Understanding Acceptance In View Of M/S. Padia Timber Company (P) Ltd. V. The Board Of Trustees (2021)
This article is written by Arushi Anand, 5th Year BBA-LLB student of Vivekananda Institute of Professional Studies. In this article, she explained acceptance in context with the Padia timber company judgement.
Acceptance to a contract or an agreement is an essential ingredient. It signifies that the other party has agreed to the terms and conditions that are given in the offer made by the first party. An important feature of acceptance is that it should be absolute in nature. It cannot be such that a new offer or a new term emerges from it. It should be clearly given, communicated and should be without any conditions attached to it. In this light, the apex court recently in January 2021 gave a very important judgment in the case of M/s. Padia Timber Company (P) Ltd. v. The Board of Trustees (hereinafter referred to as Padia Timber Judgement).
ACCEPTANCE UNDER THE INDIAN CONTRACT ACT
To understand the judgement, it is necessary to look at the meaning of acceptance as given in the Indian Contract Act, 1872. Through its provision, it makes it clear that when a party makes an offer or proposal to the other party, the assent to that particular offer will amount to acceptance. This will turn the proposal to a promise. Before moving forward with the acceptance, the offer needs to be understood as well. This is such act by which one party conveys their willingness to the other party to do something or to not do something with the intention of getting acceptance for such. It amounts to offer or proposal. Thus, before an acceptance an offer is to be made by the first party which is then accepted by the second party or the party to whom it is made.
To convey an acceptance, it can be through any way of communication as decided or any way that signifies that an acceptance has took place; i.e. through express or implied means. The important part is that the communication of acceptance should be given to the person who made the offer or to the authorized agent. This transmission and knowledge of the acceptance is what makes the acceptance complete in nature as given under Section 4. Otherwise, if the acceptance is not conveyed to the offeror or proposer, then there will be no conclusion of acceptance as all as it didn’t reach the party making the offer.
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Lastly, the specific provision in the Act, 1872 also talks about the paramount part that is acceptance must be absolute as given under Section 7. It means that the acceptance should be to what is proposed or offered. If it adds something new to the already proposed thing, it will amount to cross-offer because a new condition is introduced. In that case, the contract or agreement will not be concluded unless and until that new condition (which is introduced by the second party) is accepted by the first party (who initially made the offer). This is a necessary part because what is newly introduced while accepting the initial offer cannot in any way bind the person whose consent was not taken for the same. Thus, to signify assent to each and every term of condition of the offer by both the parties to the agreement or contract is its necessary requirement.
RECENT JUDGEMENT (2021)
The Padia Timber judgment is an important one in Indian contract law as it again establishes very clearly that the feature of a valid acceptance is that there should not be any other condition attached to it. And if, there is a condition attached, the contract will not be considered as final and binding until and unless the first party or the proposer of the offer accepts the same. That acceptance to the new condition will only lead to the concluded and final contract.
The judgment was delivered by on January 5th, 2021. In this case, the respondent party had sought for tender of wooden sleeper with certain conditions. The appellant though agreed but introduced a condition that the inspection of materials will take place at the appellant’s site. But gave the option that if they required it at respondent’s site, the 25% charges extra should be paid by the respondent. Through correspondence, the respondent replied that they have accepted the quotation of the appellant. Further, they agreed to the inspection at appellant’s site while introduced a new condition that the appellant will transport the goods (at appellant’s cost) to the respondent’s site where there will be a final inspection. Since the respondent was not accepted the earlier condition that the appellant gave, they rejected the proposal and asked for their earnest money (advance) by a letter on October 30, 1990. While the respondent got the sanction of their Chairman and placed the order issuing Letter of Intent cum Purchase order for Rs. 67,96,764/- on October 29, 1990.
In 1992, the respondent filed a suit for damages from breach of contract. Along with that in 1994, the appellant filed the suit for return of advance against the respondent. The trial held in favour of respondent since the tender was accepted by the respondent before the stipulated date decided, i.e. October 31, 1990 and revocation by the appellant was received later. Thus, they held that the contract between both the parties was concluded. Further, the High Court dismissed the appeals of the appellant.
The Supreme Court while dealing with the present case laid down that while looking at offer and acceptance, both should be absolute. There cannot be any reason of ambiguity or doubt left. The important principle is “Certainty, Commitment and Communication”. The bench looked at previously held judgement of Haridwar Singh v. Bagun Sumbrui where if a contract which is signed by the offeror and the acceptor of the same accepts it but puts a new condition when signing it; the contract will not be concluded unless this new condition is accepted by the offeror as well. There has to be a full acceptance of every part of the contract by both the parties for it to be binding. Furthermore, the court looked at another case of Union of India v. Bhim Sen Walaiti Ram, where the court held that if an acceptance is of conditional nature, it can be withdrawn anytime. Also, this case pointed out that an acceptance cannot be absolute as well as conditional. It has to be either one. So, if a condition is attached to an acceptance, it can be easily withdrawn. Thus, through the case of Jawahar Lal Burman v. Union of India, the court concluded that the accepted needs to be absolute and unqualified in nature.
The Supreme Court, thus, held that the previous courts neglected Section 7 of the Indian Contract Act, 1872 while looking at the present case. In this case, the appellant’s condition was not fully accepted related to inspection by the respondent. However, a new condition was introduced by the respondent for final inspection at their site. This is the condition which was not accepted by the appellant and it can be revoked at any time (even after October 31, 1990) since it was a counter-offer by the respondent. Since, this condition was not accepted by the appellant, there was no contract that was concluded between the parties and hence, there was no breach. The court held that the earnest money of appellant is to be refunded by the respondent. The court ordered for refund of earnest money within four weeks at an interest rate of 6% per annum from the date of institution of suit by the appellant, i.e. from 1994 till the final refund made by the respondent.
Thus, at the end, it can be concluded that acceptance is a very important part of any contract or agreement. Only after acceptance, does a proposal or an offer becomes a promise and binding on the parties (unless revoked). If a new condition is introduced by making an acceptance, it has to be accepted by the first party for it to become applicable or for the contract or agreement to be binding. It will create a counter-offer for the party when that new condition is introduced. Thus, acceptance is to be understood in regard to the fact whether a new offer or term or condition is introduced or not while making an acceptance.
- M/s. Padia Timber Company (P) Ltd. v. The Board of Trustees of Visakhapatnam Port Trust Through Its Secretary, Civil Appeal No. 7469 of 2008, available at: https://main.sci.gov.in/supremecourt/2007/5298/5298_2007_35_1501_25342_Judgement_05-Jan-2021.pdf
- Acceptance, Indian Contract Act 1872: Part I; Toppr, available at: https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/
- The Indian Contract Act, 1872; available at: https://www.indiacode.nic.in/bitstream/123456789/2187/1/A1872-9.pdf
- Haridwar Singh v. Bagun Sumbrui and ors., 1972 AIR 1242, available at: https://indiankanoon.org/doc/255979/
- Union Of India & ors. v. M/S. Bhim Sen Walaiti Ram, 1971 AIR 2295 , available at: https://indiankanoon.org/doc/1656791/
- Jawahar Lal Burman v. Union of India, 1962 AIR 378 , available at: https://indiankanoon.org/doc/1938522/