Sunday, 17 January 2021

Supreme court: Acceptance Of A Conditional Offer With A Further Condition Does Not Result In A Concluded Contract

 The Trial Court relied on Section 4 of the Contract Act, but

completely overlooked Section 7. Section 7 of the Indian Contract

Act, 1872 is set out hereinbelow for convenience:-

“7. Acceptance must be absolute.—In order to convert a

proposal into a promise the acceptance must— —In order to

convert a proposal into a promise the acceptance must—"

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless

the proposal prescribes the manner in which it is to be accepted.

If the proposal prescribes a manner in which it is to be accepted,

and the acceptance is not made in such manner, the proposer

may, within a reasonable time after the acceptance is

communicated to him, insist that his proposal shall be accepted

in the prescribed manner, and not otherwise; but, if he fails to do

so, he accepts the acceptance.”

56. It is a cardinal principle of the law of contract 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, that is, certainty, commitment and communication. However, when the acceptor puts in a new condition while accepting the contract already signed by the proposer, the contract is not complete until the proposer accepts that condition, as held by this Court in Haridwar Singh v. Bagun Sumbrui and Ors. AIR 1972 SC 1242 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.

57. In Union of India v. Bhim Sen Walaiti Ram(1969) 3 SCC 146, a three-Judge Bench of this 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 If the acceptance is conditional, offer can be withdrawn at any moment until absolute acceptance has taken place.


59. The High Court also overlooked Section 7 of the Contract Act.

Both the Trial Court and the High Court over-looked the main point

that, in the response to the tender floated by the Respondent-Port

Trust, the Appellant had submitted its offer conditionally subject to

inspection being held at the Depot of the Appellant. This condition

was not accepted by the Respondent-Port Trust unconditionally. The

Respondent-Port Trust agreed to inspection at the Depot of the

Appellant, but imposed a further condition that the goods would be

finally inspected at the showroom of the Respondent-Port Trust. This

Condition was not accepted by the Appellant. It could not, therefore,

be said that there was a concluded contract. There being no

concluded contract, there could be no question of any breach on the

part of the Appellant or of damages or any risk purchase at the cost

of the Appellant. The earnest deposit of the Appellant is liable to be

refunded.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7469 OF 2008

M/s. Padia Timber Company(P) Ltd. Vs The Board of Trustees of Visakhapatnam Port Trust 

Dated: JANUARY 05, 2021

Author: Indira Banerjee, J.

The short question involved in this appeal is, whether the

acceptance of a conditional offer with a further condition results in a

concluded contract, irrespective of whether the offerer accepts the

further condition proposed by the acceptor. This question does not

appear to have been addressed by the High Court or the Court below.

2. This appeal is against a common Judgment and Order dated

10.10.2006 passed by the High Court of Judicature at Hyderabad in

Appeal Nos.2196 and 2197 of 2000 confirming a Judgment and Order

dated 31.3.2000 of the Additional Senior Civil Judge, Visakhapatnam

wing the suit being O.S. No.106 of 1993 filed by the Respondent-

Port Trust against the Appellant for damages, and dismissing O.S.

No.450 of 1994 filed by the Appellant for refund of earnest deposit.

3. On or about 17.7.1990, the Respondent-Port Trust floated a

tender for supply of Wooden Sleepers. The tenders were due to be

opened on 01.08.1990.

4. Clauses 15 and 16 of the tender are extracted hereinbelow:-

“15. The purchaser will not pay separately for transit

insurance and the supplier will be responsible till the entire

stores contracted for arrive in good condition at destination.

The consignee will as soon as but not later than 30 days of

the date of arrival of stores at destination notify the supplier

of any loss, or damage to the stores that may have occurred

during transit.

16. In the event of the supplies being found defective in any

matter the right to reject such materials and return the same

to the supplier and recover the freight by the Port is

reserved.”

5. Pursuant to the aforesaid tender, the Appellant submitted its

offer on or about 01.08.1990. It was a specific condition of the offer

of the Appellant that inspection of the Sleepers, as per the

requirement of the Respondent-Port Trust, would have to be

conducted only at the depot of the Appellant. The Appellant did not

accept Clauses 15 and 16 of the Tender and rather made a counter

proposal. In accordance with the terms and conditions of the tender,

the Appellant deposited Rs.75,000/- towards earnest deposit, along

with its quotation.


6. On or about 02.08.1990, the Controller of Stores of the

Respondent-Port Trust informed the tenderers that the opening of the

tenders had been postponed to 08.08.1990.

7. On 08.08.1990, the Appellant submitted its revised quotation

and/or offer, reiterating that inspection as per the requirement of the

Respondent-Port Trust would have to be conducted only at the depot

of the Appellant. After the tenders were opened certain discussions

took place between the Appellant and the Tender Committee of the

Respondent-Port Trust.

8. By a letter dated 11.10.1990, the Appellant agreed to supply

wooden sleepers to the Respondent-Port Trust on the terms and

conditions stipulated in the said letter. The Appellant reiterated that

the Respondent-Port Trust could inspect the goods to be supplied, at

the factory site of the Appellant at Vepagunta, Visakhapatnam, as

this would facilitate re-transit of rejected goods to the depot of the

Appellant, without additional financial burden.

9. The Appellant made it clear to the Respondent-Port Trust,

that if the Respondent-Port Trust still required inspection at the site of

the Respondent-Port Trust, the Appellant would charge 25% above

the rate quoted by the Appellant for the supply of wooden sleepers.

The said letter is extracted hereinbelow for convenience:-

1. “We are agreeable to supply the B.G Track Indian sale

wood sleepers F.D.R V.P.T site by our own transportation.


2. With regard to inspection clause you can inspect the

material at our factory site at Vepagunta, Visakhapatnam.

This will facilitate us to retransist the rejected materials if

any to our the depot without any additional financial

commitment. If you still require inspection, at your site we

will charge 25% extra in our rate.

3. As the tender committee had mentioned during the

discussion on 10.10.90, we are agreeable to the condition

for the 100 % payment a weekday, after acceptance of the

materials.

4. We charge 24 % interest on all belated payments.

5. We can immediately supply two thousand of BG Tracks

sleepers and the supply can be completed as per your

requirement.

6. We are regular supplier of sleepers to Indian Railways.

We wish to extend our transaction with the V.P.T.

7. We will execute 10% of security deposit as on bank

guarantee and also you have refund to our E.M.D amount of

Rs 75,000/- awaiting your favourable order."

10. Thereafter, further correspondence ensued between the

parties. By another letter dated 20.10.1990 addressed to the

Controller of stores of the Respondent-Port Trust, the Appellant

reiterated that it had not agreed to inspection at the General Stores

of the Respondent-Port Trust. The Appellant made it clear that, in the

event the Respondent-Port Trust insisted on inspection at the General

Stores of the Respondent-Port Trust, the Appellant would charge 24%

extra instead of 25% as mentioned in its earlier letter. The said letter

dated 20.10.1990 was duly received by the Respondent-Port Trust.

11. By a letter dated 29.10.1990, written in response to the

quotations dated 1.8.1990, 8.8.1990 and the letter dated 20.10.1990


of the Appellant, the Respondent-Port Trust informed the Appellant

that the Respondent-Port Trust had accepted the offer of the

Appellant for supply of wooden sleepers at the rate quoted by the

Appellant. Though the Respondent-Port Trust agreed that the

Inspection Committee would inspect the Wooden Sleepers at the site

of the Appellant, the Respondent-Port Trust imposed the further

condition that the Appellant would have to transport the Wooden

Sleepers to the General Stores of the Respondent-Port Trust by road,

at the cost of the Appellant and the final inspection would be made

at the General Stores of the Respondent-Port Trust. The Respondent-

Port Trust also requested the Appellant to extend the delivery period

of the sleepers until 15.11.1990.

12. By a letter dated 30.10.1990 written in response to the letter

dated 29.10.1990, the Appellant informed the Controller of Stores of

the Respondent-Port Trust that the Appellant was not accepting the

terms and conditions stipulated in the said letter dated 29.10.1990,

which were not as per the Appellant’s offer. The Appellant also

declined to extend the validity of its offer, since prices had gone up.

13. By the aforesaid letter dated 30.10.1990, the Appellant

rejected the proposal of the Respondent-Port Trust and requested that

the earnest money deposited by the Appellant be returned to the

Appellant.

14. It appears that on the same day, i.e. 30.10.1990, the

Controller of Stores of the Respondent-Port Trust put up an Office

Note, seeking sanction of the Chairman of the Respondent-Port Trust

for placing orders on the Appellant for supply of 10,596 Broad Gauge

Track Sleepers and 761 Broad Gauge special size sleepers, at a total

cost of Rs.67,96,764 odd, for which a Letter of intent cum purchase

order dated 29.10.1990 had been issued by the Respondent-Port

Trust.

15. A purchase order No. G 101126 90-91 dated 31.10.1990 was

issued to the Appellant from the office of the Controller of Stores of

the Respondent-Port Trust, requesting the Appellant to supply 10596

Broad Gauge Track Sleepers and 761 Broad Gauge Special Sleepers of

Ist Class Salwood as per the latest Indian Railway Standards, on the

terms and conditions specified in the Purchase Order and the Special

Conditions of purchase appended thereto, according to the

specifications and at the rates mentioned in the Purchase Order.

16. The Letter of intent and the purchase order were followed by a

letter dated 12.11.1990, written in response to the letter dated

30.10.1990 of the Appellant. By the aforesaid letter, the Respondent-

Port Trust requested the Appellant to supply the materials ordered as

per the purchase order, inter alia, contending that the purchase order

had duly been placed on the Appellant within the period of validity of

the price quoted by the Appellant, after issuing a letter of intent to

the Appellant, accepting its offer. The Appellant was warned that if

supply was not made as per the purchase order, risk purchase would

be made at the cost of the Appellant and the Earnest Deposit of

Rs.75,000 would be forfeited. The Respondent-Port Trust also noted

that the Appellant had not made the security deposit, to which the

purchase order was subject.

17. By another letter dated 19.11.1990, the Respondent-Port Trust

requested the Appellant to commence supply of materials. In

response to the said letter, the Appellant wrote a letter dated

27.11.1990 to the Respondent-Port Trust, contending that that there

was no concluded contract between the Appellant and the

Respondent-Port Trust and once again requested that the earnest

money deposited by the Appellant with the Respondent-Port Trust be

refunded to the Appellant.

18. On or about 03.9.1991, that is, after ten months, the

Respondent-Port Trust placed an order for supply of wooden sleepers

on M/s. Chhawohharia Machine Tools Corporation, for supply of

wooden sleepers at a much higher rate.

19. The Respondent-Port Trust has contended that, by reason of

refusal of the Appellant to discharge its obligation of supplying the

requisite number of sleepers, as required by the Respondent-Port

Trust, to the Respondent-Port Trust, in terms of the contract, at the

rate quoted by the Appellant in its revised bid, the Respondent-Port

Trust had been constrained to invoke the risk purchase clause as

contained in Paragraph 16 of the Special Conditions of purchase,

appended to the purchase order dated 31.10.1990 and purchase the

wooden sleepers at a higher rate from a third party, incurring losses,

for which the Respondent-Port Trust was entitled to claim damages.

It is the case of the Respondent-Port Trust that the conditions

stipulated in the purchase order, including the Special Conditions of

Purchase constitute the terms of a binding contract.

20. According to the Appellant the negotiations between the

Appellant and the Respondent-Port Trust did not fructify into a

concluded contract, since the Respondent-Port Trust did not accept

the conditions of the offer of the Appellant fully and the Appellant

did not agree to the terms and conditions on which the the

Respondent-Port Trust insisted, particularly the condition of final

inspection at the General Stores of the Appellant.

21. On or about 10.4.1992, the Respondent-Port Trust filed the

suit being O.S. No.106 of 1993 in the Court of II Additional

Subordinate Judge, Visakhapatnam against the Appellant, seeking

damages for breach of contract to the tune of Rs.33,19,991/- along

with interest thereon. The Appellant duly filed its written statement

in the said suit on or about 23.3.1994.

22. In or about June, 1994, the Appellant filed the suit being O.S.

No.450 of 1994 in the Court of Subordinate Judge, Visakhapatnam

claiming refund of earnest money deposited by the Appellant with

the Respondent-Port Trust along with interest @ 24% per annum from

24.4.1991 to 23.4.1993, costs and other consequential reliefs. The

Respondent-Port Trust filed a written statement denying its liability to

refund the earnest deposit.

23. The two suits being O.S. No.106/1993 and O.S. No.450/1994

were clubbed together and heard by the First Additional Senior Civil

Judge, Visakhapatnam. In the first suit, the following issues were

framed for trial:-

(i) Whether the Appellant committed breach of contract?

(ii) Whether the Respondent-Port Trust was entitled to recover

the suit amount from the defendant?

(iii) To what relief was the Respondent-Port Trust entitled?

24. In O.S. 450/1994 (the second suit), the issues were:-

(i) Whether the Appellant was entitled to refund of earnest

money with interest as claimed from the Respondent-Port Trust.

(ii) Whether the suit (second suit) was barred by limitation?

(iii) To what relief, if any, was the Appellant entitled?

25. Since the two suits were clubbed together and the issues in

the two suits were interlinked, common evidence was recorded for

the two suits. While one V. Adinarayana, who had been working in

the Stores Department of the Respondent-Port Trust at the material

time, was examined on behalf of the Respondent-Port Trust, Shri G. C.

Padia, who was the Director of the Appellant was examined on behalf

of the Appellant.


26. The two suits were disposed of together, by a common

judgment and order dated 31.3.2000. While the first suit was decreed

in favour of the Respondent-Port Trust, the second suit filed by the

Appellant was dismissed.

27. After discussing the pleadings and the contentions of the

respective parties, the Trial Court found that it had been admitted

that the Respondent-Port Trust had invited tenders for supply of

wooden sleepers, pursuant to which the Appellant had submitted its

bid.

28. The Trial Court held that the Respondent-Port Trust had

accepted the offer of the Appellant and issued a letter of intent cum

purchase order on 29.10.1990, that is, within the period of validity of

the price quoted by the Appellant. The price quoted by the Appellant

was valid till 31.10.1990.

29. The Trial Court rejected the contention of the Appellant that

the Appellant had revoked its offer before acceptance thereof by the

Respondent-Port Trust, and held that there was a concluded contract

between the Appellant and the Respondent-Port Trust, since the

Respondent-Port Trust had accepted the tender submitted by the

Appellant on 29.10.1990, while the price quoted by Appellant was

still valid. The Trial Court held that the contract was concluded on


29.10.1990 when the letter of intent was issued by the Respondent-

Port Trust.

30. The Trial Court observed that, in order to determine whether

or not there was a concluded contract between the Appellant and the

Respondent-Port Trust, the crucial question was whether the tender

submitted by the Appellant had been accepted by the Respondent-

Port Trust within 31st October, 1990, being the stipulated period of

validity of the quotation given by the Appellant. The Trial Court found

that acceptance of the purchase order was completed as against the

Appellant, when the letter of intent cum purchase order was

dispatched from the end of the Respondent-Port Trust.

31. In arriving at the finding that there was a concluded contract

between the Respondent-Port Trust and the Appellant, the Trial Court

relied on Section 4 of the Indian Contract Act, 1872, which is set out

hereinbelow for convenience:

“4. Communication when complete.—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.”

32. The Trial Court found that it had been proved that there was a

concluded contract between the Appellant and the Respondent-Port

Trust, but the Appellant had admittedly not supplied the wooden

sleepers to the Respondent-Port Trust. Once it was proved that there

was a concluded contract and the defendant that is, the Appellant

before this Court, had admittedly not supplied the goods as per the

terms of the purchase order, it had to be held that the defendant had

committed breach of contract. The Trial Court, in effect, held that the

fact that the Appellant had received the letter of intent and endorsed

the receipt thereof within 31st October, 1990, established the case of

the Respondent that the contract had been concluded.

33. The Trial Court held that the Appellant having committed

breach of its obligations under a concluded contract with the

Respondent-Port Trust, the Respondent Port Trust was entitled to

damages as claimed in the suit being O.S. No.106 of 1993. In

awarding damages to the Respondent-Port Trust, the Trial Court took

note of Section 73 of the Contract Act which is set out hereinbelow for

convenience:

"73. Compensation for loss or damage caused by

breach of contract.—When a contract has been broken, the

party who suffers by such breach is entitled to receive, from

the party who has broken the contract, compensation for any

loss or damage caused to him thereby, which naturally arose

in the usual course of things from such breach, or which the

parties knew, when they made the contract, to be likely to

result from the breach of it.”

34. The Trial Court held that in case of breach of a contract for

supply of goods, the Port could claim the difference between the

contracted price and the market price of such goods at the place of

delivery, as damages. If there was no available market price at the

nearest place, the price prevailing in the controlling market could be

considered.

35. The Trial Court considered the judgments in Rajasthan State

Electricity Board and Others v. Dayal Wood Works1; Fateh

Chand v. Balkishan Das2; G.M.T.A.P. Co-op. Mkts. Ltd. v. Dy.

Registrar, Co-op Societies, Raichur3; Marimuthu Gounder v.

Ramaswamy Gounder and Ors.4 cited by the Appellant and the

judgments in A.K.A.S. Jamal v. Moola Dawood Sons & Co.5; M/s

Saraya Distillery, Sardarbaggar v. Union of India and Anr.6;

Murlidhar Chiranjilal v. M/s Harishchandra Dwarkadas and

Anr.7; State of Maharashtra and Anr. v. Digambar Balwant

Kulkarni8 cited by the Respondent-Port Trust.

36. Relying on the judgment of the Division Bench of Delhi High

Court in M/s Saraya Distillery, Sardarbaggar v. Union of India

1. AIR 1998 AP 381

2. AIR 1963 SC 1405

3. AIR 1998 Karnataka 354

4. AIR 1979 Madras 189

5. AIR 1915 Privy Council 48

6. AIR 1984 Delhi 360

7. AIR 1962 SC 366 (V49 C57)

8. AIR 1979 SC 1339


and Anr. (supra), the Trial Court held that proof of actual repurchase

was not necessary for claiming damages.

37. The Trial Court rejected the contention of the Appellant of

delay in calling for tenders from a third party, on the ground that the

Respondent-Port Trust being a statutory authority and not being a

private individual, was required to follow its rules and procedures in

calling for tenders and accepting the tender of a third party.

38. The Trial Court found that the contract was enforceable till its

completion or its abandonment. The rescission of the contract and

consequential forfeiture of security deposit was proper and within the

terms of the contract.

39. In Rajasthan State Electricity Board and others v. Dayal

Woods Works (supra), cited on behalf of the Appellant before the

Trial Court, the High Court had found on facts that there was no

concluded contract for supply of sleepers and consequently the

plaintiff was entitled to refund of security deposit.

40. In Fateh Chand (supra), cited on behalf of the Appellant

before the Trial Court, a five-Judge Bench of this Court held:-

“10 …...In assessing damages the Court has, subject to the

limit of the penalty stipulated, jurisdiction to award such

compensation as it deems reasonable having regard to all the

circumstances of the case. Jurisdiction of the Court to award

compensation in case of breach of contract is unqualified

except as to the maximum stipulated; but compensation has to

be reasonable, and that imposes upon the Court duty to award

compensation according to settled principles. The section


undoubtedly says that the aggrieved party is entitled to

receive compensation from the party who has broken the

contract, whether or not actual damage or loss is proved to

have been caused by the breach. Thereby it merely dispenses

with proof of “actual loss or damage”; it does not justify the

award of compensation when in consequence of the breach no

legal injury at all has resulted, because compensation for

breach of contract can be awarded to make good loss or

damage which naturally arose in the usual course of things, or

which the parties knew when they made the contract, to be

likely to result from the breach.

11. …..In all cases, therefore, where there is a stipulation

in the nature of penalty for forfeiture of an amount

deposited pursuant to the terms of contract which

expressly provides for forfeiture, the court has jurisdiction

to award such sum only as it considers reasonable, but

not exceeding the amount specified in the contract as

liable to forfeiture.”

41. In Marimuthu Gounder (supra), also cited by the Appellant,

before the Trial Court, a Division Bench of Madras High Court held

that proof of actual damage was a sine qua non to seek damages and

in G.M.T.A.P. Co-op. Mkts. Ltd. v. Dy. Registrar, Co-op

Societies, Raichur (supra) a Single Bench of Karnataka High Court

held that penalty could not be imposed on a milling agent for default

in supply of rice, in the absence of pre-estimation of the loss suffered

on account of the default, even though the contract may have

provided for imposition of penalty.

42. In Murlidhar Chiranjilal (supra), cited on behalf of the

Respondent-Port Trust this Court held:-

“9. The two principles on which damages in such cases are

calculated are well-settled. The first is that, as far as possible,

he who has proved a breach of a bargain to supply what he

contracted to get is to be placed, as far as money can do it, in

as good a situation as if the contract had been performed; but

this principle is qualified by a second, which imposes on a

plaintiff the duty of taking all reasonable steps to mitigate the

loss consequent on the breach, and debars him from claiming

any part of the damage which is due to his neglect to take

such steps: (British Westinghouse Electric and Manufacturing

Company Limited v. Underground Electric Railways Company

of London [(1912) AC 673, 689] ). These two principles also

follow from the law as laid down in Section 73 read with the

Explanation thereof. If therefore the contract was to be

performed at Kanpur it was the respondent's duty to buy the

goods in Kanpur and rail them to Calcutta on the date of the

breach and if it suffered any damage thereby because of the

rise in price on the date of the breach as compared to the

contract price, it would be entitled to be re-imbursed for the

loss. Even if the respondent did not actually buy them in the

market at Kanpur on the date of breach it would be entitled to

damages on proof of the rate for similar canvas prevalent in

Kanpur on the date of breach, if that rate was above the

contracted rate resulting in loss to it. But the respondent did

not make any attempt to prove the rate for similar canvas

prevalent in Kanpur on the date of breach. Therefore it would

obviously be not entitled to any damages at all, for on this

state of the evidence it could not be said that any damage

naturally arose in the usual course of things.”

43. In State of Maharashtra and Anr. v. Digambar Balwant

Kulkarni (supra), cited on behalf of the Respondent-Port Trust this

Court held that a contract could not be rescinded after the expiry of

the due date for the purpose thereof. Abandonment of the contract

work after expiry of the due date for the purpose would amount to

breach, giving rise to a claim for damages against the party in

breach.

44. In A.K.A.S. Jamal v. Moola Dawood Sons & Co. (supra),

the Privy Council held that a plaintiff who sues for damages owes the

duty of taking all reasonable steps to mitigate the loss consequent

upon the breach and cannot claim as damages any sum which is

incurred due to his own neglect.

45. The High Court has dismissed the appeals filed by the

Appellant, holding that the Trial Court had, on consideration of the

entire evidence and materials available on record decreed the suit

filed by the Respondent-Port Trust and dismissed the claim of the

Appellant.

46. Observing that the main submission made on behalf of the

respective parties before the High Court swirled around whether there

was any concluded contract or not, the High Court noted the following

judgments cited on behalf of the Appellant in this regard:-

(i) Visakhapatnam Port Trust, Visakhapatnam and Anr. v.

Bihar Alloy Steels Ltd. And Ors.9

(ii) Raghunandhan Reddy v. The State of Hyderabad thr.

The Secretary to Government Revenue Department10

(iii) Mahesh Transport Co. v. T. & D. Workers’ Union11

(iv) M.V. Shankar Bhat and Anr. v. Claude Pinto since (D) by

Lrs. and Ors.12

(v) Jawahar Lal Burman v. Union of India13

(iv) U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd. And

Ors.14

9. 1991 (1) A.L.T. 582

10. AIR 1963 AP 110

11. AIR 1974 SC 868

12. (2003) 4 SCC 86

13. AIR 1962 SC 378

14. AIR 1996 SC 1373


47. In the judgment and order under appeal, the High Court has

not discussed any of the judgments referred to above. The High

Court simply recorded the contention of the Appellant that there was

no previous approval of the Board of Trustees as contemplated under

Section 34(1) of the Major Port Trusts Act, 1963, and therefore, no

enforceable contract.

48. In Visakhapatnam Port Trust, Visakhapatnam and Anr.

v. Bihar Alloy Steels Ltd. and Ors. (supra) a Division Bench of the

High Court held:

“17. In the instant case the provisions of S. 34 prescribe the

manner in which a contract is to be made on behalf of the

Board of Trustees and further sub-section (3) contains a

prohibition that a contract not made in accordance with the

earlier portions of Section shall not be binding on the Board. It

has been held by the Supreme Court in its decision reported

in H.S. Rokhy v. New Delhi Municipality AIR 1962 SC 554 that

the effect of such a prohibition as is contained in sub-sec. (3)

of S. 34 renders the contract itself void and unenforceable. In

that case the controversy was about estoppel against New

Delhi Municipal Corporation which was governed by the Punjab

Municipal Act, 1911, which contains a similar provision viz., S.

47.”

49. In Visakhapatnam Port Trust, Visakhapatnam and Anr.

v. Bihar Alloy Steels Ltd. and Ors. (supra) this Court held that the

promise as contained in the letter of Traffic Manager to lease an area

of port trust was void and unenforceable against the Board of

Trustees, there being no contract made in accordance with Section 34

of the Major Port Trusts Act.

50. In Raghunandhan Reddy v. The State of Hyderabad thr.

The Secretary to Government Revenue Department (supra), a

Division Bench of the High Court held:

“8. It is a well-established principle of law that only when an offer

is accepted that the contract is concluded and binds the parties.

It is equally well-settled that before an offer is accepted, the

offerer can withdraw his offer, but if the acceptance is conditional

or is not final, then there is no concluded contract.”

51. The judgment of this Court in Mahesh Transport Co. v.

Transport and Dock Workers’ Union (supra), which relates to

the validity and propriety of the reference of an industrial dispute

under Section 10(1) of the Industrial Disputes Act, 1947, apparently

has no relevance to the issues involved in this case. In M.V.

Shankar Bhat and Anr. v. Claude Pinto since (D) by Lrs. and

Ors. (supra), this Court held that an agreement which was subject

to ratification by heirs under a will who were not parties to the

agreement did not create a conclusive contract. The relevance of

the judgment is unexplained.

52. In U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd.

And Ors. (supra) this Court held that a contract by a Government

Notification is not binding unless it is executed in accordance with

its Articles of Association.

53. The High Court found that there was no dispute that tenders

had been called for and that it was the case of the Respondent Port

Trust that the offer of the Appellant had in fact been accepted and

purchase order issued on 31st October, 1990 under registered Post


that had been acknowledged but refused by the Appellant. The High

Court also recorded the contention of the Appellant that in the

absence of previous approval from the Board of Trustees of the

Respondent-Port Trust, under the proviso to Section 34(1) of the Major

Port Trust Act 1963, there could be no enforceable contract. Even

though the High Court referred to the submission of the Appellant

that the letter of intent was subject to ratification by the Board and

and the only witness of the Respondent-Port Trust had admitted that

no contract had been concluded, the High Court did not deal with the

same. The High Court observed:

“….The main reliance placed by the Visakhapatnam Port Trust

under Clause 16 of the tender conditions in Ex.A.1, was that in

the event of non-supply of the material, the Port Trust has

right to cancel the contract itself whereas the case of the

Company was that there was no contract at all. Therefore,

one has to see whether there was really any concluded or

enforceable contract before one could blame the other. There

has been a quite re-assertion through the evidence on behalf

of the Port Trust by P.W.1. There is a reference to a mention in

Ex.A.8 as to the ratification by the Board, which according to

the M/s Padia Timber Company Pvt. Ltd., nothing is

forthcoming. Further, P.W.1 during his cross-examination,

stated that it is true that the contract was not concluded.

However, that itself cannot be a reflection on the nature of

intent, which could follow the facts and circumstances in the

documents, which are staring at. It is to be seen that even

according to the M/s Padia Timber Company Pvt. Ltd., and as

per its letter dated 27.11.1990 ex.A.10, the M/s Padia Timber

Company Pvt., Ltd., admitted about the receipt of the letter

dated 29.10.1990 and the acceptance of tender which is valid

for three months. Therefore, having regard to the letter in

Ex.A.10 mentioning about the acceptance of the tender on

29.10.1990, it is not open to the M/s Padia Timber Company

Pvt. Ltd., to fall back and say that there was no acceptance at

all nor there was any concluded contract. The Court below

was rightly held that the tender of the defendant was duly

accepted on 29.10.1990 which was followed by the purchaser

order on 31.10.1990 and that itself is more enough to show

that there was concluded and enforceable contract. Thus,

nothing lies in the mouth of the M/s Padia Timber Company

Pvt. Ltd., to say that there was no concluded contract.

Further, having regard to facts and circumstances and

admittedly there being no steps at all in terms of such

acceptance, the breach squarely falls only on the M/s Padia

Timber Company Pvt. Ltd. and therefore, the Visakhapatnam

Port Trust has rightly forfeited the amount and the Court below

was rightly held that the said plaintiff namely the

Visakhapatnam Port Trust is entitled for the amounts as

claimed. Following the same and consequently to the said

findings which go to the very root of the case itself, the claim

as made by the M/s Padia Timber Company Pvt. Ltd., for

refund in the other suit also squarely falls to ground with the

self-same reasons. Hence, we do not find any merits in these

appeals...”

54. 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.

55. The Trial Court relied on Section 4 of the Contract Act, but

completely overlooked Section 7. Section 7 of the Indian Contract

Act, 1872 is set out hereinbelow for convenience:-

“7. Acceptance must be absolute.—In order to convert a

proposal into a promise the acceptance must— —In order to

convert a proposal into a promise the acceptance must—"

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless

the proposal prescribes the manner in which it is to be accepted.

If the proposal prescribes a manner in which it is to be accepted,

and the acceptance is not made in such manner, the proposer

may, within a reasonable time after the acceptance is

communicated to him, insist that his proposal shall be accepted

in the prescribed manner, and not otherwise; but, if he fails to do

so, he accepts the acceptance.”

56. It is a cardinal principle of the law of contract 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, that is, certainty, commitment and communication.

However, when the acceptor puts in a new condition while accepting

the contract already signed by the proposer, the contract is not

complete until the proposer accepts that condition, as held by this

Court in Haridwar Singh v. Bagun Sumbrui and Ors.15 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.

57. In Union of India v. Bhim Sen Walaiti Ram16, a three-Judge

Bench of this 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.

58. In Jawahar Lal Burman v. Union of India (supra),

referred to by the High Court, this Court held that under Section 7

of the Contract Act acceptance of the offer must be absolute and

unqualified and it cannot be conditional. However, in the facts and

circumstances of that case, on a reading of the letter of acceptance

as a whole, the Appellant’s argument that the letter was intended

to make a substantial variation in the contract, by making the

deposit of security a condition precedent instead of a condition

15 AIR 1972 SC 1242

16 (1969) 3 SCC 146


subsequent, was not accepted.

59. The High Court also overlooked Section 7 of the Contract Act.

Both the Trial Court and the High Court over-looked the main point

that, in the response to the tender floated by the Respondent-Port

Trust, the Appellant had submitted its offer conditionally subject to

inspection being held at the Depot of the Appellant. This condition

was not accepted by the Respondent-Port Trust unconditionally. The

Respondent-Port Trust agreed to inspection at the Depot of the

Appellant, but imposed a further condition that the goods would be

finally inspected at the showroom of the Respondent-Port Trust. This

Condition was not accepted by the Appellant. It could not, therefore,

be said that there was a concluded contract. There being no

concluded contract, there could be no question of any breach on the

part of the Appellant or of damages or any risk purchase at the cost

of the Appellant. The earnest deposit of the Appellant is liable to be

refunded.

60. Since we hold that the Appellant was neither in breach nor

liable to damages, it is not necessary for us to examine the questions

of whether the compensation and/or damages claimed by the

Respondent Port Trust was reasonable or excessive, whether claim

for damages could only be maintained subject to proof of the actual

damages suffered, and whether the Respondent Port Trust had taken

steps to mitigate losses. We also need not embark upon the

academic exercise of deciding whether prior approval of the Board of Trustees is a condition precedent for creation of a valid contract for supply of goods, or whether post facto ratification by the Board

would suffice.

61. The Appellant was entitled to refund of earnest money

deposited with the Respondent-Port Trust. The earnest money shall

be refunded within four weeks with interest @ 6% per annum from

the date of institution of suit No.450 of 1994 till the date of refund

thereof.

62. The appeal is, accordingly, allowed. The Judgment and order

of the High Court under appeal as also the common judgment and

order of the Trial Court in O.S. No.106 of 1993 and O.S. No.450 of

1994 are set aside. There will be no order as to costs.

.................................J

(NAVIN SINHA)

.................................J

(INDIRA BANERJEE)

JANUARY 05, 2021

NEW DELHI


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