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It is the cardinal principle of law of contracts that offer and acceptance must be absolute: SC

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. (Para 56)

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


JANUARY 05, 2021

A Two Judge Bench Consisting of Justice Indira Banerjee and Justice Navin Sinha have set aside the judgement laid down by the High Court and Trial Court.

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 2 allowing 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.

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. 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 agree to certain clauses 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. The Appellant submitted its revised quotation and offer, reiterating that inspection as per the requirement of the Respondent-Port Trust would have to be conducted only at the depot and would charge 25% above the rate quoted by the Appellant for the supply of wooden sleepers. 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. The Respondent Port Trust requested the Appellant to supply the materials ordered as per the purchase order contending that the purchase order had duly been placed 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.

Respondent-Port Trust claims to had been constrained to invoke the risk purchase clause as contained in Paragraph 16 of the Special Conditions of purchase, the wooden sleepers at a higher rate from a third party, incurring losses, for which the Respondent-Port Trust was entitled to seek damages from the Appellant for breach of contract to the tune of Rs.33,19,991/- along with interest thereon, viz. the difference between the contracted price and the market price of such goods.

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.

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. This Jusgment was affirmed by the High Court.

The 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.

The Trial Court relying on State of Maharashtra and Anr. v. Digambar Balwant Kulkarni AIR 1979 SC 1339 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.

However, this Court observed that the High Court has cursorily dealt with the contentions of the Appellant and has not even discussed the cases that had been cited on behalf of the Appellant. The Trial Court relied on Section 4 of the Contract Act, but completely overlooked Section 7 which specifies that a contract should be absolute and unqualified. In consequence this Court concluded that: 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. “(Para 59)

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.

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

Risikesh Dhanaki



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