M/S. PADIA TIMBER COMPANY (P) LTD. versus THE BOARD OF TRUSTEES OF VISAKHAPATNAM PORT TRUST THROUGH ITS SECRETARY on 5 January 2021

1. The short question involved in this appeal is, whether theacceptance of a conditional offer with a further condition results in aconcluded contract, irrespective of whether the offerer accepts thefurther condition proposed by the acceptor. This question does not appearto have been addressed by the High Court or the Court below.C

2. This appeal is against a common Judgment and Order dated10.10.2006 passed by the High Court of Judicature at Hyderabad inAppeal Nos.2196 and 2197 of 2000 confirming a Judgment and Orderdated 31.3.2000 of the Additional Senior Civil Judge, Visakhapatnamallowing the suit being O.S. No.106 of 1993 filed by the Respondent-DPort Trust against the Appellant for damages, and dismissing O.S. No.450of 1994 filed by the Appellant for refund of earnest deposit.

3. On or about 17.7.1990, the Respondent-Port Trust floated atender for supply of Wooden Sleepers. The tenders were due to beopened on 01.08.1990.

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4. Clauses 15 and 16 of the tender are extracted hereinbelow:- “15. The purchaser will not pay separately for transitinsurance and the supplier will be responsible till the entirestores contracted for arrive in good condition at destination.The consignee will as soon as but not later than 30 days ofFthe date of arrival of stores at destination notify the supplierof any loss, or damage to the stores that may have occurredduring transit.

16. In the event of the supplies being found defective in anymatter the right to reject such materials and return the sameGto the supplier and recover the freight by the Port is reserved.”

5. Pursuant to the aforesaid tender, the Appellant submitted itsoffer on or about 01.08.1990. It was a specific condition of the offer ofthe Appellant that inspection of the Sleepers, as per the requirement ofthe Respondent-Port Trust, would have to be conducted only at the depot H

of the Appellant. The Appellant did not accept Clauses 15 and 16 of theTender and rather made a counter proposal. In accordance with theterms 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 theRespondent-Port Trust informed the tenderers that the opening of thetenders had been postponed to 08.08.1990.

7. On 08.08.1990, the Appellant submitted its revised quotationand/or offer, reiterating that inspection as per the requirement of theRespondent-Port Trust would have to be conducted only at the depot ofthe Appellant. After the tenders were opened certain discussions tookplace between the Appellant and the Tender Committee of theRespondent-Port Trust.

8. By a letter dated 11.10.1990, the Appellant agreed to supplywooden sleepers to the Respondent-Port Trust on the terms andconditions stipulated in the said letter. The Appellant reiterated that theRespondent-Port Trust could inspect the goods to be supplied, at thefactory site of the Appellant at Vepagunta, Visakhapatnam, as this wouldfacilitate re-transit of rejected goods to the depot of the Appellant, withoutadditional 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 ofthe Respondent-Port Trust, the Appellant would charge 25% above therate quoted by the Appellant for the supply of wooden sleepers. Thesaid letter is extracted hereinbelow for convenience:-

1. “We are agreeable to supply the B.G Track Indian salewood sleepers F.D.R V.P.T site by our own transportation.

2. With regard to inspection clause you can inspect the materialat our factory site at Vepagunta, Visakhapatnam. This willfacilitate us to retransist the rejected materials if any to ourthe depot without any additional financial commitment. If youstill require inspection, at your site we will charge 25% extrain our rate.

3. As the tender committee had mentioned during thediscussion on 10.10.90, we are agreeable to the conditionfor the 100 % payment a weekday, after acceptance of thematerials.

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A4. We charge 24 % interest on all belated payments.

5. We can immediately supply two thousand of BG Trackssleepers and the supply can be completed as per yourrequirement.

6. We are regular supplier of sleepers to Indian Railways. WeBwish to extend our transaction with the V.P.T.

7. We will execute 10% of security deposit as on bankguarantee and also you have refund to our E.M.D amount ofRs 75,000/- awaiting your favourable order.”

C10. Thereafter, further correspondence ensued between the parties.By another letter dated 20.10.1990 addressed to the Controller of storesof the Respondent-Port Trust, the Appellant reiterated that it had notagreed to inspection at the General Stores of the Respondent-Port Trust.The Appellant made it clear that, in the event the Respondent-PortTrust insisted on inspection at the General Stores of the Respondent-DPort Trust, the Appellant would charge 24% extra instead of 25% asmentioned in its earlier letter. The said letter dated 20.10.1990 was dulyreceived by the Respondent-Port Trust.

11. By a letter dated 29.10.1990, written in response to thequotations dated 1.8.1990, 8.8.1990 and the letter dated 20.10.1990 ofEthe Appellant, the Respondent-Port Trust informed the Appellant thatthe Respondent-Port Trust had accepted the offer of the Appellant forsupply of wooden sleepers at the rate quoted by the Appellant. Thoughthe Respondent-Port Trust agreed that the Inspection Committee wouldinspect the Wooden Sleepers at the site of the Appellant, the Respondent-FPort Trust imposed the further condition that the Appellant would haveto transport the Wooden Sleepers to the General Stores of theRespondent-Port Trust by road, at the cost of the Appellant and thefinal inspection would be made at the General Stores of the Respondent-Port Trust. The Respondent-Port Trust also requested the Appellant toextend the delivery period of the sleepers until 15.11.1990.G12. By a letter dated 30.10.1990 written in response to the letterdated 29.10.1990, the Appellant informed the Controller of Stores of theRespondent-Port Trust that the Appellant was not accepting the termsand conditions stipulated in the said letter dated 29.10.1990, which werenot as per the Appellant’s offer. The Appellant also declined to extendHthe validity of its offer, since prices had gone up.

13. By the aforesaid letter dated 30.10.1990, the Appellant rejectedthe proposal of the Respondent-Port Trust and requested that the earnestmoney deposited by the Appellant be returned to the Appellant.

14. It appears that on the same day, i.e. 30.10.1990, the Controllerof Stores of the Respondent-Port Trust put up an Office Note, seekingsanction of the Chairman of the Respondent-Port Trust for placing orderson the Appellant for supply of 10,596 Broad Gauge Track Sleepers and761 Broad Gauge special size sleepers, at a total cost of Rs.67,96,764odd, for which a Letter of intent cum purchase order dated 29.10.1990had been issued by the Respondent-Port Trust.

15. A purchase order No. G 101126 90-91 dated 31.10.1990 wasissued to the Appellant from the office of the Controller of Stores of theRespondent-Port Trust, requesting the Appellant to supply 10596 BroadGauge Track Sleepers and 761 Broad Gauge Special Sleepers of IstClass Salwood as per the latest Indian Railway Standards, on the termsand conditions specified in the Purchase Order and the Special Conditionsof purchase appended thereto, according to the specifications and at therates mentioned in the Purchase Order.

16. The Letter of intent and the purchase order were followed bya letter dated 12.11.1990, written in response to the letter dated 30.10.1990of the Appellant. By the aforesaid letter, the Respondent-Port Trustrequested the Appellant to supply the materials ordered as per thepurchase order, inter alia, contending that the purchase order had dulybeen placed on the Appellant within the period of validity of the pricequoted by the Appellant, after issuing a letter of intent to the Appellant,accepting its offer. The Appellant was warned that if supply was notmade as per the purchase order, risk purchase would be made at thecost of the Appellant and the Earnest Deposit of Rs.75,000 would beforfeited. The Respondent-Port Trust also noted that the Appellant hadnot made the security deposit, to which the purchase order was subject.

17. By another letter dated 19.11.1990, the Respondent-Port Trustrequested the Appellant to commence supply of materials. In responseto the said letter, the Appellant wrote a letter dated 27.11.1990 to theRespondent-Port Trust, contending that that there was no concludedcontract between the Appellant and the Respondent-Port Trust andonce again requested that the earnest money deposited by the Appellantwith the Respondent-Port Trust be refunded to the Appellant.

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A18. On or about 03.9.1991, that is, after ten months, theRespondent-Port Trust placed an order for supply of wooden sleeperson M/s. Chhawohharia Machine Tools Corporation, for supply of woodensleepers at a much higher rate.

19. The Respondent-Port Trust has contended that, by reason ofBrefusal of the Appellant to discharge its obligation of supplying therequisite number of sleepers, as required by the Respondent-Port Trust,to the Respondent-Port Trust, in terms of the contract, at the rate quotedby the Appellant in its revised bid, the Respondent-Port Trust had beenconstrained to invoke the risk purchase clause as contained in Paragraph16 of the Special Conditions of purchase, appended to the purchaseCorder dated 31.10.1990and purchase the wooden sleepers at a higherrate from a third party, incurring losses, for which the Respondent-PortTrust was entitled to claim damages. It is the case of the Respondent-Port Trust that the conditions stipulated in the purchase order, includingthe Special Conditions of Purchase constitute the terms of a bindingDcontract.

20. According to the Appellant the negotiations between theAppellant and the Respondent-Port Trust did not fructify into a concludedcontract, since the Respondent-Port Trust did not accept the conditionsof the offer of the Appellant fully and the Appellant did not agree to theEterms and conditions on which the the Respondent-Port Trust insisted,particularly the condition of final inspection at the General Stores of theAppellant.

21. On or about 10.4.1992, the Respondent-Port Trust filed thesuit being O.S. No.106 of 1993 in the Court of II Additional SubordinateFJudge, Visakhapatnam against the Appellant, seeking damages for breachof 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 about23.3.1994.

22. In or about June, 1994, the Appellant filed the suit being O.S.GNo.450 of 1994 in the Court of Subordinate Judge, Visakhapatnamclaiming refund of earnest money deposited by the Appellant with theRespondent-Port Trust along with interest @ 24% per annum from24.4.1991 to 23.4.1993, costs and other consequential reliefs. TheRespondent-Port Trust filed a written statement denying its liability torefund the earnest deposit.H

23. The two suits being O.S. No.106/1993 and O.S. No.450/1994were clubbed together and heard by the First Additional Senior CivilJudge, Visakhapatnam. In the first suit, the following issues were framedfor trial:- A

(i) Whether the Appellant committed breach of contract?

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(ii) Whether the Respondent-Port Trust was entitled to recoverthe 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 earnestCmoney with interest as claimed from the Respondent-PortTrust.

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

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

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25. Since the two suits were clubbed together and the issues inthe two suits were interlinked, common evidence was recorded for thetwo suits. While one V. Adinarayana, who had been working in the StoresDepartment of the Respondent-Port Trust at the material time, wasexamined on behalf of the Respondent-Port Trust, Shri G. C. Padia, whowas the Director of the Appellant was examined on behalf of theAppellant.

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26. The two suits were disposed of together, by a commonjudgment and order dated 31.3.2000. While the first suit was decreed infavour of the Respondent-Port Trust, the second suit filed by the Appellantwas dismissed.

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27. After discussing the pleadings and the contentions of therespective parties, the Trial Court found that it had been admitted thatthe Respondent-Port Trust had invited tenders for supply of woodensleepers, pursuant to which the Appellant had submitted its bid.

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28. The Trial Court held that the Respondent-Port Trust hadaccepted the offer of the Appellant and issued a letter of intent cumpurchase order on 29.10.1990, that is, within the period of validity of theprice quoted by the Appellant. The price quoted by the Appellant wasvalid till 31.10.1990.

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A29. The Trial Court rejected the contention of the Appellant thatthe Appellant had revoked its offer before acceptance thereof by theRespondent-Port Trust, and held that there was a concluded contractbetween the Appellant and the Respondent-Port Trust, since theRespondent-Port Trust had accepted the tender submitted by theAppellant on 29.10.1990, while the price quoted by Appellant was stillBvalid. The Trial Court held that the contract was concluded on 29.10.1990when the letter of intent was issued by the Respondent- Port Trust.

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30. The Trial Court observed that, in order to determine whetheror not there was a concluded contract between the Appellant and theRespondent-Port Trust, the crucial question was whether the tenderCsubmitted by the Appellant had been accepted by the Respondent-PortTrust within 31[st] October, 1990, being the stipulated period of validity ofthe quotation given by the Appellant. The Trial Court found thatacceptance of the purchase order was completed as against theAppellant, when the letter of intent cum purchase order was dispatchedDfrom the end of the Respondent-Port Trust.

31. In arriving at the finding that there was a concluded contractbetween the Respondent-Port Trust and the Appellant, the Trial Courtrelied on Section 4 of the Indian Contract Act, 1872, which is set outhereinbelow for convenience:E“4. Communication when complete.—The communication of a proposal is complete when it comes to the knowledgeof the person to whom it is made.

The communication of an acceptance is complete,—

Fas against the proposer, when it is put in a course oftransmission to him, so as to be out of the power of theacceptor; as against the acceptor, when it comes to the knowledge ofthe proposer.

GThe communication of a revocation is complete,—

as against the person who makes it, when it is put into a courseof transmission to the person to whom it is made, so as to beout of the power of the person who makes it; as against the person to whom it is made, when it comes to hisHknowledge.”

32. The Trial Court found that it had been proved that there wasa concluded contract between the Appellant and the Respondent-PortTrust, but the Appellant had admittedly not supplied the wooden sleepersto the Respondent-Port Trust. Once it was proved that there was aconcluded contract and the defendant that is, the Appellant before thisurt, had admittedly not supplied the goods as per the terms of the purchaseorder, it had to be held that the defendant had committed breach ofcontract. The Trial Court, in effect, held that the fact that the Appellanthad received the letter of intent and endorsed the receipt thereof within31[st] October, 1990, established the case of the Respondent that thecontract had been concluded.

33. The Trial Court held that the Appellant having committedbreach of its obligations under a concluded contract with the Respondent-Port Trust, the Respondent Port Trust was entitled to damages asclaimed in the suit being O.S. No.106 of 1993. In awarding damages tothe Respondent-Port Trust, the Trial Court took note of Section 73 of theContract 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 whosuffers by such breach is entitled to receive, from the partywho has broken the contract, compensation for any loss ordamage caused to him thereby, which naturally arose in theusual course of things from such breach, or which the partiesknew, when they made the contract, to be likely to result fromthe breach of it.”

34. The Trial Court held that in case of breach of a contract forsupply of goods, the Port could claim the difference between thecontracted price and the market price of such goods at the place ofdelivery, as damages. If there was no available market price at thenearest place, the price prevailing in the controlling market could beconsidered.

35. The Trial Court considered the judgments in Rajasthan StateElectricity Board and Others v. Dayal Wood Works[1]; Fateh Chandv. Balkishan Das[2]; G.M.T.A.P. Co-op. Mkts. Ltd. v. Dy. Registrar,Co-op Societies, Raichur[3];Marimuthu Gounder v. Ramaswamy1 AIR 1998 AP 3812 AIR 1963 SC 14053 AIR 1998 Karnataka 354

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AGounder 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 Maharashtraand Anr. v. Digambar Balwant Kulkarni[8] cited by the Respondent-Port Trust.B

36. Relying on the judgment of the Division Bench of Delhi HighCourt in M/s Saraya Distillery, Sardarbaggar v. Union of India andAnr. (supra), the Trial Court held that proof of actual repurchase wasnot necessary for claiming damages.

C37. The Trial Court rejected the contention of the Appellant ofdelay in calling for tenders from a third party, on the ground that theRespondent-Port Trust being a statutory authority and not being a privateindividual, was required to follow its rules and procedures in calling fortenders and accepting the tender of a third party.

38. The Trial Court found that the contract was enforceable till itsDcompletion or its abandonment. The rescission of the contract andconsequential forfeiture of security deposit was proper and within theterms of the contract.

39. In Rajasthan State Electricity Board and others v. DayalEWoods Works (supra), cited on behalf of the Appellant before the TrialCourt, the High Court had found on facts that there was no concludedcontract for supply of sleepers and consequently the plaintiff was entitledto refund of security deposit.

40. In Fateh Chand (supra), cited on behalf of the AppellantFbefore the Trial Court, a five-Judge Bench of this Court held:- “10 …...In assessing damages the Court has, subjectto the limit of the penalty stipulated, jurisdiction toaward such compensation as it deems reasonablehaving regard to all the circumstances of the case.Jurisdiction of the Court to award compensation inGcase of breach of contract is unqualified except as to 4 AIR 1979 Madras 1895 AIR 1915 Privy Council 48

6 AIR 1984 Delhi 360

7 AIR 1962 SC 366 (V49 C57)

H8 AIR 1979 SC 1339

the maximum stipulated; but compensation has to bereasonable, and that imposes upon the Court duty toaward compensation according to settled principles.The section undoubtedly says that the aggrieved partyis entitled to receive compensation from the party whohas broken the contract, whether or not actualdamage or loss is proved to have been caused by thebreach. Thereby it merely dispenses with proof of“actual loss or damage”; it does not justify the awardof compensation when in consequence of the breachno legal injury at all has resulted, becausecompensation for breach of contract can be awardedto make good loss or damage which naturally arosein the usual course of things, or which the partiesknew when they made the contract, to be likely toresult from the breach.

11. …..In all cases, therefore, where there is astipulation in the nature of penalty for forfeiture ofan amount deposited pursuant to the terms of contractwhich expressly provides for forfeiture, the court hasjurisdiction to award such sum only as it considersreasonable, but not exceeding the amount specifiedin 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 thatproof of actual damage was a sine qua non to seek damages and inG.M.T.A.P. Co-op. Mkts. Ltd. v. Dy. Registrar, Co-op Societies,Raichur (supra) a Single Bench of Karnataka High Court held thatpenalty could not be imposed on a milling agent for default in supply ofrice, in the absence of pre-estimation of the loss suffered on account ofthe default, even though the contract may have provided for impositionof penalty.

42. In Murlidhar Chiranjilal (supra), cited on behalf of theRespondent-Port Trust this Court held:- “9. The two principles on which damages in such cases arecalculated are well-settled. The first is that, as far as possible,he who has proved a breach of a bargain to supply what he A

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Acontracted to get is to be placed, as far as money can do it, inas good a situation as if the contract had been performed;but this principle is qualified by a second, which imposes ona plaintiff the duty of taking all reasonable steps to mitigatethe loss consequent on the breach, and debars him fromclaiming any part of the damage which is due to his neglectBto take such steps: (British Westinghouse Electric andManufacturing Company Limited v. Underground ElectricRailways Company of London [(1912) AC 673, 689] ). Thesetwo principles also follow from the law as laid down in Section73 read with the Explanation thereof. If therefore the contractCwas to be performed at Kanpur it was the respondent’s dutyto buy the goods in Kanpur and rail them to Calcutta on thedate of the breach and if it suffered any damage therebybecause of the rise in price on the date of the breach ascompared to the contract price, it would be entitled to be re-imbursed for the loss. Even if the respondent did not actuallyDbuy them in the market at Kanpur on the date of breach itwould be entitled to damages on proof of the rate for similarcanvas prevalent in Kanpur on the date of breach, if thatrate was above the contracted rate resulting in loss to it. Butthe respondent did not make any attempt to prove the rate forEsimilar canvas prevalent in Kanpur on the date of breach.Therefore it would obviously be not entitled to any damagesat all, for on this state of the evidence it could not be saidthat any damage naturally arose in the usual course of things.”

43. In State of Maharashtra and Anr. v. Digambar BalwantFKulkarni(supra), cited on behalf of the Respondent-Port Trust this Courtheld that a contract could not be rescinded after the expiry of the duedate for the purpose thereof. Abandonment of the contract work afterexpiry of the due date for the purpose would amount to breach, givingrise to a claim for damages against the party in breach.

G44. In A.K.A.S. Jamal v. Moola Dawood Sons & Co. (supra),the Privy Council held that a plaintiff who sues for damages owes theduty of taking all reasonable steps to mitigate the loss consequent uponthe breach and cannot claim as damages any sum which is incurred dueto his own neglect.

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45. The High Court has dismissed the appeals filed by theAppellant, holding that the Trial Court had, on consideration of the entireevidence and materials available on record decreed the suit filed by theRespondent-Port Trust and dismissed the claim of the Appellant.

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46. Observing that the main submission made on behalf of therespective parties before the High Court swirled around whether thereBwas any concluded contract or not, the High Court noted the followingjudgments cited on behalf of the Appellant in this regard:-

(i) Visakhapatnam Port Trust, Visakhapatnam and Anr. v.Bihar Alloy Steels Ltd. And Ors.[9]

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(ii) Raghunandhan Reddy v. The State of Hyderabad thr.The Secretary to Government Revenue Department[10]

(iii) Mahesh Transport Co. v. T. & D. Workers’ Union[11]

(iv) M.V. Shankar Bhat and Anr. v. Claude Pinto since (D)by Lrs. and Ors.[12]D

(v) Jawahar Lal Burman v. Union of India[13]

(iv) U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd.And Ors.[14]

47. In the judgment and order under appeal, the High Court hasnot discussed any of the judgments referred to above. The High Courtsimply recorded the contention of the Appellant that there was noprevious approval of the Board of Trustees as contemplated under Section34(1) of the Major Port Trusts Act, 1963, and therefore, no enforceablecontract.

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48. In Visakhapatnam Port Trust, Visakhapatnam and Anr. v.Bihar Alloy Steels Ltd. and Ors. (supra) a Division Bench of the HighCourt held:

“17. In the instant case the provisions of S. 34prescribe the manner in which a contract is to bemade on behalf of the Board of Trustees and further G

9 1991 (1) A.L.T. 58210 AIR 1963 AP 11011 AIR 1974 SC 86812 (2003) 4 SCC 8613 AIR 1962 SC 37814 AIR 1996 SC 1373

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sub-section (3) contains a prohibition that a contractnot made in accordance with the earlier portions ofSection shall not be binding on the Board. It hasbeen held by the Supreme Court in its decisionreported in H.S. Rokhy v. New Delhi Municipality AIR1962 SC 554 that the effect of such a prohibition asis contained in sub-sec. (3) of S. 34 renders thecontract itself void and unenforceable. In that casethe controversy was about estoppel against NewDelhi Municipal Corporation which was governed A

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by the Punjab Municipal Act, 1911, which containsa similar provision viz., S. 47.”

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49. In Visakhapatnam Port Trust, Visakhapatnam and Anr. v.Bihar Alloy Steels Ltd. and Ors. (supra) this Court held that the promiseas contained in the letter of Traffic Manager to lease an area of porttrust was void and unenforceable against the Board of Trustees, thereDbeing no contract made in accordance with Section 34 of the Major PortTrusts Act.

50. In Raghunandhan Reddy v. The State of Hyderabad thr.The Secretary to Government Revenue Department (supra),a DivisionBench of the High Court held:

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“8. It is a well-established principle of law that only when anoffer is accepted that the contract is concluded and binds theparties. It is equally well-settled that before an offer isaccepted, the offerer can withdraw his offer, but if theacceptance is conditional or is not final, then there is noconcluded contract.”F

51. The judgment of this Court in Mahesh Transport Co. v.Transport and Dock Workers’ Union (supra),whichrelates to the validityand propriety of the reference of an industrial dispute under Section10(1) of the Industrial Disputes Act, 1947, apparently has no relevanceto 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 thatan agreement which was subject to ratification by heirs under a will whowere not parties to the agreement did not create a conclusive contract.The relevance of the judgment is unexplained.

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52. In U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd.And Ors. (supra) this Court held that a contract by a GovernmentNotification is not binding unless it is executed in accordance with itsArticles of Association.

53. The High Court found that there was no dispute that tendershad been called for and that it was the case of the Respondent PortTrust that the offer of the Appellant had in fact been accepted andpurchase order issued on 31[st] October, 1990 under registered Post thathad been acknowledged but refused by the Appellant. The High Courtalso recorded the contention of the Appellant that in the absence ofprevious approval from the Board of Trustees of the Respondent-PortTrust, under the proviso to Section 34(1) of the Major Port Trust Act1963, there could be no enforceable contract. Even though the HighCourt referred to the submission of the Appellant that the letter of intentwas subject to ratification by the Board and and the only witness of theRespondent-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 Trustunder Clause 16 of the tender conditions in Ex.A.1, was thatin the event of non-supply of the material, the Port Trust hasright to cancel the contract itself whereas the case of theCompany was that there was no contract at all. Therefore,one has to see whether there was really any concluded orenforceable contract before one could blame the other. Therehas been a quite re-assertion through the evidence on behalfof the Port Trust by P.W.1. There is a reference to a mention inEx.A.8 as to the ratification by the Board, which according tothe M/s Padia Timber Company Pvt. Ltd., nothing isforthcoming. 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 ofintent, which could follow the facts and circumstances in thedocuments, which are staring at. It is to be seen that evenaccording to the M/s Padia Timber Company Pvt. Ltd., andas per its letter dated 27.11.1990 ex.A.10, the M/s PadiaTimber Company Pvt., Ltd., admitted about the receipt of theletter dated 29.10.1990 and the acceptance of tender whichis valid for three months. Therefore, having regard to the A

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Aletter in Ex.A.10 mentioning about the acceptance of the tenderon 29.10.1990, it is not open to the M/s Padia TimberCompany Pvt. Ltd., to fall back and say that there was noacceptance at all nor there was any concluded contract. TheCourt below was rightly held that the tender of the defendantwas duly accepted on 29.10.1990 which was followed by theBpurchaser order on 31.10.1990 and that itself is more enoughto show that there was concluded and enforceable contract.Thus, nothing lies in the mouth of the M/s Padia TimberCompany Pvt. Ltd., to say that there was no concludedcontract. Further, having regard to facts and circumstancesCand admittedly there being no steps at all in terms of suchacceptance, the breach squarely falls only on the M/s PadiaTimber Company Pvt. Ltd. and therefore, the VisakhapatnamPort Trust has rightly forfeited the amount and the Courtbelow was rightly held that the said plaintiff namely theVisakhapatnam Port Trust is entitled for the amounts asDclaimed. Following the same and consequently to the saidfindings which go to the very root of the case itself, the claimas made by the M/s Padia Timber Company Pvt. Ltd., forrefund in the other suit also squarely falls to ground with theself-same reasons. Hence, we do not find any merits in theseEappeals...”

54. With the greatest of respect, the High Court has cursorilydealt with the contentions of the Appellant and has not even discussedthe cases that had been cited on behalf of the Appellant.

55. The Trial Court relied on Section 4 of the Contract Act, butFcompletely 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 aproposal into a promise the acceptance must— —In order toconvert a proposal into a promise the acceptance must—”G(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unlessthe proposal prescribes the manner in which it is to beaccepted. If the proposal prescribes a manner in which it isto be accepted, and the acceptance is not made in suchH

manner, the proposer may, within a reasonable time after theacceptance is communicated to him, insist that his proposalshall 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 offerand acceptance of an offer must be absolute. It can give no room fordoubt. The offer and acceptance must be based or founded on threecomponents, that is, certainty, commitment and communication.However, when the acceptor puts in a new condition while acceptingthe contract already signed by the proposer, the contract is not completeuntil the proposer accepts that condition, as held by this Court in HaridwarSingh v. Bagun Sumbrui and Ors.[15]An acceptance with a variation isno acceptance. It is, in effect and substance, simply a counter proposalwhich must be accepted fully by the original proposer, before a contractis made.

57. In Union of India v. Bhim Sen Walaiti Ram[16],a three-JudgeBench of this Court held that acceptance of an offer may be eitherabsolute or conditional. If the acceptance is conditional, offer can bewithdrawn at any moment until absolute acceptance has taken place.

58. In Jawahar Lal Burman v. Union of India (supra), referredto by the High Court, this Court held that under Section 7 of the ContractAct acceptance of the offer must be absolute and unqualified and itcannot be conditional. However, in the facts and circumstances of thatcase, on a reading of the letter of acceptance as a whole, the Appellant’sargument that the letter was intended to make a substantial variation inthe contract, by making the deposit of security a condition precedentinstead of a condition subsequent, was not accepted.

59. The High Court also overlooked Section 7 of the ContractAct. Both the Trial Court and the High Court over-looked the mainpoint that, in the response to the tender floated by the Respondent-PortTrust, the Appellant had submitted its offer conditionally subject toinspection being held at the Depot of the Appellant. This condition wasnot accepted by the Respondent-Port Trust unconditionally. TheRespondent-Port Trust agreed to inspection at the Depot of the Appellant,but imposed a further condition that the goods would be finally inspected 15 AIR 1972 SC 124216 (1969) 3 SCC 146

A

B

C

DE

F

G

H

Aat the showroom of the Respondent-Port Trust. This Condition was notaccepted by the Appellant. It could not, therefore, be said that there wasa concluded contract. There being no concluded contract, there couldbe no question of any breach on the part of the Appellant or of damagesor any risk purchase at the cost of the Appellant. The earnest deposit ofthe Appellant is liable to be refunded.

B

60. Since we hold that the Appellant was neither in breach norliable to damages, it is not necessary for us to examine the questions ofwhether the compensation and/or damages claimed by the RespondentPort Trust was reasonable or excessive, whether claim for damagescould only be maintained subject to proof of the actual damages suffered,Cand whether the Respondent Port Trust had taken steps to mitigate losses.We also need not embark upon the academic exercise of decidingwhether prior approval of the Board of Trustees is a condition precedentfor creation of a valid contract for supply of goods, or whether postfacto ratification by the Board would suffice.

D

61. The Appellant was entitled to refund of earnest moneydeposited with the Respondent-Port Trust. The earnest money shall berefunded within four weeks with interest @ 6% per annum from thedate of institution of suit No.450 of 1994 till the date of refund thereof.

62. The appeal is, accordingly, allowed. The Judgment and orderEof the High Court under appeal as also the common judgment and orderof the Trial Court in O.S. No.106 of 1993 and O.S. No.450 of 1994 areset aside. There will be no order as to costs.

F

Bibhuti Bhushan Bose

Appeal allowed.

G

H