This article is written by Thirunahari Srinija,Padala Rama Reddy Law College,4th year,BALLB student during internship at LeDroit India.
Introduction: It is a landmark judgement which revolves around telephone agreement between parties which was made in 1959. This case focused on the important legal issues of jurisdiction and the completion point of a contract.
Facts: On July 22, 1959, Bhagwandas Govardhana’s Kedia Oil Mills agreed over the phone to supply cotton seed cakes to M/s Girdharlal Purshottam & Co. of Ahmedabad. The defendant in Khamgaon accepted this offer over the phone.
However, after the defendant failed to provide the seed cakes as agreed, the plaintiff in Bhagwandas Govardhana’s Kedia v. Girdharilal Purshottam Das filed a lawsuit in the Ahmedabad city civil court, seeking Rs. 31,150 in compensation for their monetary losses. The agreement stated that the defendant would transport the products to Ahmedabad and get funds from a local bank.It was claimed that the Ahmedabad Civil Court lacked jurisdiction over the matter because it was accepted at Khamgaon; nevertheless, the Ahmedabad Court determined that it did. Following the Gujarat High Court’s dismissal of the appellant’s appeal, the Supreme Court considered the special leave plea.
Issues: 1. Did the Ahmedabad Court have the authority to hear the case?
2. Is it the location of acceptance or the receipt of acceptance that created the contract?
Rule: Section 2(b) of Indian Contract Act,1872[2] – An offer is considered accepted when the individual to whom it is made indicates his or her agreement with it. When accepted, a proposal turns into a commitment.
Section 3 of Indian Contract Act,1872 – Communication, acceptance and revocation of proposals.—Any act or omission by the party proposing, accepting, or revoking that he intends to communicate such proposal, acceptance, or revocation, or that has the effect of communicating it, is considered to constitute the communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively.
Section 4 of Indian Contract Act,1872 – Communication when complete.—When the individual receiving the proposal is fully informed, the communication of the proposal is complete.
When an acceptance is sent to the proposer and is not under the acceptor’s control, it is considered fully communicated; when the proposer learns of it, it is considered to be against the acceptor.
When a revocation is put into a transmission process to the recipient, it is considered fully communicated—as against the maker, as soon as it reaches his awareness; and as against the recipient, when it ceases to be under the maker’s control.
Analysis: In Bhagwandas Govardhana’s Kedia v. Girdharilal Purshottam Das, the defendant contended that the offer was accepted in Khamgaon, where the contract was established, and that Khamgaon was also where the delivery was to occur. As a result, the Ahmedabad civil court lacked the authority to hear the case.They contended that because the offer was accepted in Ahmedabad, the matter ought to fall under the purview of the Ahmedabad High Court. Since the suit was accepted at Khamgaon, it was argued that the Ahmedabad Civil Court lacked jurisdiction over it. However, the Ahmedabad Court ruled that it did have jurisdiction over the suit.After the appellant’s appeal was denied by the Gujarat High Court, a special leave petition was submitted to the Supreme Court.
The SC noted that Section 4 of the ICA addresses the communication and acceptance of the offer, stating that a proposal is considered fully communicated when it is known to the individual and accepted by the proposer when it is put in a course of transmission to him, and by the acceptor when it is known to the proposer.
Telephone conversations are comparable to in-person discussions between parties, when negotiations are completed through instantaneous speech. As a result, communication of acceptance becomes an essential component of the contract.
The Supreme Court of India dismissed the appellant’s appeal and dismissed the argument that the offer constituted a breach of contract. They found that such an offer was not a part of the cause of action, citing the precedent in Baroda Oil Cakes Traders vs. Purushottam.
Justices J.C. Shah and K.N. Wanchoo agreed with the ruling in Entores Ltd. v. Miles Far Eastern Corp., which determined that the location where the acceptance was heard has jurisdiction in cases involving instantaneous transmission. They came to the conclusion that the contract is created by the acceptance.
The place of acceptance, according to the majority ruling in favor of the respondent, will be the location where the offeror is present or where the offeror receives the message of acceptance if the offer is made over the phone.
Dissenting Opinion: Court of Justice Hidayatullah’s dissenting opinion[3] in Kedia v. Girdharilal Purshottam Das, Bhagwandas Govardhana, Justice Hidayatullah dissented from the majority ruling. He maintained that when the speaker’s words are clearly heard and understood, a legally binding agreement is created. Finding out where and when the contract was signed is the primary problem.
In contrast to Khamgaon, where the acceptance speech was given, it is difficult to demonstrate that the contract was made in Ahmedabad under the rules of the Contract Act.
Phone contracts are covered under Section 4 of the Act. The agreement was deemed official at Khamgaon, where the acceptance was heard, according to the dissenting opinion, which also questioned the application of common law principles in the Entores ruling.
Conclusion: The rules governing instantaneous communication between parties differ from those governing post-communication.
The place of contract formation is the offeror’s presence, and in the case of postal communication, the communication is considered complete when the letter is placed in the post box. In contrast, in the case of telephone and other instantaneous communication methods, the contract is considered made when the offeror receives the communication of acceptance.
Summary of the case: Kedia Oil Mills agreed over the phone to provide cotton seed cakes to Girdharilal Purshottam Das & Co., which led to the disagreement in Bhagwandas Govardhana’s Kedia v. Girdharilal Purshottam Das & Co. Determining the jurisdiction to hear the lawsuit and when the contract was deemed complete were the two most important issues. The plaintiff claimed jurisdiction over Ahmedabad, where they got the acceptance, while the defendant contended for Khamgaon, where the acceptance took place. Bhagwandas Govardhana’s Kedia v Girdharilal Purshottam Das was decided in favor of the plaintiff by the Supreme Court, which emphasized that in instantaneous transmission situations, jurisdiction is determined by the site of acceptance and that the offeror’s knowledge of the acceptance constitutes the contract.
According to Justice Hidayatullah’s dissent, the agreement was made at Khamgaon, where the acceptance was heard.
Case commentary : Scope of section 3 and 4 of Indian Contract act: Sections 3 and 4 of the Indian Contract Act, 1872, outline the process of communication of proposals, their acceptance, and their revocation. Effective communication is crucial for the other party to understand the proposal and act on it. Revocation must also be communicated before it takes effect. Section 4 defines when the communication of a proposal, its acceptance, or revocation is complete. The proposal is considered complete when it reaches the offeree, acceptance is received by the proposer, and revocation is received by the proposer and the acceptor.
After Effects of the Case: The Bhagwandas Goverdhandas Kedia case clarified the position of contracts made through telephonic conversations and the jurisdiction of courts. The court found that communication depends on the nature of the offer and the surrounding circumstances.
In Republic Medico Surgical Company vs. Union of India and Anr.[4], the Supreme Court concluded that making an offer does not constitute a cause of action for a suit for breach of contract and damages.
In Garware Nylons Limited vs. Swastik Yarns[5], the court upheld the trial court’s findings and dismissed the appeal.
In Sadhna Arun Kothari & Ors vs. Raj Bhalla[6], the principles laid down in Bhagwandas Goverdhan Das Kedia were upheld.
In Quadricon Pvt. Ltd. vs. Bajrang Alloys Ltd.[7], the court used the Bhagwandas Goverdhandas Kedia case to draw similarity between telephone and fax communication.
In M/S Besant Raj International vs. M/S Vishwa Bharathi Textiles[8], the principle laid down in Bhagwandas Goverdhandas Kedia was also relied upon.
[1] https://main.sci.gov.in/jonew/judis/2902.pdf
[2] https://www.indiacode.nic.in/bitstream/123456789/2187/2/A187209.pdf
[3]https://www.drishtijudiciary.com/indian-contract-act/bhagwandas-goverdhandas-kedia-v-m-s-girdharilal-parshottamdas-&-co-air-1966-sc-543-17
[4] https://indiankanoon.org/doc/1163125/
[5] https://indiankanoon.org/doc/1748245/
[6] https://indiankanoon.org/doc/1079380/
