Bhagwan Das Govardhan Das Kedia Vs. Girdharilal Parshottamdas & Co.

AIR 1966 SC 543

Supreme Court of India

Justice J.C. Shah, Justice K.N. Wanchoo, and Justice M. Hidayatullah.

30^th August 1965

Section 2(b), Section 3, and Section 4 of the Indian Contract Act 1872.

The Facts of The Case

This case involves two parties: Bhagwandas Govardhana’s Kedia Oil Mills is the plaintiff, and  M/s Girdharilal Purshottamdas & Co. is the defendant. The facts surrounding the case are as  follows: Govardhana’s Kedia Oil Mills confirmed via phone on July 22, 1959, to sell  cottonseed cakes to M/s Girdharlal Purshottama’s & Co. of Ahmedabad. M/s Girdharilal  Purshottamdas & Co. has accepted this offer at Khamgaon, which the plaintiff had conveyed  via phone.

Later, the defendant failed to deliver the cottonseed cake as agreed. Then, the plaintiff filed a  suit against the defendant in the Ahmedabad city civil court and sought damages of Rs. 31,150  for the losses incurred due to the non-delivery part of the contract by the defendant.

The lawsuit was filed in Ahmedabad because the plaintiffs had agreed to the defendant’s  promise to sell the cotton seed cakes in Ahmedabad. In accordance with the terms of their  agreement, the defendant was expected to deliver the goods to Ahmedabad and secure payment  there through a bank.

The core issue raised by the defendant was whether the Ahmedabad civil court had jurisdiction  to adjudicate the case. The defendant argued that the case should not be heard in Ahmedabad  as it lacks jurisdiction because the acceptance of the promise had occurred in Khamgaon (where  the promise was made), as well as the delivery of the goods was also supposed to take place in  Khamgaon. In essence, the defendant raised the concern regarding the location where the suit  should be adjudicated based on where the contract was formed and where the delivery of goods  was agreed to happen.

Concerning this, the plaintiff argued that the contract came into existence after the  communication of acceptance was conveyed to him in the city of Ahmedabad. Therefore, when  the matter of jurisdiction arose, the trial court held that the Ahmedabad court lacked the

jurisdiction to adjudicate the case because Ahmedabad extended the offer to buy the products,  and hence, the contract was to be created in Khamgaon. Then, the Ahmedabad civil court was  considered competent to adjudicate the case because the court laid down that the place where  the promisor receives notice of the acceptance of the offer is essential in deciding jurisdiction.  The court had the authority to adjudicate the matter since the acceptance of the offer was  communicated to the plaintiff in Ahmedabad. The Gujarat High Court refused to reconsider or  reexamine the decision made by the Ahmedabad Civil Court as per the request of the defendant.  However, the Gujarat High Court did not promptly consider the defendant’s request to review  the judgment, but allowed the opportunity for an appeal upon being granted special permission.

Issues Involved

The whole case revolves around the two concerns:

1. Whether the court of Ahmedabad or the court of Khamgaon, has the authority to adjudicate the case under the Indian Contract Act of 1872?
2. When was the contract formed, and how does the determination of its formation affect the responsibilities of each party under the Indian Contract Act of 1872?

Arguments

From the plaintiff’s side

The plaintiff contended that the act of extending the offer is a crucial aspect of the Basis for  filing the lawsuit, and therefore, the jurisdiction should fall or be determined by the place where  the offer was made and subsequently accepted. They emphasized that the communication of  acceptance is crucial for the formation of a valid contract. So, the plaintiff claimed that the  contract was established in Ahmedabad, where the acceptance was conveyed to them, thereby  making the Ahmedabad civil court the suitable jurisdiction for adjudicating the case.

From the defendant’s side

Conversely, the defendant contended that in the case where the contract is formed via  telephone, the place where the promise is accepted. Particularly where the communication of  acceptance is happening, and that place should be considered as the place where of contract  came into existence. The defendant argues that the jurisdiction should fall where the acceptance  of the contract has occurred. Since they claimed that the acceptance took place in Khamgoan, the court of Khamgoan has the ultimate jurisdiction to adjudicate the case rather than the one  in Ahmedabad.

Judgment

The Supreme Court held that the mere act of extending a promise at one location and the  acceptance occurring somewhere else does not lead to a cause of action for breach of contract  or damages. The Court made it clear that an accepted offer gives rise to a contract, and there  must be an external manifestation of acceptance, for instance, the conveyance of acceptance to  the offeror.

The court also affirmed that, as the Indian Contract Act was enacted in 1872, the use of the  telephone for the communication of acceptance must have been unforeseen for the framers of  the legislation at that time. Thus, this legislation does not specifically address this issue.  Nonetheless, the Supreme Court upheld the decision of the trial court. That element of the legal  action lies in Ahmedabad, where the plaintiff signifies his assent regarding the offer via phone.  Consequently, the court determined that the contract was deemed to have come into existence  when the offeror received the acceptance, thereby dismissing the appeal of the defendant.

However, the judgment was not decided unanimously, and the renowned Justice Hidayatullah  expressed a dissenting opinion, differing from the majority’s rationale in the case.

Judicial opinions

This case was decided by a bench of three judges, which comprised Justices Shah, Wanchoo,  and Hidayatullah. This decision was not made unanimously, but it was a decision of the  majority, with 2:1 in favor of the defendant. Both judges concurred in the decision, citing the  judgment of Entores Ltd. v. Miles Far Eastern Corp, which established the principle that  contracts are formed via an instantaneous mode of communication, and the jurisdiction lies at  the site where the acceptance was heard. Thus, justices J.C. Shah and K.N. Wanchoo affirmed  the view that was laid in the abovementioned case and held that the contract is created when  the offeror receives the assent of the offeree, and the jurisdiction falls where the communication  of acceptance is heard by the offeror.

Dissenting Opinion

Justice Hidayatullah dissented from the majority ruling in this case. According to him,  jurisdiction falls where the offer was accepted, in this case, that is Khamgaon, and not at the  place where the offer received acceptance of his offer, in this case, that is Ahmedabad. Justice  Hidayatullah’s belief is grounded in the idea that a contract comes into existence when it is  communicated and understood by the offeror. Since the communication of acceptance in this  case was made from Khamgaon, he argued that the jurisdiction should fall there. Justice  Hidayatullah also referred to the Entores Ltd. v. Miles Far Eastern Corp. case, in the place of  acceptance was considered the place of contract formation.

Ratio Decendi 

The Supreme Court ruling in Bhagwan Das Govardhan Das Kedia v. Girdharilal  Parshottamdas & Co. clarified all the ambiguities related to the jurisdiction of courts in the  spontaneous mode of contract. This case marked a significant shift from the postal rules, which  considered acceptance complete when the offeree dispatched it. However, the court has taken  an indifferent stance while deciding the case and held that acceptance was considered valid  when it was received in the case of direct and instantaneous modes of communication, like  telephone calls. This judgment holds immense significance in the current arena, where e contacts have become a common phenomenon. This judgment is a key precedent for modern  digital transactions.

The judgment also resolves a contentious and persistent issue of territorial jurisdiction. The  court held that jurisdiction would fall where acceptance is received, restricting parties from  choosing courts. This holds significance, especially in online contracts, where people might try  to file a suit in convenient locations. By holding that the cause of action can arise where  acceptance is received, the decision ensured fairness and clarity in connection with contractual  disputes.

Obiter Dicta

The ruling plays a vital role in maintaining the pace of the evolving world, as the ruling reflects  how the judiciary adapts to changing business practices. The ruling showcases the pragmatic  approach of the court for interpreting the Indian Contract Act of 1872, considering  technological development. This decision also resolves the future complications that might  arise from the digital contracts made through emails, messages, and online platforms by affirming that jurisdiction is determined by the place where acceptance is communicated. This  ruling aligns with the Global market standards and ensures the credibility of Indian Contract  law, which is still catering to the needs of the parties. It serves as a significant benchmark for  modern contract law and jurisdiction.

This judgment also has a global impact. The judgment not only has an impact on Indian  contracts but also influences international or cross-border contracts. As in the current  globalized world, this decision helps in establishing the rules for determining jurisdiction in  cases involving international parties. It may also influence, to some extent, how international  businesses handle contracts and communication. This judgment aligns with an English case,  Entores Ltd. v. Miles Far Eastern Corp, by incorporating an Indian approach in line with other  common law countries. This case enhances India’s legal position globally, providing more  certainty in contract enforcement for international companies.

This judgment also has a major economic impact. It resolves the judicial conundrum, which  eventually leads to certainty in business deals, which ensures smoother negotiations and  decreases expenses. Due to this ruling, the company might take into consideration the risks  involved in the international contract formed through the instantaneous mode of  communication. However, the dissenting view of Justice Hidatatullah holds significance as he  raises concerns and suggests other possible approaches due to the technological advancements.

This case highlights the evolution of principles concerning contracts, which are indeed  necessary for catering to the needs of the modern world. It also showcases the flexible and  evolving nature of law.

Final Decision

The case of Bhagwan Das Govardhan Das Kedia v. Girdharilal Parshottamdass & Co.  (1996) has established a significant precedent in Indian Contract law, specifically addressing  the jurisdictional conflict that arises in the instantaneous mode of communication such as  telephone calls the supreme court decision clarifies that the place where the offeror hears the  communication of acceptance is the place where the contract is deemed to be formed.

The judgment provides needed clarity for interstate contracts of companies or enterprises,  assuring that the jurisdiction of such cases can be decided based on the place where the  acceptance is communicated. This case also showcases the evolving nature of contract law and  its adaptability to modern communication technologies.

Furthermore, this case also sheds light on the lacunae of the existing law. Particularly concerned  with e-contracts, third-party malicious intervention, and jurisdiction concerns to international  contracts. These issues call for attention and address via legal development that can tackle the  challenges posed by the developing technologies.

In essence, this case highlights the significance of aligning laws with technological  advancements, assuring that the contract law remains adaptable and relevant in a rapidly  changing business environment.

 

References

1. Riya Srivastava, ‘Bhagwandas Goverdhandas Kedia versus Girdharilal Parshottam Das & Co’ (JusCorpus) <https://www.juscorpus.com/bhagwandas-goverdhandas kedia-versus-girdharilal-parshottam-das-co/> accessed 26 June 2025.
2. ‘Bhagwandas Goverdhandas Kedia v M/S Girdharilal Parshottamdas & Co.’ (Drishti Judiciary) <https://www.drishtijudiciary.com/indian-contract-act/bhagwandas goverdhandas-kedia-v-m-s-girdharilal-parshottamdas-&-co-air-1966-sc-543-17> accessed 26 June 2025.
3. ‘Case: Bhagwandas Goverdhandas Kedia v Girdharilal Parshottamdas & Co. (1966)’ (Theory of Abrogation) <https://theoryofabrogation.com/case-bhagwandas goverdhandas-kedia-v-girdharilal-parshottamdas-co-1966/> accessed 27 June 2025.
4. ‘LawBhoomi’ <https://lawbhoomi.com/popup/public/img/theme_3/close.png> accesse d 27 June 2025.
5. ‘Bhagwandas Goverdhandas Kedia vs Girdharilal Parshottamdas & Co., AIR 1966 SC 543’ (Indian Kanoon) <https://indiankanoon.org/doc/1386912/> accessed 28 June 2025.