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Sri Durga Saw Mill Vs. State of Orissa and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtOrissa High Court
Decided On
Case NumberOriginal Jurisdiction Case No. 943 of 1975
Judge
Reported inAIR1978Ori41
ActsContract Act, 1872 - Sections 5; Constitution of India - Article 226 and 226(1)
AppellantSri Durga Saw Mill
RespondentState of Orissa and ors.
Appellant AdvocateR. Mohanty, ;S.P. Mohapatra, ;S. Das and ;S. Mohanty, Advs.
Respondent AdvocateGovt. Adv.
DispositionApplication allowed
Cases ReferredHar Shankar v. Deputy Excise and Taxation Commr.
Excerpt:
.....union of india v smt gita banik, 1996 (2) glt 246, are not good law]. - 112): it is a well-established principle of law that only when an offer is accepted that the contract is concluded and binds the parties. it is equally well settled that before an offer is accepted, the offerer can withdraw his offer, but if the acceptance is conditional or is not final, then there is no concluded contract. it is a well-established rulethat at an auction, the auctioneer calling for bids is not an offer, which is accepted by the highest bidder. it is well settled that a person, who bids at an auction, thereby does not conclude a contract, but merely states an offer and like all other offers it is subject to the ordinary incidents of law, namely, that until it is accepted, it is open to the offerer..........of the highest bidder only on the completion of the formalities before the conclusion of the sale. clause 16 of rule 5.34 states that 'all sales are open to revision by the chief commissioner. under clause 18. the collector has to make a report to the chief commissioner where in his discretion he is accepting a lower bid. clause 33 of the conditions, ex. d-28, states that 'all final bids will be made subject to the confirmation by the chief commissioner who may reject any bid without assigning any reasons.' it is, therefore, clear that the contract of sale was not complete till the bid was confirmed by the chief commissioner and till such confirmation the person whose bid has been provisionally accepted is entitled to withdraw his bid. when the bid is so withdrawn before the.....
Judgment:

R.N. Misra, J.

1. A registered firm by the name and style of Sri Durga Saw Mill owns a saw-mill and carries on the business of a forest contractor. In the Orissa Gazette of 6th of September, 1974, the opposite parties published a sale notice for the purpose of leasing of certain forest coupes within the Baripada Division for the year 1974-75. On the 27th of September, 1974, auctions were held; petitioner participated in the auctions and came out as the highest bidder in respect of kuldiha Coupe No. II, Lot No. I in the Divisional Lot No. 61 of 1974-75 for a sum of Rs. 1,80,000/-. Petitioner paid security deposit of Rs. 18,000/-. The bid money being more than rupees one lakh, ratification had to be made by the State Government in the appropriate Department.

As per the sale notice, the contract period for the Divisional Lot was eleven working months and was terminable on the last day of the last working month. According to the petitioner, ratification usually takes a period of about three weeks to a month and petitioner expected that the contract would be finalised by ratification by the competent authority by end of October, 1974, at the latest, so that the coupe could be worked out without delay as by then the rainy season would be over. As no confirmation came until the end of December,1974. petitioner along with some other contractors applied to the Divisional Forest Officer who had held the auction to refund the security deposit and treat the offer as withdrawn. As no steps were taken on the application on 15th of February,1975. petitioner along with some others applied to the State Government to the same effect and forwarded a copy thereof to the Divisional Forest Officer. When no action was taken on the several representations, petitioner filed this application on 12th of March 1975, asking for a direction of refund of the security deposit and for an order prohibiting the opposite parties from proceeding to accept the offer. On 7th of April,1975, the counsel on behalf of the opposite parties wanted time to obtain instructions. On the 21st of April, 1975, the matter was again adjourned at the instance of the opposite parties. On 23-4-1975, in presence of counsel for both parties, the Court issued a rule nisi. Notices were actually issued in the second week of May, 1975.

The Divisional Forest Officer, Bari-pada Division, by letter dated 17th of June, 1975 (Annexure-2) informed the petitioner that Government had accepted the petitioner's highest bid and communicated that the period of contract would be from 17th June, 1975 till 30th of November, 1976 and the bid money would be payable in four instalments as indicated in that letter. Petitioner amended the writ application and asked for quashing of the order of ratification.

2. On behalf of the opposite parties, a common counter affidavit has been filed by the Deputy Secretary to Government in the appropriate Department. None of the material facts pleaded by the petitioner has been disputed. In paragraph 11, it has been stated that there have been several instances where four to six months of time for ratification has been taken. Petitioner's allegation that the delay was on account of continued negotiations with the Orissa Forest Corporation has been denied and it has been stated that Government were considering the liability of paving sales-tax on the contracts and taking a final decision with reference to sales-tax liability, took time.

3. On the pleadings, the following questions arise for determination :--

(1) In view of Clause 1 of the General Conditions of Sale in Part-III of the Sale Notification, was it open to the petitioner to rescind the contract between the date of bidding and the date of approval of the competent authority

(2) Was it open to the petitioner to withdraw the offer and is the acceptance of the offer as communicated under Annexure-2 invalid?

(3) Wheher the dispute raised in this matter can be appropriately adjudicated in a proceeding under the extraordinary jurisdiction?

4. We may deal with the first two questions together. As already noted, the highest bid offered by the petitioner was Rs. 1,80,000/-. Under the administrative instructions, the ratifying authority for bids above rupees one lakh is the State Government. Though the auction sale took place on 27th Sept., 1974 and petitioner furnished security of ten per cent amounting to Rs. 18,000/- that day, the bid was not concluded by acceptance and no contract came into existence. It has been the stand of the petitioner that as long as the offer had not been accepted, petitioner was entitled to withdraw the offer. Reliance is placed on the provisions of Section 5 of the Contract Act and several authorities in support of petitioner's stand that its offer was open to revocation on the dates it demanded the refund of the security deposit. Section 5 of the Contract Act provides :--

'A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.' The statutory illustration runs thus:

'A proposes by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. A may revoke his propo-posal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.'

The price offered at the auction was nothing more than an offer and until the competent authority ratified the offer by acceptance, under the statutory provision quoted above, petitioner was entitled to withdraw the offer. Such a question arose before the Bench of the Madras High Court in the case of Somesundaram Pillai v. Provincial Govt. of Madras, AIR 1947 Mad 366. Chief Justice Leach spoke for the Court in the following manner (at p. 367):

'To have an enforceable contract there must be an offer and an unconditional acceptance. A person who makes an offer has the right of withdrawing it before acceptance, in the absence of a condition to the contrary supported by consideration. Does the fact that there has been a provisional acceptance, make any difference? We can see no reason why it should. A provisional acceptance can-not in itself make a binding contract. There must be a definite acceptance or the fulfilment of the condition on which a provisional acceptance is based.....'

Such a question also arose for consideration before the Andhra Pradesh High Court in the case of Raghunan-dhan Reddy v. State of Hyderabad, AIR 1963 Andh Pra 110, in connection with an auction sale under the Hyderabad Abkari Act. Jaganmohan Reddy. J. as the learned Judge then was, spoke for the court thus (at p. 112):

'It is a well-established principle of law that only when an offer is accepted that the contract is concluded and binds the parties. It is equally well settled that before an offer is accepted, the offerer can withdraw his offer, but if the acceptance is conditional or is not final, then there is no concluded contract. Section 5 of the Indian Contract Act states that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. Similarly, an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.'

Natesan, J. in the case of Municipal Council, Karur v. V. Pasupathi Mathuraja, ILR (1969) 1 Mad 124, was dealing with an auction held by a Municipal Council. The learned Judge observed:

'.....It is a well-established rulethat at an auction, the auctioneer calling for bids is not an offer, which is accepted by the highest bidder. It is the bid that constitutes an offer and the auctioneer may accept or reject the bid. Before its acceptance, the bidder has the liberty of revoking his offer. .....'

A similar dispute arose before the Punjab High Court in an excise settlement. - Kapur, J., as the learned Judge then was, in the case of Union of India v. Narain Singh, AIR 1953 Puni 274 stated:

'..... The offer was therefore revocable till the final acceptance of the bid and as there was no final acceptance of the bid the plaintiff could withdraw his offer.....'

In the case of Union of India v. M/s. Bhimsen Walaiti Ram. AIR 1971 SC 2295, a similar dispute under the Excise Law came for consideration. The Court observed (at p. 2297):

'.....But the sale is deemed tohave been made in favour of the highest bidder only on the completion of the formalities before the conclusion of the sale. Clause 16 of Rule 5.34 states that 'all sales are open to revision by the Chief Commissioner. Under Clause 18. the Collector has to make a report to the Chief Commissioner where in his discretion he is accepting a lower bid. Clause 33 of the conditions, Ex. D-28, states that 'all final bids will be made subject to the confirmation by the Chief Commissioner who may reject any bid without assigning any reasons.' It is, therefore, clear that the contract of sale was not complete till the bid was confirmed by the Chief Commissioner and till such confirmation the person whose bid has been provisionally accepted is entitled to withdraw his bid. When the bid is so withdrawn before the confirmation of the Chief Commissioner the bidder will not be liable for damages on account of any breach of contract or for the shortfall on the resale. An acceptance of an offer may be either absolute or conditional. If the acceptance is conditional the offer can be withdrawn at any moment until absolute acceptance has taken place. This view is borne out by the decision of the court of appeal in Hussey v. Bor-nepayne, (1878) 8 Ch D 670 at page 676. .....'

The ratio of the decision in the case of Haridwar Singh v. Begun Sum-brui. AIR 1972 SC 1242 also supports the same view.

Learned Government Advocate, however seeks to rely upon the special condition incorporated in Clause 1 of Part III of the Sale Notification under the heading 'General Condition of sale' which ran thus :--'.....No bidder shall he eligible torescind the contract between the date of bidding and the date of approval of the competent authority.' Relying on this clause, counsel contends that there was a special contract and every person who participated in the bid was bound to abideby the said stipulation. As such, the petitioner was not eligible to resile from its offer until it had been ratified. Reference to this clause had been made in the counter affidavit and the defence raised by the opposite parties is mainly based upon the presence of such a stipulation. Counsel for petitioner relies upon the case of Somasundaram Pillai (AIR 1947 Mad 366), already referred to. Clause ix (e) of the sale notice stipulated that no bid which had been provisionally accepted by the selling officer should be withdrawn before it lapsed under Clause ix (c) or before orders were passed confirming or refusing to confirm it. Dealing with the defence based upon such a clause. Chief Justice Leach observed:

'In the present case there was a provisional acceptance by the Sub-Collector of the appellant's bids, but the Collector refused to confirm the acceptance and directed the sale to continue. He changed his mind at a later stage and accepted the bids, but before this happened, the appellant had withdrawn them, which he was entitled to do in law as there was no consideration to support his implied acceptance of the condition that once a bid had been made it could not be withdrawn. If the conditions of sale had statutory force, the position would of course be different but they had not statutory force. They were merely conditions which the Board of Revenue had directed should be imposed in respect of auctions of liquor shop licences. We are firmly of the opinion that the appellant was entitled to withdraw his bids because the prohibition against withdrawal had not the force of law and there was no consideration to bind him down to the condition. .....'

This decision has in terms been approved by the Supreme Court in the case of Haridwar Singh v. Bagun Sumbrui (supra).Natesan, J. in the Municipal Council case (ILR (1969) 1 Mad 124) also referred to this aspect by saying :

'.....It may also be stated thatquite often in conditions of auction sale, a proviso is found that bidding shall not be retracted. The term as such would be inoperative in lawthere being no consideration for assenting not to retract from the bid. To imply such a term is to postulate that there is a contract to enter into a contract. That there may be an obligation not to retract it must be supported by consideration or there must be some statutory provision having the force of law providing against the withdrawal of the bid-Section 5 of the Indian Contract Act entitles the maker of a proposal to revoke the proposal at any time before the communication of its acceptance is complete as against him. It is based on the principle found in Section 25 of the Act that an agreement made without consideration is void. .....'

The same learned Judge in the case of T. Linga Gowder v. State of Madras, AIR 1971 Mad 28 stated:

'In the present case, when the District Forest Officer had taken time to consider whether he should confirm the plaintiff's highest bid, no consideration passed for the contract. Nor did the conditions in the sale notice, by the plaintiff signing the same, bring about a precedent eon-tract between the parties. In fact, there are no such conditions in the terms of the sale notice. Even if there was such a one, it would be invalid as having no legal force, as pointed out in ILR (1947) Mad 837 : (AIR 1947 Mad 366). The position may be different, if, as noticed in Secy, of State v. Bhasker Krishnaji, AIR 1925 Bom 485, there is a statutory rule having force of law precluding withdrawal of bid before its acceptance or refusal is communicated to the bidder. .....'

A Division Bench of the Patna High Court in the case of Abdul Rahim Khan v. Union of India, AIR 1968 Pat 433, has stated:

'It is well settled that a person, who bids at an auction, thereby does not conclude a contract, but merely states an offer and like all other offers it is subject to the ordinary incidents of law, namely, that until it is accepted, it is open to the offerer to withdraw it; the time for withdrawal can, however, be always determined by a separate and binding contract for consideration. .....'

The opposite parties who rely upon the clause in the sale notice puttingan embargo on withdrawal of thebid have neither pleaded nor advanced any contention to justify that there was consideration for the contract against withdrawal. An agreement without consideration is void as provided under Section 25 of the Contract Act.

There is admittedly no contract until by approval of the competent authority acceptance is complete. Therefore, counsel for petitioner has rightly contended that the clause in question was a meaningless one and the position would not be changed by the presence of such a clause. Reliance is placed on the observations in 'Halsbury's Laws of England', Vol. IX (4th Edition) page 150. Reliance is also placed on the decision of the Court of Appeal in the case of Nicolene Ltd. v. Simmonds, (1953) 1 All ER 822 at page 825. We are, therefore, inclined to agree with learned counsel for the petitioner that the presence of this clause gives no footing for the defence.

On 2-1-1975, petitioner along with some others wrote to the Secretary of the Forest Department thus:

'We the applicants named below are Forest Contractors and Timber Merchants in the district of Balasore and Mayurbhanj. In the auction held on 20-9-74 at Baripada and 27-9-74 at Nilgiri, District Balasore, we purchased the forests scheduled below against each of our names in the highest bid.

Each one of us has also paid heavy amounts of security deposit as directed by the D. F. O., Baripada Division.

Although a period of three months has passed the Ratification Order from the Government has not yet been issued to the D. F. O., Baripada. Consequently we are unable to work in the forests for extracting timbers.

In view of the delay already caused we shall suffer heavy loss in executing the contract (auction). Usually there can be no reason for such inordinate delay in merely giving Ratification Order. We businessmen, cannot also indefinitely wait anticipating a ratification order from the Government. All our employees and labourers, trucks are remaining idle due to non-execution of the forestwork. Our Saw Mills are almost closed down. Any further delay will put us to irreparable loss. The money kept as security deposit could have been better utilised either to earn more interest or being invested in some other business.

In view of the delay it will also not be possible to complete the work in the forest before the coming rainy season.

In view of the aforesaid circumstances, if the ratification orders are not received within one week from the date of receipt of this letter, this ' may be treated as our notice to withdraw ourselves as auction-purchasers of the lots. We further beg to state that in case ratification orders are not issued as stated above, the Government may be pleased to cancel the auction and put the forests for a fresh auction.

We also beg to state that the security deposits paid by us may kindly be refunded without any further delay and without causing further hardship and financial loss to the petitioners and for which act of your kindness, they shall ever pray.

Scheduleof Forests

1.

Sri Junil Jena

Divisional Lot No.

55

2.

Sri A. K. Dutta

-do-

56

3.

Shree Durga Saw Mill

-do-

61

4

Ananta Gopal Karata Kala

-do-

63

5.

N. C. Society.

-do-

64

It may not be out of place to mention here that in the month of January hardly the contractors can work in the forest for about a fortnight since all the labourers would go away to their native places in connection with Makar Sankranti festival. From the month of May usually monsoon sets in and therefore the trucks will not ply in the forests. Therefore there will be hardly four months now available to us to complete the work which is most inadequate to complete the same.

We hope that the Government will be pleased to consider our case sympathetically.''

This letter was followed by another dated 15-2-1975, wherein petitioner along with some others had writtento the Secretary to Government to the following effect :--

'We beg to state that we are forest contractors and timber merchants and every year we purchase forests in auction from the Government which are sold by the D. F.O., Baripada, District Mayurbhanj and D. F. O., Karangia, District Mayur-bhanj. In the auction held on 20-9-74 at Baripada and Niligiri (District Balasore) respectively we purchased some forests individually in auction as per schedule given below.

Since no work order was received till the month of January we sent a registered letter to you on 2-1-75 requesting to cancel the auction for the reasons stated therein.

Again we separately sent another registered letter requesting for cancellation of the auction and for directing the D. F. O. to refund the security deposit.

That hardly two months are left for executing the work after which the rains will start in the month of May and it will never be possible on our part to ply the vehicles into the forest and extract the timbers.

That already five months have lapsed from the date of auction and the security deposit paid by us is unnecessarily lying idle with the D. F. O. All our saw mills are closed and we are suffering huge loss every day by maintaining the staff without any work. Although tax has been paid for the trucks we are unable to utilise the same for our business.

That we are small businessmen and it will be great hardship to us if the security deposit is not returned to us immediately,

We, therefore, earnestly requestthat the D.F.O., Baripada, DistrictMayurbhanj may kindly be directedto refund the security deposit as detailed in schedule below and forwhich act of your kindness we shallever remain grateful. '

Receipt of these letters is clearly admitted in the counter affidavit. There is no scope for entertaining a second opinion that as a result of these letters, the offer had not been withdrawn. By the date of acceptance, not only had the offer been withdrawn but also the writ applications was pending adjudication and the State Government had already had notice of it through its counsel. While the matter was before the Court and the counsel for the opposite parties had already taken several adjournments and the question for consideration was as to whether the opposite parties may be restrained from accepting the non-existing offer, it was indeed improper on the part of the State to have proceeded to accord ratification. At any rate, the offer having been withdrawn, there was nothing to be ratified or accepted in order to give rise to a valid contract. We may add that even if time had not been made the essence of the contract, at the time the auction sale took place, petitioner by notice dated 2-1-1975 had made the position so and in spite of petitioner's notice, no communication was sent until the acceptance more than four months thereafter. The ratio indicated in the case of Tandra Venkata Subrah-manayam v. Vegesana Viswanadharaja AIR 1968 Andh Pra 190 supports the view that by notice time can he made the essence of a contract in formation. Thus, in spite of notice, the opposite parties having sat tight over the offer, petitioner was entitled to withdraw the offer.

5. We may now advert to the last question. Learned Government Advocate has contended relying on the decision of the Supreme Court in the case of Har Shankar v. Deputy Excise and Taxation Commr., AIR 1975 SC 1121 that a writ petition is not an appropriate remedy for deciding disputes arising under contracts. He has also further contended that in several of the cases to which we have referred and on which reliance has been placed by us, the question arose in regular civil litigations. It has also been contended by learned Government Advocate that the writ application is not maintain-able in view of the amended provi-sions of Article 226 of the Constitution as per the Fortysecond Amendment We find no force in either of these objections. As already indicated, the offer had been withdrawn and no contract could ever come into existence by acceptance or ratification. There being no contract, the question of deciding upon contractual obligation does not arise. On the other hand, there is force in the submission of counsel for the petitioner that the dispute relates to protection of property rights covered by Article 19 of the Constitution. Though there is no scope for ratification of the offer and spell out a contract, attempt has been made to do so taking advantage of the fact that the opposite parties exercise the mighty powers of the State and by adopting the stand that a contract has come into existence, the opposite parties are likely to forfeit the security deposit and deal with the petitioner adversely. We are of ttie view that the matter is covered by the first clause Article 226(1)(a) of the Constitution and, therefore, Sub-article (3) has no application. The existence of an alternate remedy does not arise for consideration. As already stated, there has been no factual dispute relevant to the determination of the questions and, therefore, there is no force in the objection of learned Government Advocate to the maintainability of the writ application.

6. We, therefore, find that the writ application is maintainable: there was no offer in existence when ratification was made and, therefore, the order of ratification is without basis and has to be annulled: we also find that petitioner is entitled to refund of the security deposit. Accordingly the writ application is allowed, the order under Annexure-2 accepting the offer is quashed and the opposite parties are directed to refund to the petitioner the security deposit of Rs. 18,000/- within a month from today. Petitioner shall have its costs of the petition. Hearing fee is assessed at rupees one hundred.

Das, J.

7. I agree.


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