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Anil Kumar Chanana Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectContract
CourtDelhi High Court
Decided On
Case NumberCivil R. Appeal No. 203 of 1973
Judge
Reported in1977RLR26
ActsIndian Contract Act, 1872 - Sections 2; Constitution of India - Article 12
AppellantAnil Kumar Chanana
RespondentUnion of India
Advocates: B.D. Batra and; B. Dutta, Advs
Cases ReferredRoutledge v. Grant
Excerpt:
.....was held to be non-acceptable - - the petitioners contended that they were not bound to keep the offers open for any particular date and at all evends the respondent was not entitled to forfeit the amount on failure of the petitioners to keep the offers open. before the court below the contention of the petitioners failed and the defense of the respondent prevailed, as a result, all the four suits were dimissed. (3) the question of law raised in the revisions is indeed interesting. this is one reason why there is no consideration for a promise made 'in consideration of natural love and affection'.in chidambara iyer v. (8) in the instant case counsel for the respondent has not reiterated the argument about the sale price of the tender forms as constituting consideration for the special..........the earnest money. it was one of the terms of the tenders that the petitioners must keep their offer open up to a particular date, viz, the opening of the tender. when tenders were opened, petitioners were asked to keep offer open for a further period. the petitioners in all the four cases in spite of keeping their offer open submitted counter offers on enhanced rates and thereby withdrew their previous offers and the contracts were not 1977 rlr 26 concluded. under the circumstances, the respondent union of india forfeited the amount of earnest money deposited which was rs.500.00 in each of the cases before me. the petitioners filed the suits giving rise to the revisions for recovery of the said amount. the defense was that the amount had been forfeited in terms of the tender. the.....
Judgment:

B.C. Misra

(1) This order will dispose of four civil revisions, 203,204,256 and 627 all of 1973. They raise a common question of law. The respondent in each of the revisions is the Union of India, which was the defendant in the suits, while the petitioners are different plaintiffs. The revisions are directed against the various decrees of the Judge, Small Causes Court, by which he had dismissed the suits of the respective plaintiffs for recovery of the amounts of earnest money.

(2) The detailed facts in each case are different Names and figures vary but the broad features are, however Common in all the four cases. The respondent Union of India issued ed invitations to tender for sale of commoditiese and demanded earnest money which was to be adjusted towards the price of the contracted, if the contracts were completed, or refunded to the party in case the tenders were rejected. Petitiongers submitted their tenders along with the earnest money. It was one of the terms of the tenders that the petitioners must keep their offer open up to a particular date, viz, the opening of the tender. When tenders were opened, petitioners were asked to keep offer open for a further period. The petitioners in all the four cases in spite of keeping their offer open submitted counter offers on enhanced rates and thereby withdrew their previous offers and the contracts were not 1977 RLR 26 concluded. Under the circumstances, the respondent Union of India forfeited the amount of earnest money deposited which was Rs.500.00 in each of the cases before me. The petitioners filed the suits giving rise to the revisions for recovery of the said amount. The defense was that the amount had been forfeited in terms of the tender. The petitioners contended that they were not bound to keep the offers open for any particular date and at all evends the respondent was not entitled to forfeit the amount on failure of the petitioners to keep the offers open. Before the court below the contention of the petitioners failed and the defense of the respondent prevailed, as a result, all the four suits were dimissed. The petitioners have filed these revisions under Section 25 of the Provincial Small Cause Courts Act and have contended that the decree of Court below is contrary to law.

(3) The question of law raised in the revisions is indeed interesting. The term on which reliance has been placed by the respondent to support the forfeiture is clause 9 of the tender which reads as follows ......

(4) In my opinion, this earnest money is earnest of the contract and the same is to be adjusted in accordance with the terms of the contract, viz, towards the security in case the contract is concluded or if the tender is rejected, then to be refunded to the party. The stipulation to hold the offer open till the date specified in the tender is not a term de hors the contract but it is a part & parcel of the contract. The respondent only issued an invitation to tender and the same did not bind any party. The contractor submitted his tender which in law amounted to offer. It was open to the respondent to accept or reject the offer and unless the same had been accepted in accordance with law, no binding contract resulted and until the offer is accepted and the contract is concluded, it is open to the party under section 5 of the Contract Act to revoke its offer. The petitioners had, thereforee, a legal right to withdraw their offer before it was accepted and they were not bound to keep the offer open except when there was a separate distinct consideration to support the same. Was there any separated distinct valuable consideration for this term

(5) 'CONSIDERATION' is defined by clause (d) of section 2 of the Contract Act. as thus : 'When, at the desire of the promis, theor promiseor any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such do or abstinence or promise is called a consideration for the promise.'

'ALTHOUGHconsideration need not be adequate, it must be real, that is, capable of estimation in terms of value, of some value in the eye of law'. If, for instance, the consideration is indefinite, it cannot be said to have real value in the eye of the law. This is one reason why there is no consideration for a promise made 'in consideration of natural love and affection'.

In Chidambara Iyer v. Ranga Iyer, : [1966]1SCR168 , our Supreme Court compared the contents of the definition of the 'consideration' in English law and the definition in our statute and held it to be substantially the same. In law the consideration must be valuable and a quid pro quo for a promise made and a detriment to the promiseis of the essence of the doctrine, or benefit to the promisor when it exists follows. I am, thereforee, of the view that a consideration under our law must be valuable and not superficial; it must be material and not sentimental or imaginary. It must be a material detriment to the promiseor a benefit to the promisor. Let us, thereforee, examine if the respondent has suffered any detriment or conferred any benefit as quid pro quo for this term to keep the offer open.

(7) A similar case came up for consideration before a Division Bench of this Court (H. R. Khanna & Hardayal Hardy JJ) in Union of India v. Rajendra Prasad Jain, Ra 24-D of 1960, decided on 23rd May, 1967. The argument advanced on behalf of the Union of India to support the enforceability of the term to keep the offer open was that the tender form had been sold for a price of Rs. 10 and that a subsidiary contract had arisen between the parties by offer and acceptance of the terms of of the tender. Both these contentions were rejected by the Division Bench by the following observations: 'Mr. Shankar's argument before us however is that there was a subsidiary contract between the parties which consisted of an offer made by the D.G.S. & D. to the plaintiff to sell him the tender documents at a certain price and to (?) him to submit his tender on the basis of the conditions contained in the Second and Third Schedules annexed to the prescribed Tender one of the conditions being that the plaintiff shall not withdraw or vary his quotation till 26th October, 1947, and of the acceptance of that offer by the plaintiff when he purchased the tender documents and made use of the permission according to him by submitting his tender subject to and in accordance with the conditions contained in the said Second and Third Schedules and he also agreed to keep his quotation open till 16th October, 1953. The marking of the aforesaid offer by the D.G.S. & D and the acceptance of it by the plaintiff resulted in a concluded contract between the parties of which the plaintiff committed breach later on when he resoled from and modified his original quotation on 2nd October, 1952. The breach of this contract entailed forfeiture of the earnest money and this disentitled the plaintiff from claiming its refund. According to Mr. Shankar the trial court fell into a grievous error when it held that there was no consideration for this subsidiary contract and was, thereforee, unenforceable in law. The price paid by the plaintiff for purchasing the tender documents and the opportunity and permission afforded to him to enter the field where he could compete with the other tenderers for the purchase of materials were adequate and proper consideration for this contract and it could not thereforee be regarded a amudum pactum. The argument of Mr. Shankar has the merit of ingenuity, I might even say, a little more than usual ingenuity; but it is certainly not sound and it was perhaps for this very reason that it was discarded by the learned Additional Solicitor General when he argued defendant's case before the trial court. In the first place there is nothing on the record to show that the offer to which Mr. Shankar has referred in his argument was made by the D.G.S. & D in any other manner except by means of the advertisement notice (Ex. D-1). The said notice does not state that any particular permission was being accorded to the tenderers or that the tender documents 'would be sold to those persons only who agreed to the condition that the earnest money was liable to be forfeited if the tender after submitting his tender resoled from his tender or modified the terms and conditions thereof in a manner not acceptable to the D.G.S. & D. The tender documents had been sold to the plaintiff without his agreeing to this condition on payment by him at their price of Rs. 20. It is thus apparent that there was no legal consideration for the alleged subsidiary contract which could stand in the way of the plaintiff from resiling from his tender or modifying the terms and conditions thereof. In fact the very existence of any such offer on the part of the D.G.S. & D. is fanciful and chimerical. Secondly, as has been contended by the learned counsel for the plaintiff-respondent no binding contract could ever result from any such offer, even if one was assumed to exist, for want of compliance with the provisions of Articles 299 of the Constitution.

(8) In the instant case counsel for the respondent has not reiterated the argument about the sale price of the tender forms as constituting consideration for the special term and in my opinion rightly so, because the argument is clearly not tenable. The argument about the subsidiary contract is also without any force. The contract subsidiary or otherwise would still require an offer, acceptance and consideration. It is impossible to accept the submission while the Union of India retained the right to refuse to accept the main offer of the tenderer, the party was bound by any subsidiary contract to keep its offer open. Mutuality is very essence of the contract and if it is found that one party is bound while the other is not it cannot be said that the parties are add dem or any contract has been concluded between them, whether subsidiary or otherwise. This contention about subsidiary contract is, thereforee, rejected. '

(9) Mr. Saharya, counsel for the respondent appearing to contest one of the revisions, has placed his case thus. The respondent had permitted the contractor to participate in the tender enquiry and the respondent had promised to consider the tender of the petitioner and this constituted a valuable consideration for the special term to keep the tender open. Consideration as defined in section 2(d) of the Contract Act requires that the consideration must be real. In other words, there must be some detriment to the promisor or a benefit to the promisein order to constitute the consideration as real and valuable. The promise to consider the tender is an entirely superficial promise, as the consideration is to be made by the respondent in its own discretion for its own advantage and if it wanted to accept the tender it may consider the offer and if it did not so want, it may refuse to do, but the promisor does not get any benefit out of a mere promise to consider, apart from the acceptance of the proposal. Permitting to participate in the enquiry is again superfluous and it does not constitute any real or valuable consideration. The Union of India is a State as denned by Article 12 of the Constitution is bound to treat all subjects in the country equally and cannot discriminate against them (see G.J. Fernandez v. The State of Mysore, Air 1968 Sc 1953. So anybody whosoever fulfills the conditions of being a contractor or supplier is legally entitled to submit his offer on fulfillment of the conditions and the respondent is not showing any favor or special benefit in permitting anybody to participate and submit the offers to the Government. It is the duty of the Government to consider (as distinct from accepting) the offers submitted to it provided they fulfill the requisite conditions. The right of the party to participate in the enquiry flows from fulfillment of the requisite conditions and it is not any right or benefit conferred by the Government on the people. As such, it is difficult to accept the submission that the respondent in responding to tender enquiry and in issuing an invitation to tender has offered any valuable consideration. Hence, the same does not constitute any valuable consideration. I have held that in respect of the term 'keep the offer open', there was neither any separate distinct valuable consideration, nor was any subsidiary contract. As a result the rule of law prescribed by section 5 of the Contract Act would apply. Its provisions read :

'Aproposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not after words. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not after- words.'

In Mulla's commentary on Indian Contract Act, 9th Edn. pages 74 and 75, the rule of law is thus stated : 'Revocation of Offers :-It is implied in Section 5 that the proposer of a contact cannot bind himself (unless by a distinct contract made by a distinct consideration) to keep his offer open for any definite time, and that any words of promise to that effect can operate only for the benefit of the proposer and as a warning that an acceptance after the specified time will be too late s-6 sub-s2). Such is undoubtedly the rule of the Common Law. The reason is that an undertaking to keep the offer open for a certain time is a promise without consideration, and such a promise is unenforceable. A gives an undertaking to B to guarantee, for twelve months the due payment of M's bills, which may be discounted by A at A's request. This is not a binding promise, but a standing proposal which becomes a promise or series of promises as and when B discounts bills on the faith of it. A may revoke it at any time, subject to his obligations as to any bills already discounted......' The provisions of section 5 of the Contract Act are best illustrated by the instances of sale by auction. Here the owner of each lot put up for sale makes the suctioneer his agent to invite offers for it, and every bidding is nothing more than an offer on one side, which is not binding on the either side till it is assented to. Hence a bidder may withdraw his bid at any noment before the fall of hammer. In Payne v. Cave (1789) 3 Tr 148, it was held thus : 'The auctioneer is the agent of the vendor, and the assent of both parties is necessary to make the contract binding, that is signified on the part of the seller by knocking down the hammer which was not done here till the defendant retracted.

'ANauction is not unaptly called locus poenitentiae. Every bidding is nothing more than an offer on one side, which is not binding on either side till it is assented to. But according to what is now contended for one party would be bound by the offer, and the other not which can never be allowed.'

(12) In respect of insertion of a condition in the conditions of sale that the bidding shall not be retracted it is obvious that such a condition is inoperative in law. Since a one-sided declaration cannot alter the bidder's rights under the general law, nor is there any consideration for his assenting to it, even if he could be supposed to assent by attending the sale with notice of the conditions.

(13) In Agra Bank v. Hamlin, 14 Mad 235 it was held :

'ANoffer to buy or sell may be retracted at any time before is it unconditionally and completely accepted, by words or conduct; and a bidding at an auction is a mere offer which may be retracted before the hammer is down.'

(14) In Somasundaram Pillai v. Provincial Government of Madras, A.I.R. 1947 Mad 366 the Court observed as follows : 'The plaintiff was entitled to withdraw the bid because the prohibition against withdrawal had not the force of law and there was no consideration to bind him down in the condition.'

(15) In Mackenzie Lyall & Co. v. Ghamroo Singh & Co. 16 Cal 702 the court observed that when the bid of an agent at an auction sale was accepted by the auctioneers kutcha-pucca (subject to sanction of the owner of the goods), and the agent's agreed thereto, is was eld that this did not preclude the principals of the agent from exercising their right of retracting the bid before it was accepted by the auctioneers.

(16) In Chitty on Contract, 23rd Edition, para 68, it is observed as follows : 'Two main rules govern the revocation of an offer. First, an offer may be revoked at any time until it is accepted. Secondly, the revocation of an offer must be communicated to the offeree. With regard to the first rule, it has long been established that revocation before acceptance involves the offerer in no legal liability. This rule applies even though the offeror has promised to keep the offer open for a certain time, for such a promise is unsupported by consideration and is thereforee not binding. Thus in Routledge v. Grant, (1828) 4 Bing. 653 the defendant offered to buy a house, giving the plaintiff six weeks for a definite answer; it was held that the defendant was free to withdraw at any time before acceptance even though the six weeks had not expired. The position is of course different if the promise to keep the offer open is supported by consideration. Thus where one party desires a definite time within which to consider an offer, the common practice is for him to give consideration, usually a money payment, and thus to 'purchase an option.' This amounts to a contract that the offerer will not revoke his offer before the expiration of the specified time.'

(17) In our country, the matter is made clear by the provisions of section 5 of the Contract Act quoted above, and the general rule of law is that an offer can be withdrawn at any time before communication of acceptance. The exceptions to the rule do not apply to the instant case. The condition to keep the offer open does not have any statutory force, nor did it have any distinct valuable consideration to support it. As a result, my conclusion is that the petitioners has a right to revoke the offers and were legally not bound to keep them open for any time till the acceptance or rejection of their offeri. The findings of the court below must, there, be reversed.

(18) In the facts and circumstances of the case in hand, there is still another weighty factor which must be considered. The original terms of the tender required the offers to be kept open till the date of the opening of the tender. Whether or not the parties were bound to do so, it is not the grievance of the respondant that the petitioners had not kept them open till the date. The trouble only arose because the respondent was not able to make up its mind on the acceptance of the tenders on their reopening but insisted upon the petitioners' keeping them open for another few days and the petitioners did not oblige the respondent and submitted the counter offers on enhanced rates. Considering from that point of view, the petitioners were not bound to keep their offers open beyond the originally contemplated date of reopening (assuming they were bound to do so till that date). The defense of the respondent is, thereforee, without any basis and same is rejected. Suits decred.


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