UNION OF INDIA AND OTHERS v. MESSRS BHIM SEN WALAITI RAM [1970 SCR (2) 594]

The Concept

Section 7 of the Indian Contract Act states that the acceptance of an offer must be absolute, unqualified and expressed in some usual and reasonable manner. A provisional acceptance is not absolute and unqualified in terms of Section 7.

A provisional acceptance keeps the offer open. It is as if the acceptance was never communicated. If the acceptance is conditional or provisional, the acceptance can be withdrawn at any time before the absolute acceptance has been given.

A subsequent absolute acceptance needs to be given, in order to make the process of offer and acceptance complete and to complete the contract. 

Facts

An auction was held for the license of a liquor store. The Defendant had offered the highest bid among all others and it was provisionally accepted, subject to one condition: the Chief Commissioner had to make the full and final confirmation over the bid.

The Chief Commissioner also had the power to reject the bid without assigning any reasons. Under the Excise Rules the bidder was required  to deposit one-sixth of the purchase price within seven days of the auction.

However, the Defendant failed to deposit the same and hence,  the Chief Commissioner did not confirm this bid and resale of the Excise Shop was ordered. The shop was finally sold to a new bidder.

The government or the Plaintiff alleged that the Defendant is liable to pay the price difference between their original bid and the new bid at which the shop was re-sold. 

The trial court held in the favour of the Defendants stating that as the offer had not yet been accepted as it was subject to confirmation by the Chief Commissioner, there was no binding contractual obligation. The matter finally came before the Supreme Court.

Issues

Whether the Defendant/Respondent was under a legal obligation to make good the price difference between the original bid and the new bid?

Arguments from Appellant’s side

  1. The Respondent had a legal obligation  to pay one-sixth of the annual fee of the license within  seven days of the auction. He failed to complete this requirement even after his bid was accepted. 
  2. Due to this default a resale of the excise shop had to be ordered. Punjab Excise Rules make the Respondent liable for the  difference in price and for all expenses of such resale.

Arguments from Respondent’s side

  1. The bid was only provisionally accepted and it still had to go through with the assent of the Chief Commissioner. 
  2. It cannot be said that it was an absolute acceptance and hence the Respondent cannot be made liable for the bid amount shortfall that took place during the re-auction. The Respondent was well within his right to withdraw the offer as no absolute acceptance had taken place.

Judgement

The Hon’ble Court dismissed the Appeal on following reasons: 

  1.  The Court took into account Section 7(a) of Indian Contract Act,which states that the acceptance must be absolute and unqualified, leaving no ground for doubt or uncertainty. If the acceptance is conditional in nature, no valid contract can be deemed to be formed. The offer can be withdrawn at a reasonable time provided that absolute acceptance has not taken place.
  2. In the present case, the absolute acceptance could only be made after the Chief Commissioner had confirmed the bid. Thus it was held that acceptance wasn’t complete and “the bidder was entitled to withdraw the bid.” 
  3. Since there was never any proper sale of the license of the liquor shop to the Defendant, therefore, he cannot be held liable.

Reflective question 

What would the decision be if the Commissioner had confirmed the bid?