Scroll Top

BHAGWANDAS GOVERDHANDAS KEDIA VERSUS GIRDHARILAL PARSHOTTAM DAS & CO

INTRODUCTION

An agreement between two or more parties that is enforceable in court, constitutes a contract.[1] Communication of offer and acceptance plays a vital role in the formation of the contract. According to Chapter 1 section 4 of the Indian Contract Act,[2] communication of an offer made by the offeror is complete against him when it reaches or comes to the knowledge of the person to whom it is made, for instance, A proposes B to sell his blue coloured car at 70000 rupees. Communication of the offer made by A is complete as soon as B hears it or it comes to his knowledge. Communication of acceptance is complete by the side of the offeree as soon as he posts his acceptance by post and it is out of his reach. Furthering the above-mentioned instance communication of acceptance is complete as against the offeree (here B) when he posts the letter of acceptance and it is in the course of transmission so as it is out of his reach. But, in the case of a telephonic contract the communication of acceptance is complete when it is heard by the offeror. This is in contrast with communication of acceptance through a post that is completed when the offeree puts the post in the course of transmission. The leading case of Bhagwandas Goverdhandas Kedia versus Girdharilal Parshottamdas[3] and co explains at what place the contract is formed through the telephonic communication of the contract, clears out the distinction between the instantaneous form of communication or telephonic communication and postal rule and also explains the inapplicability of section 4 of the Indian contract act in the case of the instantaneous form of communication.

The ancient legislation did not think about the “instantaneous mode” of communication could differ in the speed through which the parties could hear about the offer as well as acceptance and the supreme court considered this type of communication as one of a kind and accepted as well as recognized it distinct from what is stated in section 4 of the Indian contract act. With the shift in technologies from sending offers and acceptances through the post to sending them via mail, telex, and even phone calls all these developments have led to an increase in the number of cases in front of the judiciary with the primary contention as to where is the contract deemed to be completed or formed and enforceable.

FACTS OF THE CASE

Taking a look at the facts[4] of the case that determined the place of jurisdiction for instantaneous modes of communication contrary to section 4 of the Indian Contract Act, let’s start with the facts of the case. The case was decided on 30 August 1965 by J.C. Shah. The plaintiff here, Girdharilal Parshottam Das from Khamgaon contracted with Bhagwandas Goverdhandas Kedia from Ahmedabad for a supply of oilseed cakes costing rupees 31,150. This was done through an oral contract via long-distance telephonic communication on 22 July 1959. The defendant defaulted supply of the same. Due to this, the plaintiff brought an action against the Kedia Ginning Factory & oil mills (defendants) of Khamgaon in the civil court of Ahmedabad for the breach of contract. The plaintiff contended that the cause of action arose at Ahmedabad because of three major reasons which were offered to purchase cotton seed cake by the defendants was accepted by the plaintiff in Ahmedabad, the goods were to be supplied at Ahmedabad and the defendants were to receive the payment of the materials supplied through the bank situated in Ahmedabad. On the contrary, the defendants contended that the plaintiff offered to purchase cotton seed cakes from the defendants and the defendants accepted the offer made by the plaintiff at Khamgaon, delivery of the goods was to be performed at Khamgaon, payment of the material was to be done at Khamgaon and that no part of the cause of action has arisen in the territorial jurisdiction of Ahmedabad. The trial court found that the offer was made by the plaintiff for the purchase of the oil seed cake from Ahmedabad to the defendants at Khamgaon and the offer was accepted at Khamgaon as well as the place of delivery and payment of the material was also the same. Therefore, the civil court of Ahmedabad cannot have jurisdiction over the breach of contract. But in this case of telephonic communication, the intimidation or revelation of acceptance is the place where the contract is formed. Therefore, such a place will have exclusive jurisdiction and in this case, the acceptance of the offer by the defendants was heard or intimidated at Ahmedabad. The contract will be completed at Ahmedabad and its court will have the jurisdiction of the same. The defendants aggrieved by the trial court’s order filed a revision petition in the high court. This petition was rejected subsequently and against this order of the high court, the defendant approached the Supreme Court through a special leave petition.

The defendants contended that section 3[5] and section 4[6] of the Indian Contract Act applies uniformly to all the contracts whether the mode of communication of the acceptance is through telephone or posts. The plaintiff on the other hand argued that making of the offer is a part of the cause of action in a suit for damages for breach of contract. Such place of the making of the offer lies the jurisdiction in case of a breach. Alternatively, the plaintiff contended that intimidation of the acceptance of the offer is essential to the formation of the contract, and such a place of intimidation or the place where the contract is heard in this case Ahmedabad has the jurisdiction in the case of breach. But the first contention raised by the plaintiff is without sufficient backing and thus held as without merit.

JUDGEMENT PRONOUNCED

Making an offer that is accepted elsewhere does not constitute an action that is sufficient in case of a breach. It is the intimidation of the acceptance of the offer that forms the cause of action in the contract. In the case of instantaneous contracts, the parties are not physically present in front of each other but are in direct communication with the help of an external party the offeree must signify his willingness to enter into a contract and his acceptance as unconditional as well as unqualified and in the manner prescribed by the offeror or any reasonable manner. If the offeror does not receive such intimidation even if the offeree has a willingness to enter into a contract, a contract may not be formed.

In England, the Court of Appeal has decided in Entores Ltd. Versus Miles Far Ease Corporation[7] that in the case of the instantaneous mode of communication or telephone, the contract is complete only where the acceptance of the offer by the offeree is heard or comes to the knowledge of the offeror and the contract is made at the place where such acceptance is received or heard by the offeror. Therefore, in this case, the offer was made in Ahmedabad by the plaintiff and spoken to the defendant via telephone and heard in Khamgaon, the acceptance of the offer was made from Khamgaon and heard or intimidated in Ahmedabad to the plaintiff resulting in the formation of the contract. The place of jurisdiction will be the civil court of Ahmedabad on account of such intimidation.

CONCLUSION

This case became one of the leading cases in the history of Indian contracts. It helped in deciding various other cases of similar contention. It helped in clearing out the distinction of communication of acceptance in the case of postal rule where it is completed when the offeree posts his acceptance in the course of transmission so as it is out of his reach and in the case of the instantaneous mode of communication it is completed when the acceptance of the offer is heard or intimidated by the offeror and the place of formation of the contract is where the offeror is present. The ruling in Bhagwandas Goverdhan Das Kedia vs. Girdharilal ParshottamDas & Co. about the location of a contract formed over the phone has now become a recognized legal norm in India. The parties to a contract that was made or concluded over the phone or through a teleprinter are considered to have entered into the agreement face-to-face, and the location of acceptance is the location where the offeror is physically present after receiving notification of acceptance. It was also observed that the rules for contact between the parties via an instant mode differ from those for communication by mail. The place of contract formation is said to be where the communication of acceptance is received by the person who is making the communication through the telephone or other instantaneous communication methods. In the case of communication through the mail, the communication is said to be complete when the letter of communication is placed in the post box, i.e., when it is outside of the control of the person who is making the communication of the acceptance. Many European nations follow the same regulation, however, in the US, the rule for telephone and postal communication is the same.

Author(s) Name: Riya Srivastava (Nirma University, Ahmedabad)

Reference(s):

[1] Indian Contract Act 1872, s 2(h)

[2] Indian Contract Act 1872, s 4

[3] Bhagwandas Goverdhandas Kedia v Girdharilal Parshottamdas (1966) 1 SCR 656

[4] Ibid

[5] Indian Contract Act 1872, s 3

[6] Indian Contract Act 1872, s 4

[7] Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3 2 QB 327