Bhagwandas Goverdhandas Kedia vs Giridharilal Parashottamdas
1966 AIR 543
Case Summary
[Acceptance]
Facts:
Plaintiffs: Messrs Giridharilal Parshottamdas and Company Defendants: Kedia Ginning Factory Oil Mills of Khamgaon The plaintiffs (P) started an action against the defendants (D) for a decree for Rs. 31,150/- on the plea that the defendants had failed to supply cotton seed cake which they had agreed to supply under an oral contract and negotiated between the parties by conversation on long-distance telephone.
Plaintiffs' Arguments:
The contract was formed at Ahmedabad, as the offer was accepted there.
Delivery and payment were to be made in Ahmedabad, which grants jurisdiction to its court.
Defendants' Arguments:
The acceptance occurred in Khamgaon, making it the place of contract formation and thus giving jurisdiction to the court at Khamgaon.
Under the Indian Contract Act, acceptance over the phone is complete where it is spoken.
Trial Court Decision:
Held that acceptance communicated to the offeror in Ahmedabad constituted the place of contract formation, giving Ahmedabad jurisdiction.
Supreme Court (Majority Judgment by Shah, J.):
the Supreme Court addressed where a contract is formed when negotiated by telephone. Here, the plaintiffs argued that the contract was concluded at Ahmedabad (A), where they received acceptance. The defendants contended that since they accepted the offer in Khamgaon (K), the contract was formed there.
Justice Shah reasoned that an offer’s acceptance must be communicated to the offeror to form a binding contract. Under Sections 3 and 4 of the Indian Contract Act, acceptance is complete only when the offeror knows of it. He distinguished telephone communication from postal acceptance, explaining that telephone conversations are “instantaneous,” as if parties are in each other’s presence. Shah endorsed Entores Ltd. v. Miles Far East, which holds that contracts via instantaneous communication are formed where the offeror hears acceptance. Therefore, the contract was concluded at A, granting it jurisdiction.
In telephonic contracts, jurisdiction lies where the offeror receives and acknowledges acceptance, unlike postal or telegraph contracts, where jurisdiction is at the place of dispatch.
Dissent (Hidayatullah, J.):
The contract’s place of formation should be where acceptance was spoken, i.e., Khamgaon, as per the Indian Contract Act.
Acceptance over the telephone, like the post, should be effective when placed in transmission, irrespective of whether it is heard.
Decision:
The court upheld the trial court, holding that the contract was formed at Ahmedabad where the acceptance was heard, granting jurisdiction to Ahmedabad.
Ishika Tanwar
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