BHAGWANDAS GOVERDHANDAS KEDIA

V. M/S. GIRDHARILAL PARSHOTTAMDAS

January 15, 2013 by Vivek Kumar Verma in Contract Law, Fundamentals,Offer.

Bhagwandas Goverdhandas Kedia v. M/s. Girdharilal Parshottamdas

1966 AIR 543

(S.3 and 4, place of formation of contract, postal rule)

FACTS:
Plaintiff offered to get certain goods supplied at Ahmedabad to defendants who accepted the
offer at Khamgaon. On defendants failure to supply requisite goods, plaintiff sued them at
Ahmedabad. Dispute arose as to where was contract formed- at Khamgaon where acceptance
was given by defendants or at Ahmedabad where acceptance was received by plaintiffs.
CONTENTION(S):
Defendants contended that according to the section 2, 3 and 4 of ICA, the place where the offer
is accepted is the place where the contract is made and therefore Ahmedabad trial court did not
have the jurisdiction to try the suit.
HELD:
Majority Judgment:
An agreement does not result from mere intent to accept the offer: Acceptance must be by some
external manifestation (either by speech, writing, conduct in further negotiations, or any other
overt act) accompanied by its communication to the offeror (Brogden v. Metropoliton Rly Co.)
unless expressly waived by him or impliedly by the course of negotiation to the contrary (Carlill
v. Carbolic Smoke Ball).
Entores v. Miles: An offer was made from London by telex to a party in Holland and was duly
accepted through telex; the question arose as to which court had jurisdiction to try the dispute
between the parties. Denning L.J. observed that in case of instantaneous communications
between the parties, i.e. where parties are in each others presence or though separated in space

are in direct communication with each other as for example by telephone or telex, contract is
complete when the acceptance of offer is duly received by the offeror and the contract is formed
where such acceptance is received.
Adams v. Lindsell: An offer was made by defendants by post to sell certain goods. Though, the
acceptance was duly posted by plaintiff but, it reached defendants nearly after a week when
latter had already sold the goods to a third party. Court ruled that when parties arent in each
others presence and communicate long distance either by post or telegram, both parties get
bound by contract as and when the acceptor puts the letter of acceptance in the course of
transmission to offeror so as to be out of his power to recall (postal rule).
But in India, according to S.4 of ICA, application of Postal Rule results that acceptor is bound
only when the acceptance comes to the knowledge of the proposer while proposer becomes
bound much before when letter was put in course of transmission to him as to be out of the
power of acceptor to recall. S.4 doesnt imply that the contract is formed qua the proposer at
one place and qua the acceptor at another place. The gap of time between posting of
acceptance and its coming into knowledge of proposer can be utilised by acceptor in revoking
his acceptance by speedier communication which will overtake the acceptance (S.5 of ICA)
The postal rule came into existence in Adams case for two prominent reasons:
The rule was based on commercial expediency/empirical grounds: for if the defendants were
not bound by their offer till the acceptance by the plaintiffs is not received by them, then the
plaintiffs ought not to be bound till after they had received the notification that the defendants
had received their acceptance and had assented to it; and so it might go on ad infinitum.
Secondly, if the contract is not finally concluded till the intimation of the acceptance by the
promisee to the promisor, then there may be instances that the promisor will deny the receiving
of any acceptance even though he may have received it. This may lead to instances of fraud and
also delay in commercial transactions. Further, the satisfactory evidence of posting a letter is
generally available as against of its having been received.

He held that the contract act does not expressly deal with the place where a contract is
made. The conversation over telephone is analogous to the conversation when the parties

are in presence of each other, wherein, the negotiations are concluded byinstantaneous
speech and therefore communication of the acceptance becomes a necessary part of
the contract and the exception to the rule on grounds of commercial inexpediency is
inapplicable.
o

Further, in case of correspondence by post or telegram, a third agency intervenes which is

responsible for effective transmission of letters at every instance, however, in case of
telephonic conversation, once the connection has been established, there is no need of any

third agency to transmit the correspondence between the parties.

Hence, as against cases of correspondence by post or telegram, in present case where there was
correspondence by telephone, contract was formed when acceptance was duly communicated to
the offeror and hence, at Ahmedabad.
Dissenting Opinion (J. Hidayatullah):
o

Stressing on literary interpretation of Indian Contract Act and not be moulded by English
dicta, Hidayatuallah held that when acceptor put his acceptance in transmission (in form
of telephonic conversation) to proposer as to be out of his power to recall (According to
section 4 of the Indian Contract Act 1872), communication of acceptance was complete

and proposer was bound by contract so formed, however quick the transmission.
It was obvious that the word of acceptance was spoken at Khamgaon and the moment the
acceptor spoke his acceptance he put it in course of transmission to the proposer beyond his
recall. He could not revoke acceptance thereafter, albeit the gap of time was so short that one can
say that the speech was heard instantaneously.
CONTRAST:

Q 1. Where owing to some fault in telephone connection, the proposer could not hear the
acceptor who in turn knows or has reason to believe that the proposer hasnt heard the
acceptance, is the contract formed? Compare the situation with the voice of acceptor
drowned in noise from an aircraft when speaking of his acceptance to proposer standing in
front of him.

A 1. Communication in contemplation of S.3 of ICA means effective or reasonable

communication. In case of telephonic conversation or face-to-face correspondence, contract
is formed only when communication of acceptance of offer is duly complete to the offeror. In
present case therefore, when the acceptor knows that communication of acceptance, which
was necessary for him to do, parties cant be objectively taken as ad-idem and no contract
results.

Q 2. If in facts of Q1, due to some fault at the proposers telephone end, the acceptance is
not heard by him and he does not ask the acceptor to repeat his acceptance while the
acceptor reasonably believes that the acceptance is communicated, will there be a valid
contract?

A 2. The application of objective test will result into existence of valid contract in this case.
A reasonable person in the position of acceptor would believe that offeror has heard the
acceptance and that the contract is formed. Therefore offeror should be bound by contract
for his own fault in not asking again the acceptor. In alternative, as Lord Denning said in
Entores v. Miles, offeror in such circumstances is clearly bound, because he will be
estopped from saying that he didnt receive the message of acceptance because of his own
fault.

ADR Disputes
Disputes are subject to time. In every stage of civilization, where on the one
hand the technology gives pace to the business and on the other hand gives rise to the
disputes due to that technology. In Bhagwandas Goverdhandas kedia v. Girdharilal
Parshottamdas & Co[1]. Supreme Court held that in the case of telephonic
conversation, the position is the same as in the case where the parties are in the
presence of each other, and the rule of a contract through post does not apply to such
contracts. In case of acceptance sent by post, the contract is concluded when the letter
of acceptance is posted, whereas in the case of acceptance by phone, the contract is
deemed to be complete when the offeror hears the acceptance at his end rather than
when the acceptor speaks the words of acceptance. Each new technology creates new
types of disputes, as well as opportunities for new forms of dispute resolution. The use
of the E-Mail once found very economic and easy to use. It is profoundedly used by
every one irrespective of the volume of the business. The beginning of disputes is not
far and it begins with the problem of contract via E-mail. This forces parliament to

enact the law i.e., Information Technology Act, 2000 and do amendment to some other
laws too. Last decade saw the advent and increasing acceptance of virtual
environment. It transforms our thinking about the nature of human interaction and
relationships. The creation of virtual identities, virtual locations (URLs) and virtual
meeting places, such as chat sites and cyber-cafes etc. had increased the limits of the
sovereignty of a country. The role of private international law has increased
tremendously. Problem of choice of jurisdiction also changeth as per cyber-virtualterritory. Internet culture develops through protocols, norms and languages. This
virtual regime has its own tools to play with such as digital signature, Encrypted
language, digital authentication, password oriented privacy etc.
Choice of Jurisdiction
By choosing internet as the means of solving the ADR dispute we find no
problems of choice of jurisdiction. Irrespective of time and place, with the help of
Interactive communications we can go for proceedings from any place of the world.
Alternative dispute resolution services adjust to new technology and provide better
negotiation, mediation and other dispute resolution processes.
Predominantly the ADR can use information technology in a systematic way to
solve the disputes in a more lucid and speedier way.
1. The computers via e-mail are performing the work of both, one, performing of
contracts and second, management of contracts.
2. Communications through telephone networks, and web conferencing
eliminated the difference of time and place. The use of video-conferencing
facilities should be used as much as possible to not only save the time but
energy too. The future is of nanotechnology and robotics. The use of
information technology will provide necessary fairness, effectiveness, and it is
economic too. Hence, easily accessible and acceptable. Thus, after the
judgment

Aftereffects

A distinction is drawn between acceptance by instantaneous methods such as

telex, telephone, and probably fax, e-mail and electronic data interchange, and
acceptance by non instantaneous methods such as post, telegram, or
telemessage. Instantaneous methods, where the acceptor will generally know
that his communication has not arrived at once and can try again, are subject to
the general requirement that acceptance must be communicated to the offeror .
Place of Contracting
Whether the postal acceptance rule applies also determines where a contract is
made. If the means of communication is by letter, telegram or telemessage, the
contract is complete when the letter is posted but when it comes to telemessage
then it was decided that the place of contract will be, the place where it is
dictated