Deepayan Malaviya

The Indian Contract Act, 1872 incorporates the postal rule and goes beyond. Section 5 mentions that acceptance can be revoked by the offeree any time before the acceptance reaches the offeror and not beyond it. Thus, it provides that an offeree can use an expeditious means of communication to revoke the acceptance. This is easier said than done. What prevents an offeror, who has made up their mind to sell a commodity from lying? The seller knows that he will have to undertake the entire exercise if the offeree revokes their acceptance. What prevents the offeror from saying that he received the letter containing acceptance before he received the letter containing revocation? While the law is clear in the form of sections 4 and 5, but the moment human fickle mindedness is introduced litigation ensures. There is home advantage when litigating; parties would therefore make all attempts to make their home turf the place of litigation. Therefore, there is litigation to determine where the litigation will take place!

This was addressed by the English Courts in the Entores Case (1955) wherein Lord Denning laid down that the where the contract is concluded depends upon the medium that the parties adopt to communicate. a company based in London, entered negotiations with Miles Far East Corporation for the purchase of copper cathodes. The defendant’s agents were in Amsterdam, and the parties communicated through Telex. During the negotiations, Entores sent a counteroffer from London to the defendant’s agents in Amsterdam. The agents accepted the offer by sending a Telex message from Amsterdam, which was received by Entores in London. A dispute subsequently arose regarding the contract, and the issue became whether the contract was formed in Amsterdam, where the acceptance was sent, or in London, where the acceptance was received. This question was important in determining the place of formation of the contract and the jurisdiction of the English courts.

Lord Dennin held that in case of delayed communication, the postal rule applies and the contract is concluded where the letter is posted. However, in instantaneous modes of communication, the contract is formed where the acceptance is “received” by the offeror. For instance, if the offeror is in London when the acceptance is uttered by the offeree in India, London will be the place where the contract is formed; just like it happened in the Entorres Case.

 A similar understanding was imported into the Indian law in the B. G. Kedia v G Das & Co. (1966). M/s. Girdharilal Parshottamdas & Co., based in Ahmedabad, entered negotiations with Kedia Ginning Factory and Oil Mills, located in Khamgaon, for the supply of cottonseed cake. The contract was negotiated and concluded through a long-distance telephone conversation on 22 July 1959. The offer was made from Ahmedabad and the acceptance was communicated by telephone from Khamgaon. Subsequently, the sellers failed to supply the cottonseed cake as agreed, and the buyers instituted a suit for damages in the City Civil Court at Ahmedabad. The defendants challenged the jurisdiction of the Ahmedabad court, contending that the contract had been made at Khamgaon, where the acceptance was spoken. There was thus, litigation to determine where litigation would take place. Justice Shah, quoting Lord Denning in the Entorres Case, mentioned that in instant communication contract is concluded where the acceptance is received by the offeror; which was Ahmedabad in the case which became the place where litigation would proceed. Thus, the majority found no reasons to apply the postal rule to telephonic conversations. However, Justice Hidayatulla, gave a dissenting opinion and interpreted the words of the statute and arrived at the understanding that the contract was formed at Khamgaon. While the English Law on where contract is formed in instantaneous communication is concerned with the fact where the acceptance is “received” The law in India under sections 4 is concerned with acceptance coming to the “knowledge of the offeror” These cases bring out the fact that the law is clear on paper yet hair-splitting in practice.

Complications arise in case of sending acceptance by email. How do we classify communication by email? Further, an individual could have logged in to their email account at multiple locations. For instance, an individual could have logged in by computer at their residence, via laptop at workplace and through phone while they may be travelling. Thus, the question arises where is the contract formed? Section 13 of Information Technology Act, 2000 provides a guiding light in this regard. It consists of details regarding time and place and receipt of electronic record. It states that “the despatch of an electronic record occurs when it enters a computer resource outside the control of the originator”. With respect to dispatch of an electronic record, it is deemed to be despatched at the place where the originator has his place of business and is deemed to be received at the place where the addressee has his place of business. In a way this imports the understanding of Section 4 of the Indian Contract Act, 1872, yet it does not make the position clear with respect to where is the contract formed when acceptance is sent by a non-business individual via email. In litigation, this will give an unfair advantage to the offeree as they will have the choice as to where to initiate the litigation. To prevent this unfair advantage, the parties include clauses that pertain to where the litigation will happen. However, what will be the case in case this clause is not included in the contract? What prevents a situation like B.G. Kedia case from arising today? The problem if it arises today will be more difficult to decide owing to the technological advancements.  Also, do these technological advancements not negate the expeditious means of communication to revoke the offer and acceptance as stipulated by section 4 of the Indian Contract Act, 1872. These are some of the challenges that arise in the field of contract law owing to technological advancements.

The author is an Assistant Professor (Senior Scale) at UPES, Dehradun and can be reached at deepayan.malaviya@upes.ac.in. The author is currently pursuing their PhD from GNLU, Gandhinagar. The interests of the author lie in Law of Contracts, Environmental law and Criminal Law