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Thursday, May 18, 2017

In absence of a concluded contract between the parties having been established by the Respondent, the claim under Section 73 of the Act was not maintainable. The impugned orders are, therefore, held to be unsustainable and are set aside.


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOs. 5448-5449 OF 2017
              (Arising out of S.L.P.(C)Nos.34084-34085 of 2015)

M/s. Vedanta Limited
(Formerly known as Sesa Sterlite Limited
and successor in interest of
erstwhile Sterlite Industries (India) Ltd.)        ..........APPELLANT(s)


M/s. Emirates Trading Agency LLC                   ......RESPONDENT(s)



      Leave granted.

2.    The Respondent's Suit for breach of contract and damages  was  decreed
on 16.04.2013 by the Principal District Court, Thoothukudi in Original  Suit
No. 73 of 2009 for a sum of Rs.5,25,55,460/- with interest  @  8%  from  the
date of the plaint till realisation.  First  Appeal  by  the  Appellant  was
dismissed by the  High  Court  on  04.02.2014.  In  Special  Leave  Petition
(Civil) Nos.12687–12688 of 2014 preferred  against  the  same,  liberty  was
granted on 12.5.2014 to approach the High Court in the review  jurisdiction,
on the issue whether the agreement  dated  26.10.2007  between  the  parties
constituted a concluded contract  or  matters  rested  at  the  stage  of  a
proposal and a  counter  proposal  only.  Liberty  was  further  granted  to
approach this Court again, if aggrieved. Review application No. 160 of  2014
was dismissed by the High Court on 09.07.2015. Thus, the present appeal.

3.     Sri  C.A.  Sundaram,  learned  Senior  Counsel  appearing   for   the
Appellant, submitted  that  the  agreement  dated  26.10.2007  was  a  draft
proposal from the Respondent regarding supply  of  phosphoric  acid  by  the
Appellant in a specified duration. The Appellant made a counter proposal  to
the Respondent; both with  regard  to  the  quantity  of  supplies  and  the
duration of supply.  No concluded contract had arisen  between  the  parties
in absence of any final agreement having been executed. The draft  agreement
was never signed, stamped and returned by the  Appellant,  in  confirmation,
as asked for by the Respondent. The defence was taken  specifically  in  the
written statement. The Trial Court and the First  Appellate  Court,  without
proper appreciation  of  the  draft  agreement,  arrived  at  a  presumptive
conclusion based on the exchange of correspondence preceding the  same  that
it reflected a concluded contract between the parties.

4.    This Court  on  12.05.2014,  after  perusal  of  the  agreement  dated
26.10.2007,  having  been  satisfied  with  regard   to   lack   of   proper
consideration of the issue, granted liberty to the Appellant for  preferring
a review application before the  High  Court.  In  the  review  application,
objections  were  specifically  raised  that  the  draft   agreement   dated
26.10.2007 did not  constitute  a  concluded  contract,  but  was  merely  a
communication of a proposal and a counter proposal. It was also  urged  that
alterations had been  made  by  the  Appellant;  both  with  regard  to  the
quantity  and  period  of  supply.  There  was  no  material  on  record  to
demonstrate that any final agreement was  arrived  at  between  the  parties
thereafter. In absence of a valid  acceptance,  no  concluded  contract  had
come into being.

5.    Unfortunately, the High Court  relying  on  its  earlier  order  dated
04.10.2014 that the correspondence preceding the agreement dated  26.10.2007
reflected that the latter was a concluded  contract,  dismissed  the  review
petition without examining the corrections made in the draft  proposal  with
regard to the quantity of supply and period of supply,  the  effect  on  the
same, coupled with the Appellant not having  signed,  stamped  and  returned
the same to the Respondent so as to evince a concluded contract between  the

  6.    Sri  Vijay  Hansaria,  learned  Senior  Counsel  appearing  for  the
Respondent, submitted that three Courts having returned concurrent  findings
from the exchange of correspondence between the parties that  the  agreement
dated 26.10.2007 constituted  a  concluded  contract,  interference  is  not
called for.  It was on the assurance of the Appellant  to  deliver  supplies
of phosphoric acid, coupled with its promised back up  support  in  writing,
that the  Respondent  had  bid  in  response  to  the  international  tender
published  by  Bangladesh  Chemical  Industries   Corporation   (hereinafter
referred to as 'the BCIC').

7.    The breach of promise by the Appellant to make the  promised  supplies
had resulted in BCIC forfeiting the performance guarantee of the  Respondent
in addition to other  pecuniary  liabilities  imposed.  The  Suit  was  then
instituted  by  the  Respondent  claiming  damages  with  interest.   In   a
commercial contract, the course of conduct of the parties, the  exchange  of
correspondences,  are  all  important  considerations  for  the   conclusion
whether there existed a concluded contract or not. Isolated  examination  of
the agreement dated 26.10.2007 shall, therefore, not be  appropriate  so  as
to warrant interference with the concurrent findings.

8.    The  respective  submissions  on  behalf  of  the  parties  have  been
considered by us. Briefly stated, the BCIC floated an  international  tender
for supply of phosphoric acid. The Respondent  submitted  its  bid  and  was
awarded an order for supply of  30,000  MT.   The  Appellant  had  signed  a
backup support agreement with  the  Respondent  for  supplies  in  case  the
tender was awarded to the latter, and which was furnished by the  Respondent
to  the  BCIC  in  support  of  its  capacity  to  deliver   supplies.   The
correspondence between the Appellant and the Respondent  culminated  in  the
latter forwarding a draft agreement dated 26.10.2007, to the  Appellant  for
Sale/Purchase contract for 3 x 10,000 MT phosphoric acid for supply  to  the
BCIC during November and December, 2007. The covering  letter,  appended  to
the draft agreement, required the Appellant to sign, stamp  and  return  the
same to the Respondent in confirmation. The Appellant, in response,  made  a
counter proposal for supply of 3 x 9500 MT  (max)  and  between  the  period
January to March, 2008 by incorporating necessary  corrections  in  hand  in
the draft agreement.  Resultantly, while  there  was  a  proposal  from  the
Respondent, the Appellant made a counter proposal both with  regard  to  the
quantity and the period of supply.  There is no material or evidence  placed
by the Respondent that the draft  agreement  ever  assumed  the  form  of  a
concluded contract by a meeting of minds both with regard  to  the  quantity
of supplies and the duration for the  same,  much  less  was  the  agreement
signed,  stamped  and  returned  by  the  Appellant  to  the  Respondent  in

9.    The contract between the Respondent and the Appellant was  independent
of the contract between the Respondent and the BCIC. The Appellant had  only
offered a backup support to supply phosphoric  acid  to  the  Respondent  in
case the contract was awarded to the latter. In the written  statement,  the
Appellant had taken a specific defence regarding absence  of  any  concluded
contract between it and the Respondent.  The Trial  Court  as  well  as  the
First Appellate Court did not specifically deal with the issue of the  draft
agreement, the corrections in the same, existence of a proposal and  counter
proposal with regard to quantity and time period for supplies,  the  absence
of any executed contract by virtue of the Appellant having  signed,  stamped
and returned  the  agreement  to  the  Respondent,  in  confirmation.  On  a
presumptive reasoning, based on the  exchange  of  correspondence  preceding
the draft agreement, the First Appellate Court affirmed the finding  in  the
Suit of a concluded contract between the parties.

10.   The Appellant challenged  the  First  Appellate  Court’s  order  dated
04.10.2014 earlier in a special leave petition. On  12.05.2014,  this  Court
considering the plea for absence of a concluded contract and  after  perusal
of the draft agreement dated 26.10.2007  containing  corrections,  in  hand,
had observed "that these aspects are not  specifically  dealt  with  by  the
High Court. In this view of the matter, it would  be  more  appropriate  for
the petitioner to approach the High Court  by  filing  a  review  petition".
Observing that the High Court shall deal with the aspect on merits,  liberty
was also granted to challenge  any  fresh  order  along  with  the  impugned
orders, if aggrieved.

11.   In the review petition, a specific  plea  was  taken  that  the  draft
agreement dated 26.10.2007, Exhibit 8-A,  did  not  constitute  a  concluded
contract in view of the counter proposal made by the  Appellant,  both  with
regard to the quantity of supply and the period for the  same.  Reliance  on
the correspondence preceding the same  was  not  sufficient  in  absence  of
acceptance by the Appellant of the proposal made by the  Respondent  coupled
with signing, stamping and returning of the  agreement  in  confirmation  of
the same.

12.   The High Court, despite noticing the specific plea  of  the  Appellant
with regard to the absence of a concluded contract between  the  parties  in
view of a counter proposal, much less that the agreement was  never  signed,
stamped and returned, reiterated  the  earlier  observations  of  the  First
Appellate Court of  a  concluded  contract  between  the  parties  based  on
exchange of correspondence preceding the draft agreement, and  also  on  the
premise that  the  Respondent  had  submitted  its  offer  to  BCIC  on  the
assurance of the Appellant for backup support if the  contract  was  awarded
to the former. The High Court declined to delve further into  the  agreement
dated 26.10.2017, holding it to be impermissible in the review  jurisdiction
and concluding that the grounds urged were  superficial  in  nature  without
any material proof, designed to avoid  payment,  and  dismissed  the  review
application.  The High Court failed to notice that as recent as  28.01.2008,
the Respondent was still awaiting confirmation  of  its  proposal  from  the
Appellant, and soon thereafter the performance guarantee was invoked by  the
BCIC against the Respondent on 13.04.2008.

13.   Section 7 of the Indian Contract Act, 1872  (hereinafter  referred  to
as 'the Act') provides that in order to convert a proposal into a  contract,
the acceptance  must  be  absolute  and  unqualified.  The  existence  of  a
concluded contract is a sine qua non in a claim for  compensation  for  loss
and damages under Section  73  of  the  Act  arising  out  of  a  breach  of
contract. If instead of acceptance of a  proposal,  a  counter  proposal  is
made, no concluded contract comes into existence.

14.   U.P.  Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd., (1996) 2 SCC  667,
also related to a proposal and counter proposal. Holding that  no  concluded
contract had come into existence, the Apex Court observed as follows :-
 "9...As seen, the material alterations in the  contract  make  a  world  of
difference to draw an inference of concluded contract...."

15.   The fulcrum of the entire controversy is  the  draft  agreement  dated
26.10.2007 marked  Exhibit  8-A,  for  supply  of  phosphoric  acid  by  the
Appellant to the Respondent.  The proposal  of  the  Respondent,  led  to  a
counter proposal by the appellant.  There was no acceptance of the  proposal
by the Appellant giving rise to a  concluded  contract.   The  quantity  and
duration of supply, therefore, remained in the realm of uncertainty and  was
never agreed upon so as to give rise to a concluded contract.

16.   In absence of a concluded contract between  the  parties  having  been
established by the Respondent, the claim under Section 73  of  the  Act  was
not  maintainable.  The  impugned  orders  are,  therefore,   held   to   be
unsustainable and are set aside.

17.   The appeals are accordingly allowed.

                                                              (Ranjan Gogoi)

                                                               (Navin Sinha)
New Delhi,
April 21, 2017

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