Case: Bhagwandas Goverdhandas Kedia Vs. M/S. Girdharilal Parshottamdas And Co. Andothers

1. Messrs. Girhdarilal Parshottamdas and Company - hereinafter called "the plaintiffs" - commenced an action in the City Civil Court at Ahmedabad against the Kedia Ginning Factory and Oil Mills of Khamgaon - hereinafter called "the defendants" for a decree for Rs. 31,150 on the plea that the defendants had failed to supply cotton seed cake which they had agreed to supply under an oral contract dated July 22, 1959 negotiated between the parties by conversation on long distance telephone. The plaintiffs submitted that the cause of action for the suit arose at Ahmedabad, because the defendants had offered to sell cotton seed cake which offer was accepted by the plaintiffs at Ahmedabad, and also because the defendants were under the contract bound to supply the goods at Ahmedabad, and the defendants were to receive payment for the goods through a Bank at Ahmedabad. The defendants contended that the plaintiffs had by a message communicated by telephone offered to purchase cotton seed cake, and they (the defendants) had accepted the offer of Khamgon, that under the contract delivery of the goods contracted for was to be made at Khamgon, price was also to be paid at Khamtgaon and that no part of the cause of action for the suit had arisen within the territorial jurisdiction of the City Civil Court, Ahmedabad.          2. On the issue of jurisdiction, the Trial Court found that the plaintiffs had made an offer from Ahmedabad by long distance telephone to the defendants to purchase the goods and that the defendants had accepted the offer at Khamgaon, that the goods were under the contract to be delivered at Khamgaon and that payment was also to be made at Khamgaon. The contract was in the view of the Court to be performed at Khamgaon, and because of the offer made from Ahmedabad to purchase goods the Court at Ahmedabad could not be invested with jurisdiction to entertain the suit. But the Court held that when a contract is made by conversation on telephone, the place where acceptance of offer is intimated to the offeror, is the place where the contract is made, and, therefore, the Civil Court at Ahmedabad had jurisdiction to try the suit. A revision application field by the defendants against the order, directing the suit to proceed on the merits, was rejected in limine by the High Court of Gujarat. Against the order of the Higher Court of Gujarat, this appeal has been preferred with special leave.

Reasoning:
13. It appears that in a large majority of European countries the rule based on the theory of consensus idem, is that a contract takes place where the acceptance of the offer is communicated to the offeror, and no distinction is made between contracts made by post or telegraph and by telephone or Telex. In decisions of the State Courts in the United States, conflicting views have been expressed, buy the generally accepted view is that by "the technical law of contracts the contract is made in the district where the acceptance is spoken". This is based on what is called "the deeply rooted principle of common law that where the parties impliedly or expressly authorise a particular channel of communication, acceptance is effective when and where it enters that channel of communication". In the text books there is no reference to any decision of the Supreme Court of the United States of America on this question : American Jurisprudence, 2nd Edn., Vol. 17, Art. 54, p. 392 and Williston on Contracts, 3rd Edn., Vol. 1, p. 27114. Obviously the draftsman of the Indian Contract Act did not envisage use of the telephone as a means of personal conversation between parties separated in space, and could not have intended to make any rule in that behalf.The question then is whether the ordinary rule which regards a contract as completed only when acceptance is intimated should apply, or whether the exception engrafted upon the rule in respect of offers and acceptances by post and by telegrams is to beaccepted.If regard be had to the essential nature of conversation by telephone, it would be reasonable to hold that the parties being in a sense in the presence of each other, and negotiations are concluded by instantaneous communication of speech, communication of acceptance is a necessary part of the formation of contract, and the exception to the rule imposed on grounds of commercial expediency is inapplicable14. Obviously the draftsman of the Indian Contract Act did not envisage use of the telephone as a means of personal conversation between parties separated in space, and could not have intended to make any rule in that behalf.The question then is whether the ordinary rule which regards a contract as completed only when acceptance is intimated should apply, or whether the exception engrafted upon the rule in respect of offers and acceptances by post and by telegrams is to beaccepted.If regard be had to the essential nature of conversation by telephone, it would be reasonable to hold that the parties being in a sense in the presence of each other, and negotiations are concluded by instantaneous communication of speech, communication of acceptance is a necessary part of the formation of contract, and the exception to the rule imposed on grounds of commercial expediency is inapplicable15. The Trial Court was, therefore, right in the view which it has taken that a part of the cause of action arose within the jurisdiction of the City Civil Court, Ahmedabad, where acceptance was communicated by telephone to the plaintiffs.