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BHAGWANDAS GOVERDHANDAS KEDIA V. M/S. GIRDHARILAL PARSHOTTAMDAS & CO.,

BHAGWANDAS GOVERDHANDAS KEDIA V. M/S. GIRDHARILAL PARSHOTTAMDAS & CO.,

AIR 1966 SC 543.

FACTS

  • Bhagwandas Goverdhandas Kedia (the appellant) was a dealer in cotton and other goods based in Ahmedabad. M/s. Girdharilal Parshottamdas & Co. (the respondent) was a trading firm based in Khamgaon. 
  • The parties had a long-standing business relationship. The dispute arose when Bhagwandas offered to sell some cotton to Girdharilal via a telephonic conversation, and Girdharilal accepted the offer during the same conversation. 
  • The acceptance of the offer was conveyed via telephone from Khamgaon to Ahmedabad.
  • Later, Bhagwandas refused to deliver the goods, and Girdharilal filed a suit for breach of contract in the Court of Khamgaon, claiming that the contract was formed there. 
  • Bhagwandas contested the jurisdiction of the Khamgaon court, arguing that the contract was concluded in Ahmedabad, where the offer was made.

ISSUES

The main issue in the case was to determine the exact place and time of the formation of the contract when communication occurred via telephone. Specifically:

  1. Where is the contract formed in a telephonic conversation—at the place where the acceptance is heard or at the place where it is spoken?
  2. Which court has the jurisdiction to try the case?

CONTENTIONS

Appellant (Bhagwandas Goverdhandas Kedia)

Argued that the contract was formed in Ahmedabad, where the offer was made, and thus the Ahmedabad courts had jurisdiction.

Respondent (M/s. Girdharilal Parshottamdas & Co.)

Claimed that the contract was formed in Khamgaon, where the acceptance was communicated and heard by Bhagwandas. Therefore, the Khamgaon courts had jurisdiction.

ANALYSIS

  • The Supreme Court analyzed the nature of telephonic communication and how it relates to the principles of contract formation. 
  • The court had to decide whether the place where the acceptor speaks or where the offeror hears the acceptance constitutes the place of contract formation.

CASE REFERRED

Entores Ltd v Miles Far East Corporation:

This case considered the application of the postal rule to instantaneous forms of communication (in this case Telex).

When a contract is formed through the post, the law is well-established across common law jurisdictions that acceptance is finalized the moment the letter is placed in the mailbox, marking the location where the contract is officially made. Justice Denning however concluded that that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror; and the contract is made at the place where the acceptance is received.

JUDGMENT

  • Majority of the judges preferred to follow the English rule as laid down in the Entores case and saw no reason for extending the post office rule to telephonic communications.
  • The Supreme Court held that the contract was concluded at the place where the acceptance of the offer was received. 
  • Therefore, the contract was formed in Ahmedabad, where the offeror (Bhagwandas) heard the acceptance. 
  • The court ruled that the place of the formation of the contract is where the communication of acceptance is received by the offeror. 
  • As a result, the court decided that the courts in Ahmedabad had jurisdiction to hear the case, not Khamgaon.

DISSENTING JUDGEMENT

Justice Hidayatullah was convinced that though the law was framed at a time when telephones, wireless, Telstar and Early Burd were not contemplated, the language of Section 4 is flexible enough to cover the telephonic conversations.The court should not completely ignore the language of the Act. When the words of acceptance are spoken into the telephone, they are put into the course of transmissions to the offerer, so as to be beyond the power of the acceptor. The acceptor cannot recall them. The communication being instantaneous the contract immediately arises.Hence, the contract should have been completed at Khamgaon and not Ahmedabad.

COMMENTARY

  • This case is significant as it clarified the legal position on contract formation via instantaneous communication, such as telephone or telegraph. 
  • The decision establishes that in cases of telephonic or similar instantaneous communication, the contract is formed at the place where the acceptance is received by the offeror. 
  • This judgment has been influential in determining jurisdiction in cases involving modern means of communication and continues to be a guiding principle in Indian contract law.