RECENT CASES

on Contract,
Torts & Indian Penal Code

LAW OF CONTRACT
CO NTRACT: O FFER A N D ACC EPTANCE

W r it t e n C o n tra c t
In Roop Kumar v Mohan Thedani (AIR 2003 SC 2418), the Supreme Court outlined
the significance and consequences o f reducing a contract into w riting. It observed:
“ The integration o f the act consists in embodying it in a single utterance o r memorial
- commonly, o f course, a written one. This process o f integration may be required
by law, or it may be adopted voluntarily by the actors either w h olly o r partially. Thus,
the question in its usual form is whether the particular document was intended by
the parties to cover certain subjects o f transaction between them and, therefore, to
deprive o f legal effect all other (oral) utterances",
“ The practical consequence o f integration is that its scattered parts, in their
former and inchoate shape, have no longer any ju ra l effect; they are replaced by a
single embodiment o f the act. This rule is based upon an assumed intention on the
part o f the contracting parties, evidenced by the existence o f the w ritten contract, to
place themselves above the uncertainties o f oral evidence and on a disinclination o f
the courts to defeat this object. Written contracts presume deliberation on the part
o f the contracting parties and it is natural they should be treated w ith careful
consideration by the courts and with a disinclination to disturb the conditions o f
matters as embodied in them by the act o f the parties."

I n t e n t io n to C o n tr a c t
In S.V.R. M udaliar v Rajababu (AIR 1995 SC 1607), it was held that even i f an
agreement is described as “ gentleman’s understanding", yet i f there is a clear agreement
that the property which is being conveyed w ill be re-conveyed to the vendor, the
agreement is binding and there is no need to prove that there was intention to create
legal relationship, because that is presumed in such a case.
In Dresser Rand S.A. v Bindal A gro Chem. L td (A IR 2006 SC 871) it was
held that a ‘ Letter o f intent’ merely indicates the party’s intention to enter into
contract w ith the other party in future. A letter o f intent is not intended to bind e ith e r
party alternately to enter into any contract.

( 505)
506 Law Guide for Competitive Examinations

O ffe r a n d A c c e p ta n c e

Offer M ust be Absolute

In K ilbu rn Engg. Ltd. v ONGC Ltd. (AIR 2000 Bom 405), it was held that the o ffer
and acceptance o f an offer must be absolute without giving any room o f doubt. It
is well settled that the offer and acceptance must be based or founded on three
components - Certainty, Commitment and Communication. I f any one o f the three
components is lacking either in the offer or in the acceptance there cannot be a valid
contract.

Invitation to Offer
In Bank o f India v O. P. Swarankar (AIR 2003 SC 858), it has been held that a
contract o f employment is governed by the Contract Act. Announcement o f Voluntary
Retirement Scheme by a nationalized bank is not an offer. The employee offering to
retire makes an offer and the same becomes effective when the written request o f
retirement is accepted. An employee who has offered to retire under the scheme can
withdraw before his request is accepted.
In Chaziabad Dev. A u th o rity v UOI (AIR 2000 SC 2003). the court observed
that when a development authority announces a scheme for allotment o f plots, the
brochure issued by it for public information is an invitation to offer. Several members
o f public may make applications for availing benefit o f the scheme. Such applications
are offers. Some o f the offers having been accepted subject to the rules o f priority/
preference laid down by the authority result into a contract between the applicant and
the authority.

Place o f Contract
In ONGC v Modern Construction Co. (AIR 1998 G uj 46). held that i f there is
acceptance o f lender by a telegram, the contract becomes concluded where the
telegram is despatched, and therefore, the place o f the contract is where the acceptance
telegram starts its journey.
In Progressive Constructions Ltd. v Bharat Hydro Power Corpn. Ltd. (AIR
1996 Del 92), it was held that when the parties enter into contract by correspondence
by post, the contract would be deemed to be complete where the o ffe r was received
and the acceptance was posted. The place o f delivery o f letter is irrelevant and,
therefore, the cause o f action does not arise where the letter is delivered.
In the present case, the letter o f acceptance o f tender was posted in Calcutta. The
said letter was delivered at Delhi. Held that it does not provide accrual o f cause o f action
or part thereof in Delhi, so the Delhi Court lacked jurisdiction in the suit for damages for
breach o f contract. It is only in the case o f contracts made by conversation on telephone,
the contract is complete when the acceptance o f the offer reaches the offeror.

Revocation o f Offer
In M /s J.K. Enterprises v S tate o f M.P. (AIR 1997 M.P. 68 ). a tender for purchase
o f Tendu leaves was submitted by the petitioner on 11-1-93. The respondents sent
letter o f acceptance o f tender by registered post at the address given by the petitioner,
on 12-2-93. The letter, however, did not reach the petitioner and. he purported to
withdraw his offer by a fax message on 3- 3- 93.
Held that a valid contract had come into existence on 12-2-93, as the despatch
o f letter o f acceptance had amounted to acceptance and completion o f the contract.
There could be no revocation o f offer by a fax message sent thereafter. It does not
 Recent Cases on Contract, Torts & Indian Penal Code 507

matter that the acceptance letter does not reach the offeror because com m unication
o f acceptance at the address given by the offeror amounts to acceptance.

Counter-offer
In U.P. Rajkiya N irm an Nigam Ltd. v Indure Pvt. Ltd. (AIR 1996 SC 1373), there
was an offer in the form o f tender by A to B. B accepted the o ffer w ith m aterial
alterations in the offer. However, there was no further communication thereafter from
A to B. The question arose as to whether silence by A amounted to acceptance o f
the counter-offer by conduct. It was held that when there was a counter-offer it meant
that there was no consensus ad idem as to material terms o f the contract. N o
concluded contract had, therefore, come into existence between A and B.

S t a n d in g O f f e r / T e n d e rs
In Rajendra Kumar Verma v State o f M.P (AIR 1972 M.P. 131), it was held that
any offer, including a standing offer, may be revoked before the same has been
accepted. Any restriction on the right to revoke an offer is void. In this case, the
respondent State invited tenders for the sale o f lendti leaves. The petitioner submitted
his tender and also deposited some security. Before the date o f opening o f tender,
he made an application withdrawing his tender and requested that on the stipulated
date the tender be not opened. But the tender was opened, and that being the on ly
tender the same was also accepted- The petitioner refused to execute the agreement
to purchase the leaves.
The Government sold the leaves to someone else and then sued the petitioner
to recover damages; it relied upon a clause in the tender notice according to which
the petitioner having submitted his tender was not entitled to w ithdraw the same; One
o f the conditions in the tender notice was that a tenderer may w ithdraw his tender
before the tenders are opened provided that there should be at least one other valid
tender when the tenders are opened.
Held that inspite o f such a clause, the tender o r an o ffe r could be w ithdraw n,
and since the offer had been withdrawn, no contract had arisen between the parties
and the petitioner could not be made liable. " A person who makes an o ffe r is entitled
to withdraw his offer or tender before its acceptance is intimated to him .” When the
tenders were opened, there was really no offer by the petitioner and, therefore, there
could be no contract im pliedly or exp licitly between the parties.
The Delhi High Court sim ilarly held in Suraj Besan Et Rice M ills v Food
Corpn., India (AIR 1988 Del 224). Although a mere clause restricting w ithdraw al
o f tender is inoperative, yet a valid agreement, supported by consideration wherein
both the parties agree that the offer w ill not be withdrawn is binding [Shared Trading
Co v State o f M.P. A IR 1980 M.P. 91],
In Kanhaiya Lai Aggarwal v UOI (AIR 2002 SC 2766). it was held that no
violation o f or illegality committed i f the tenderer offers concessional rates o r rebate
for early finalization o f a tender. In this case, the appellant made his o ffe r o f
concessional rates along with the tender (5% i f tender finalized in 45 days; 3% w ith in
60 days and 2% w ithin 75 days) while the respondent made such offer after opening
o f the tenders. It was held that what the appellant offered was part o f the tender its e lf
while the respondent made such offer separately and much later.
The Supreme Court held that the High Court erred in holding that offerin g
rebate amounted to impermissible alteration o f tender document. The apex court noted
that as long as such offer does not m ilitate against the terms and conditions o f
in viting tender it cannot be said that such offer is not w ith in its scope.
508 Law Guide loi Competitive Examinations

C O N S ID E R A T IO N : P R I V I T Y O F C O N T R A C T
In M.V. Shankar Bhat v Claude Pinto ( Deceased) by LRs (2003) 4 SCC 86. j,
was held that an agreement subject to ratification by others who are not parties t 0
it is not a conclusive contract.
In Aries Advertising Bureau v C.T. Devaraj (AIR 1995 SC 2251). a circus
owner placed order with the p la in tiff lo r making advertisements fo r circus. The
plaintiff-advertiser did not make any agreement with the ftnancer o f circus. The
advertiser was not a party to the contract between ftnancer and the circus owner
There being no privity o f contract between the advertiser and the ftnancer, the suit
by the advertiser against the ftnancer was, therefore, dismissed.
In a landmark decision o f the Delhi High Court [K/atvs M itte lb a c h e rt v East
India Hotels Ltd. AIR 1997 Del 201], however, such an action was allowed under
'exception to the privity rule'. In this case, there was a contract between Lufthansa
(a German Airline) and Hotel Oberoi Inter-continental that crew o f Lufthansa w ill stay
in the latter's hotel. The plaintiff, a co-pilot o f the A irline, who stayed in said 5-star
hotel got serious head injuries due to defective structure o f the hotel’s swimmin°
pool. He succeeded in an action against the hotel although he him self did not make
any contract for stay in the hotel. He was held to be beneficiary to the contract
between the Airline and the hotel.

F R E E C O N S E N T : M IS T A K E
In Tarsem Singh v Sukhminder Singh (A IR 1998 SC 1400), it was held that i f the
forfeiture clause contained in an agreement is void on account o f the fact that the
parties were not ad idem and were suffering from mistake o f fact in respect o f a matter
essential to the contract (viz. the unit o f measuring land), it cannot be enforced as
the agreement itself is void under Sec. 20 o f the Contract Act. In this case, the seller
intended to sell land in terms o f "kanals” whereas the buyer intended to purchase
it in terms o f “ bighas” .
The Supreme Court observed: "A contract is a bilateral transaction between two
or more than two parties. Every contract has to pass through several stages beginning
with the stage o f negotiation during which the parties discuss and negotiate proposals
and counter proposals as also the consideration resulting fin a lly in the acceptance
o f the proposal... the remedies available under Secs. 73 and 74 for the breach o f
contract contemplate a valid and binding agreement between the parties.

V O ID , V O I D A B L E A N D I L L E G A L C O N T R A C T S
In Dhurandhar Prasad Singh v Jai Prakash U niversity (AIR 2001 SC 2552), the
apex court observed that the expressions “ void and voidable" have been subject
matter o f consideration on innumerable occasions by courts. One type o f “ void" acts,
transactions, decrees are those which are wholly without jurisdiction, ab initio void
and for avoiding the same no declaration is necessary.
The other type o f void act, for example, may be transaction against a minor
without being represented by a next friend. Such a transaction is good one against
the whole world. So far the minor is concerned, i f he decides to avoid the same and
succeeds in avoiding it by taking recourse to appropriate proceeding, the transaction
becomes void from the very beginning. Another type o f void act may be which is
not a nullity but for avoiding the same a declaration has to be made.
 Recent Cases on Contract, Torts & Indian Penal Code 509

•‘Voidable” act is that which is good unless avoided e.g. i f a suit is file d for a
declaration that a document is fraudulent and' or forged and fabricated, it is voidable
as apparent state o f affairs is real state o f affairs and a party who alleges otherwise
is obliged to prove it. I f it is proved that the document is forged, etc. and a declaration
to that effect is given a transaction becomes void from the very beginning.
There may be a voidable transaction which is required to be set aside and the
same is avoided from the day it is so set aside and not any day prior to it. In cases,
where legal effect o f a document cannot be taken away without setting aside the
same, it cannot be treated to be void but would be obviously voidable.
In Her Highness Maharani Shantidevi P. Gaikwad v Savjibhai H aribhai
Patel (2001) 5 SCC 101. it was held that under general law o f contract any clause
niving absolute power to one party to cancel the contract does not amount to
interfering with the integrity o f the contract. Otherwise, it would interfere w ith the
rights o f the parties to freely enter into the contracts. Such a broad proposition o f
law that a term in a contract giving absolute right to the parties to cancel the contract
is its e lf enough to void it cannot be accepted.
In R ajat Kumar Rath v Government o f India (AIR 2000 O n 32). it was held
that i f an agreement is merely collateral to another o r constitutes an aid facilitating
the carrying out o f the object o f the other agreement which though void, is not
prohibited by law. it may be enforced as a collateral agreement. Where a person
entering into an illegal contract promises expressly o r by im plication that the contract
is blameless, such a promise amount to collateral agreement upon which the other
party i f in fact innocent o f turpitude may sue fo r damages.
In Secy., Jaipur Dev. A u th o rity v Daulat Ram Jain (1997) 1 SCC 35, certain
lands acquired for “ public purpose" (a housing scheme) under the Rajasthan Land
Acquisition A c t 1953. The property became vested in the State free from encumbrances,
and an aw ard o f compensation made to the owners o f the lar 1 Later, the same lands were
allotted to the owners under the Government’s housing scheme (fo r which the lands were
acquired). The subsequent sale o f the land by the owner-allottee, to others described as
‘sub-awardees’ or ‘nominees’ (o f the erstwhile owner) was held to be opposed to the
public policy and void under Sec.23 o f the Contract Act. The pre-existing right, title and
interest o f the landowner ceased to exist when the land was acquired by the Government.
The allotment o f that land to the landowner was void ah initio.
It was held that ’ public policy’ must be fo r the public goods and welfare and
in the public interest- It cannot be a camouflage for abuse or misuse o f the power.
In the present case, the policy o f the Government was to fritte r away the pu blic
property for personal gains.
In Subhash Kumar Manwani v S ta te (AIR 2000 M.P. 109). it was observed
by the High Court: “ To treat an agreement by way o f Huger as void is that the law
discourages people to enter into games o f chance and make earning by trying their
luck instead o f spending their time, energy and labour for more fru itfu l and useful
work for themselves, their family and the society."
An agreement conferring jurisdiction on a court not having ju ris d ic tio n is
opposed to the public policy and void. The parties could enter into an agreement
conferring jurisdiction on a particular court, and, such an agreement is not hit by
Sec. 28 o f the Contract Act. However, such a provision would apply to those cases
where two or more courts have jurisdiction to entertain a suit and the parties have
agreed to submit to the jurisdiction o f one court. A clause vesting ju ris d ic tio n on
8 court which otherwise does not have jurisdiction to decide the matter, w ould be
510 Law Guide for Competitive Examinations

void as being against the public policy. Hence even though there is an agreement
between the parties to the contrary, it has no effect and cannot be enforced [ Hurshud
Chinum Lul Modi v D.L.F. Universal Lid. A IR 2005 SC 4446].

EFFEC T O F FO R CE M A JE U R E
In Easun Engg. Co. Ltd. v F e rtilize rs & Chemicals Travancore Ltd.[M R 1991
Mad 158), a contract for the supply o f Power Transformers was entered into between
the parties. Easun Co. failed to supply 2/3 o f transformers on account o f price
increase in transformer oil. The contract between the parties was a “ firm price"
contract, which meant that the prices indicated in the contract are firm without any
escalation on any account till the contract is completely executed.
The contract also provided for liquidated damages for any delay in the supply
o f goods, and that such damages would not be applicable in case o f delay caused
due to "force majeure", viz. due to strikes, war, revolution, c iv il commotion, epidemics,
accidents, fire, wind, flood, because o f any law/ proclamation/ ordinance/ regulation
o f Government, an act o f God, or any other cause beyond the control o f the parties.
Easun contended that they were prevented from supplying, due to force majeure
conditions namely, strikes, power cut and phenomenal increase in the cost o f the
transformer o il (a 400% increase) due to war conditions in the M iddle East and the
Government o f India’s Ordinance imposing higher excise duties. The A rbitrator came
to the conclusion that despite the contract being a firm price contract. Easun was
justified in asking for variation o f price in transformer o il, in view o f the aforesaid
force majeure conditions. Further, the contract its e lf provided that liquidated damages
w ill not be applicable in case o f delay caused due to force majeure conditions. The
Madras High Court upheld the A rb itra to r’s award.
In Karuna Ram Medhi v Kamakhya Prasad Baruah (1997) 5 SCC 530,
under the terms o f the contract o f tenancy, the tenant was entitled to built a permanent
structure on the land o f tenancy for residential/coinmercial purposes, within five years
from the date o f contract. The tenant did so with the knowledge and acquiescence
o f the landlord. However, the structure was destroyed by fire. The landlord sought
ejectment o f the tenant, pleading discharge o f the contract on account o f act o f God.
It was held that where the permanent structure was constructed within the said period
o f five years, the mere fact that the structure was destroyed by fire would not
disentitle the tenant to the protection from ejectment.

DAM AG ES FOR BR E A C H O F C O N TR A C T

Compensation for Mental Anguish when Cannot Claimed

In Ghaziabad Dev. A uthority v UOI (AIR 2000 SC 2003), it was held that “ mental
anguish” cannot be a head o f damages for breach o f ordinary commercial contract. In
this case, the Ghaziabad Development Authority had announced through advertisements
schemes for allotment o f developed plots. There was unreasonable delay by the
Authority in completing scheme for development o f plots.
It was held that the ordinary heads o f damages allowable in contracts for sale
o f land are settled. The purchaser could claim the loss o f profit which occurred due
delay by the vendor o f the plots. A vendor who breaks the contract by failing to
mvey the land to the purchaser is liable to damages for the purchaser’s loss ol
irgain by paying the market value o f the property at the fixed time. However, the
 Recent Cases on Contract Torts A Indian Penal Code 511

buyer o f plots could not claim any compensation for mental anguish and vexation
caused by the delay in the performance o f the contract.
In Tarsem Singh v Sukhminder Singh i AIR 1998 SC 1400). the Supreme Court
observed: "A contract is a bilateral transaction between two or more than tw o parties.
Every contract has to pass through several stages beginning w ith the stage o f
negotiation during which the parties discuss and negotiate proposals and counter
proposals as also the consideration resulting finally in the acceptance o f the proposal...
the remedies available under Secs. 73 and 74 for the breach o f contract contemplate
a valid and binding agreement between the parties.” In this case, the contract was
void on account o f the mistake as to subject-matter o f the contract.

Damages: Actual or Expected Loss o f P rofit

In Dwarka Das v State o f M.P. (AIR 1999 SC 1031). a works contract was
rescinded on the ground that the contractor had not completed w ithin the stipulated
time even 10% o f the works. But evidence showed that the contract was improperly
rescinded and. therefore, it amounted to a breach o f contract. The contractor claimed
Rs. 20.000 as compensation, being 10% o f the value o f the contract.
The court said that the contractor was entitled to claim damages for loss o f
profit which he expected from the project. His claim was held to be fu lly justified. The
High Court erred in holding that the claim should’ ve been based on actual loss
suffered.

Pre-estimated Liquidated Damages vis-a-vis Penalty

In Oil 6 N atural Gas Corpn. Ltd. v Saw Pipes Ltd. (AIR 2003 SC 2629). the
agreement between the parties stipulated pre-estimate damages (not by way o f penalty)
in case o f delay in supply o f goods. The Arbitral Tribunal, however, held that for
recovery o f liquidated damages, it was for the appellant to establish that it had
suffered any loss because o f the non-supply - f the goods w ithin the prescribed time
limit.
The Supreme Court setting aside the A rbitrator’s award held: “ It is settled law
that the intention o f the parties is to be gathered from the words used in the
agreement. Therefore, w'hen the parties have expressly agreed that recovery from the
contractor for breach o f the contract is pre-estimated genuine liquidated damages
and is not by way o f penalty, there was no justifiable reason for the A rbitra l Tribunal
to arrive at a conclusion that still the purchaser should prove loss suffered by it
because o f delay in supply o f goods.
In certain contracts, it is impossible to assess the damages or prove the same.
Such situation is taken care o f by Secs. 73 and 74 o f the Contract Act and in the
present case by specific terms o f the contract. When the terms o f the contract are
clear and unambiguous then its meaning is to be gathered only from the words used
therein. Despite that, i f a party contends that the stipulated amount is not reasonable
compensation, then it has to prove the same.’’