPATI
KIRIT.P MEHTA SCHOOL OF LAW

SUBMITTED BY:
ANUJ JAIN
SY BBA.LLB (HONS)

ROLL NO: D001

SAP ID: 81022019060

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TABLE OF CONTENTS

Cover Page.................................................................................................................1

Table of Contents.......................................................................................................2

Introduction...............................................................................................................3

Aim............................................................................................................................5

Research Objectives..................................................................................................5

Methodology..............................................................................................................5

Limitations.................................................................................................................5

Case Analysis:

Chapter I: Statement of Facts....................................................................................6

Chapter II: Procedural History..................................................................................6

Chapter III: Contentions of the Parties......................................................................7

Chapter IV: Judgement..............................................................................................7

.....................................................................................................................................

Chapter V: The After Effects of the Case..................................................................9

Conclusion...............................................................................................................11

Bibliography............................................................................................................12

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INTRODUCTION

Acceptance is defined in Section 2(b) of the Indian Contract Act of 1872 as follows:

When the individual to whom the suggestion is presented expresses his approval, the proposal is
said to be accepted. When a proposal is accepted, it becomes a promise. The definition explicitly
states that the assent must be indicated. It can be signalled or conveyed by an act or omission by
which the accepting party means to communicate his assent or has the effect of conveying it.

There should be some external sign of approval, according to the principle. The communication
of acceptance is complete, as against the proposer, when it is set in a course of transmission to
him, so that it is out of the acceptor's control; as against the acceptor, when it comes to the
proposer's knowledge. The sole distinction made by the section is in the location of the acceptor.
When the letter of acceptance is sent in England, both the offeror and the acceptor are
irreversibly bonded. However, in India, the acceptor is not bound by just posting his acceptance.
Only when his acceptance "comes to the knowledge of the proposer" does he become bound. The
time elapsed between posting and delivery of the acceptance might be used by the acceptor to
revoke his acceptance by faster transmission that would overtake the acceptance.1

The rule that the transmission of acceptance is complete as against the proposer when the letter is
posted is most likely meant to apply solely when the parties are apart and communicate by
post.In England, too, its application has been limited to circumstances when the post is
employed, and the example (b) annexed to Section 4 similarly assumes communication by post.
"Where, however, the parties are in each other's presence or, although being separated in
distance," they are in direct communication, such as by telephone, no contract will emerge until
the offeror gets notification of acceptance. This was in the possession of Entores Ltd. Miles Far
East Corporation V. Miles Far East Corporation V. Miles Far East Corporation V.2

An offer is therefore accepted when the acceptance is communicated to the offeror. When
contracts are formed by the post, the rule is modified since an offer made by letter can be
accepted by letter, and the Post Office functions as the offeror's agent for the purpose of

1
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.”
2
(1955) 2 All E.R. 493; (1955) 2 Q. B. 327.

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transmitting the acceptance.3 However, the Court of Appeal has not extended this exemption
from the general norm to contracts executed by the Post Office Telex Services. In a contract
completed over the phone or by teleprinter, the parties are presumed to be in the presence of each
other, and the place of acceptance is the location where the acceptance is received or where the
offeror was. The rule of immediate communications between the parties differs from the rule of
the post. The landmark case of Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas
& Co. established the norm regarding the place of creation of contract via telephonic
conversation.4 In the case of postal communications, acceptance occurs when it is placed in the
post box, and here is when the contract is formed. In the event of instantaneous communications,
the contract is only complete when the offeror receives the acceptance, and it is made when the
acceptance is received. Most European countries follow this guideline. However, the norm in the
United States is the same as for postal communications.

In the case of telephonic contact, the norm in America is that the contract is made in the District
where the acceptance is pronounced, even in the case of telephones and telex.

This is founded on the deeply entrenched principle of common law that if the parties expressly or
implicitly authorise a particular route of communication, acceptance is effective when it enters
that channel of communication.5

3
Entores Ltd. V. Miles Far East Corporation (1955) 2 All E.R. 493; (1955) 2 Q. B. 327.
4
(1966) 1 SCR 656: AIR 1966 SC 543.
5
Williston on Contracts (3rd Ed.), Vol. 1, p.271.

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Aim:
The aim of this research paper is to examine the place of formation of contracts in the case of
telephonic conversations, as well as the concept of court jurisdiction with regard to the place of
formation of contracts, in light of Bhagwandas Goverdhandas Kedia v. Girdharilal
Parshottamdas & Co. and its consequences.

Research Objectives:

 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?

Methodology:
In preparation of this research paper, a doctrinal method of research has been used to gather
subsequent research data from different sources, such as books, journals, research documents,
on-line legal databases, laws, etc.

Limitations:
This study is majorly based on secondary data obtained from research papers, journals and
articles, due to time and money restrains. The reliability and accuracy of the information gained
from the aforementioned sources can be questionable. Therefore, implications and results drawn
from the data may deviate from the accurate calculations.

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Chapter I: Statements of Facts

Messrs Girdharilal Parshottamdas & Company-hereinafter referred to as "the plaintiffs"-filed an

action in the City Civil Court of Ahmedabad against the Kedia Ginning Factory Oil Mills of
Khamgaon-hereinafter referred to as "the defendants"-for a decree for Rs. 31,150/- on the
grounds that the defendants had failed to supply cotton seed cake which they had agreed to
supply under an oral contract dated July 22, 1959. The plaintiffs contended that the cause of
action for the suit arose in Ahmedabad because the defendants offered to sell cotton seed cake,
which offer was accepted by the plaintiffs in Ahmedabad, and also because the defendants were
contractually bound to supply the goods in Ahmedabad, and the defendants were to receive
payment for the goods through a bank in Ahmedabad. The defendants asserted that the plaintiffs
had offered to purchase cotton seed cake through telephone message and that they (the
defendants) had accepted the offer in Khamgaon, and that under the contract, delivery of the
items agreed for was to be done at Khamgaon. The price was also to be paid in Khamgaon, and
no portion of the cause of action for the litigation arose within the geographical jurisdiction of
the City Civil Court Ahmedabad.

Chapter II: Procedural History

On the issue of jurisdiction, the Trial Court determined that the plaintiffs made an offer to the
defendants to purchase the goods via long distance telephone from Ahmedabad, and that the
defendants 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. According to the
Court, the contract was to be completed in Khamgaon, and because of the offer made by
Ahmedabad to acquire goods, the Court in Ahmedabad could not be endowed with jurisdiction to
consider the claim. However, the Court decided that when a contract is created over the phone,
the place where acceptance of the offer is communicated to the offeror is the place where the
contract is made, and hence the Civil Court in Ahmedabad has jurisdiction to hear the case. The
High Court of Gujarat dismissed in limine a revision motion filed by the defendants against the
decision ordering the litigation to continue on the merits. This appeal was then filed with special
permission against the judgement of the High Court of Gujarat.

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Chapter III: Contentions of the Parties

The defendants contended that, in the case of a telephone contract, the place where the offer is
accepted is the place where the contract is made, and that the 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, maintained that making an offer is a
component of the cause of action in a complaint for damages for breach of contract, and that the
matter belongs in the court in which the offeror made the offer, which upon acceptance resulted
in a contract. Alternatively, they maintained that, because intimation of acceptance of the offer is
required for the formation of a contract, the contract is formed where such intimation is received
by the offeror.

Chapter IV: Judgement

The plaintiffs' first point of dispute was without merit. Making an offer at a location where it has
already been accepted elsewhere does not constitute a cause of action in a claim for breach of
contract damages. Normally, a contract is formed by the acceptance of an offer and the
indication of that acceptance. When the parties are not in the presence of each other and make an
offer, the offeror is regarded to be making the offer constantly until the offer reaches the offeree.
The offeror is just indicating his desire to enter into a contract on the conditions of the offer. The
offeror cannot put a duty on the offeree to accept, nor may he declare that the offeree's silence
shall be regarded assent. A contract is formed as a consequence of an offer made by one party
and acceptance of that offer by the other. Acceptance of the offer and indication of acceptance by
some external manifestation deemed adequate by the law is required. The rule is well-
established by a long and consistent line of decisions that the mere making of an offer does not
constitute a cause of action for damages for breach of contract resulting from acceptance of the
offer (Baroda Oil Cakes Traders v. Purshottam Narayandas Bagulia and Anr. referred to). The
opposing viewpoint expressed by a single Madras High Court Judge in Sepulchre Brothers v.
Sait Khushal Das Jagjivan Das Mehta cannot be acknowledged as correct.

Section 4 deals with the completion of transmission of a proposal, acceptance, and revocation,
rather than the site where a contract takes place. The interpretation clauses in section 2, which
essentially comprise contract substantive law, must be considered when identifying the place

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where a contract takes place. S. 4 does not indicate that the contract is made qua the proposer in
one location and qua the acceptor in another. The contract is completed when the acceptor
accepts the offer and, unless otherwise agreed expressly or by required implication by the use of
a particular mode of intimation, when the acceptor's acceptance of the offer is indicated to the
offeror. Even though the offeree has decided to accept the offer, a contract may not be formed if
the offeror does not receive such notification. However, an exception based on convenience has
been grafted onto this norm, which has the benefit of extended acceptance by court judgments
rather than logic or principle. When the contract is made by letters delivered by post and the
parties are not in each other's presence, and the offeror has not mandated a means of
communication of acceptance, the offeree's insistence on communication of acceptance of the
offer would be deemed inconvenient.

It was determined that making an offer at a location that has already been accepted elsewhere
does not constitute a cause of action in a complaint for damages for breach of contract.
Normally, a contract is formed by the acceptance of an offer and the indication of that
acceptance. The indication must be made by the same visible manifestation that the law
considers sufficient. The draughtsmen of the Indian Contract Act did not anticipate the use of the
telephone as a means of communication between parties separated in space and could not have
planned to create any rules in that regard. The trial Court was correct in its conclusion that a
portion of the cause of action arose within the jurisdiction of the City Civil Court Ahmedabad,
where acceptance was notified to the plaintiffs through telephone. As a result, the appeal was
dismissed.

Lord Denning, according to the dissenting opinion of Hidayatullah, J., in the Entores case 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. However, the Court of Appeal was not asked to interpret a written statute
that includes the inflexibility of its own wording. It was not necessary to interpret the language in
Section 4 of the Indian Contract Act. If time has passed and discoveries have made it possible to
communicate instantly over large distances, and the language of our legislation does not match
the new circumstances, it can be amended to reject the old concepts. However, it is not feasible

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to go against the language by adopting an interpretation supplied without taking into account the
language of our Act.

Chapter V: The After-Effects of the Case

The decision of Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. defined
the notion of contract creation through telephone calls and the competence of courts in that
regard. When the parties are in the same room, the mode of communication will be determined
by the nature of the offer and the circumstances surrounding its presentation. When an offer is
presented verbally, a spoken response is required, although a nod or other act that clearly
indicates acceptance may suffice. If the parties are not in each other's presence and the offeror
has not specified the form of acceptance, insisting on notification of acceptance of the offer by
the offeree would be problematic when the offer is made by post via a letter. In the event of
postal discussions, the contract is concluded when acceptance of the offer is placed in the course
of transmission to the offeror. Given the essential nature of telephone communication, it is
reasonable to conclude that the parties are 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 contract formation, and the exemption of the rule imposed by
commercial expediency (of post and telegraphs) is inapplicable.

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

The Supreme Court's ruling in Bhagwandas Goverdhandas Kedia's case was used to reach the
conclusion that "the mere making of an offer does not form part of the cause of action for suit for
damage for breach of contract which has followed from acceptance of the offer." As a result, it
was determined that the learned counsel for the appellant's contention that the location where the
offer is made is the location where part of the cause of action originated lacked substance.

The offer in this case was addressed to the second defendant in Bhuvaneshwar. In
Bhuvaneshwar, it was accepted by him. As a result, the cause of action arose in Bhuvaneshwar.
Furthermore, the items must be delivered to Bhuvaneshwar, and the money must be received in
Bhuvaneshwar. As a result, it is clear that no portion of the cause of action emerges in Bangalore
City. As a result, the learned Civil Judge's conclusions were sustained, and the appeal was

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rejected.

Quadricon Pvt. Ltd. vs Bajarang Alloys Ltd. AIR 2008 BOM 88, 2008 (3) MahLJ 407:

The ruling in the cases of Bhagwandas Goverdhandas Kedia and Entores was utilised to establish
parallels between telephone and fax communication. The Court found that fax transmission is
comparable to telex communication. Communication by fax is likewise rapid and is
accomplished via a telephone connection. The Supreme Court has agreed that in the event of
telex communication, the regular procedure would apply and the contract would be
consummated only when the acceptance is received by the offerer. As a result, in the event of fax
transmission, the standard rule would apply, and the contract would be finalised only after the
offerer got the acceptance.

M/S. Besant Raj International v. M/S. Vishwa Bharathi Textiles (2009) Indlaw MAD 2759,
(2009) 151 Comp Cas 294:

The Supreme Court held in AIR 1965 SC 543 Bhagwandas Goverdhandas Kedia v.
M/s.Girdharlal Parshottamdas and Co. and others that mere making of an offer does not form
part of the cause of action. Normally, a contract is formed by the acceptance of an offer and the
indication of that acceptance. When the parties are not in the presence of each other and make an
offer, the offeror is regarded to be making the offer constantly until the offer reaches the offeree.
The offeror is just indicating his desire to enter into a contract on the conditions of the offer. The
offeror cannot put a duty on the offeree to accept, nor may he declare that the offeree's silence
shall be regarded assent. A contract is formed as a consequence of an offer made by one party
and acceptance of that offer by the other. Acceptance of the offer and indication of acceptance by
some external manifestation deemed adequate by the law is required.
In this case, the whole correspondence on record demonstrates that the parties did not enter into a
contract. Respondent emphasised in many letters that the professional fee is payable only once
they had obtained the loan. Even though a contract was signed, the commission becomes payable
only once money are deposited into the Respondent's account.

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CONCLUSION

The rule established by Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas

regarding the place of creation of contract via telephone call has become a solid concept of law
in India. The rule that the transmission of an acceptance is complete as against the proposer
when the letter is mailed is most likely meant to apply solely when the parties are apart and
communicate by post. In England, too, its application has been limited to circumstances when
the post is employed, and the example (b) annexed to Section 4 similarly assumes
communication by post. "Where, however, the parties are in each other's presence or, despite
being separated in distance," they are in direct communication, such as by telephone, no contract
will emerge until the offeror gets notification of acceptance, as was decided in the Entores case.
The wording of Section 4 of the Indian Contract Act includes the issue of telephone
conversation. Our Act makes no mention of post, telegraph, telephone, or wireless
communications. Some of these were unknown in 1872, and no attempt has been made to change
the statute. It is reasonable to assume that the phrase has been deemed acceptable to address
scenarios involving these new discoveries.

An offer is therefore accepted when the offeror receives notification of acceptance. When
contracts are formed by the post, the rule is modified since an offer made by letter can be
accepted by letter, and the Post Office functions as the offeror's agent for the purpose of
transmitting the acceptance. However, the Court of Appeal did not extend this exemption from
the general norm to contracts executed by the Post Office Telex Services. In a contract
completed over the phone or by teleprinter, the parties are presumed to be in each other's
presence, and the location of acceptance is the place where the acceptance is received or where
the offeror was. The rule of immediate communication between the parties differs from the rule
of the post. In the case of postal communications, an acceptance is complete when it is placed in
the post box, which is also the location of the contract. In the event of instantaneous
communications, the contract is only complete when the offeror receives the acceptance, and the
contract is made when the acceptance is received. This is the regulation in most European
nations, as opposed to the United States, where the law is the same as for postal correspondence.

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BIBLIOGRAPHY

Books:

 Anson, “Principles of the English Law of Contract”, 22nd edn., A. G. Guest, pp. 50-51.
 Singh, Avtar, “Law of Contract and Specific Relief”, Eastern Book Company, Lucknow,
9th edn., 2005, p.31.
 Williston on Contracts (3rd Ed.), Vol. 1, p.271.
 Kapur, Jeevan Lal, “Pollock & Mulla on Indian Contract and Specific Relief
Acts”, 10th edn., N. M. Tripathi Pvt. Ltd., Bombay, 1986.

Online Sources:

Online Databases

1. Manupatra
<http://manupatra.com/>

2. Westlaw <http://login.westlawindia.com/maf/wlin/app/tocectory?
stnew=true&sttype=stdtemplate&sp=inrmlnlun-1>

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