Citations: (1947) 1 MLJ 123
Bench: Alfred Henry Lionel Leach, C.J., Lakshmana Rao, J.
Facts of the Case
The appellant was one of the bidders at a public auction of shops held by the Sub Collector. The conditions of sale were as per the conditions approved by the Board of Revenue. The Sub-Collector held the auction, but he had no power to accept a bid. He could only give provisional acceptance, but actual acceptance rested with the Collector. His bid was the highest bid in comparison to bidders of two of the other shops. The appellant was the highest bidder for the four shops. But his bids were provisionally accepted by the Sub Collector.
But the Collector accepted only two of them his bid was not accepted by the Sub-Collector and the sale was ordered to be continued with the plaintiff’s bids as initial bids. He refused to confirm the bids made by the appellant for the other two licences which were in respect of shops numbered 30 and 32 respectively.No bidders came forward to bid even at a bid of the plaintiff. The shops were ultimately sold for lower bids, which resulted in a loss of Rs.1,148 to the Government.
When the plaintiff asked for the return of the amount he paid in advance the defendant refused. So a suit was filed by the plaintiff for recovery of the amount and for an injunction restraining the Government from proceeding against him for the recovery of the loss.
ISSUES of the Case
(1) Whether the case fall within Clause IX (b) of the condition of sale?
(2) Whether the publication of the conditions of sale fall under the notification within Section 69 of the Akbari Act?
(3) Whether the notification was ultra vires the Provincial Government?
DISTRICT MUNSIFF COURT
After considering the facts and circumstances the District Munsiff dismissed the suit of the plaintiff. The District Munsiff dismissed the suit. The reasons stated by the court were that the conditions of sale backed the force of law, publication of them amounted to a notification under Section 69 of the Madras Abkari Act, 1886
DECISION OF HIGH COURT
The plaintiff contended that under the District Judge’s judgement, Clause (i), Rule 9, has no application at all, which gives authority to the Collector to postpone orders confirming or
refusing to confirm the provisional acceptance of the bid. The appellant placed reliance on Exhibit D-5.
Under Section 5 of the Contract Act, an offer made in the nature of a bid at a public auction can be revoked at any time before accepting it. It was held in Champalal v. Ghanshamdas that if there is any condition denying this kind of right of revocation it is considered illegal. If a continuing offer is made it does not mean that an offer must be kept open till acceptance but
it means that it can be accepted at any time with the condition that it is not revoked.
.The Advocate-General contended that the publication of the conditions of sale did not amount to notification under the Section 69 of the Madras Abkari Act. The conditions of sale had been set by the Board of Revenue, and not under the provision of the Act and had no statutory force
The question before the Court which it had to decide was whether a bid made at such an auction and later it is provisionally accepted can it be enforced where the maker withdraws it before acceptance by the Collector
The Division Bench in the case of Champalal v. Ghansham Das held that a bid made at an auction sale is an offer which can be subsequently withdrawn at any time before it is accepted. But the present case does not fall within the judgment because in that case, the conditions of sale were totally different. There was no prohibition against the withdrawing of a bid pending before acceptance.
In order to have an enforceable contract, there must be an offer and acceptance. A person who makes an offer has the right of withdrawing it before acceptance, in absence of a condition. Whether the fact that there was a provisional acceptance creates any difference? The bench found no reason. A provisional acceptance cannot itself create a binding contract. There must be the presence of a definite acceptance or fulfilment of the conditions laid down upon which a provisional acceptance is based upon.
The Bench held that in the case there was a clearly a provisional acceptance made by the Sub-Collector with respect to the appellant’s bids but the Collector later refused to confirm the acceptance of those bids and directed that the sale should be continued. Before he changed his mind later on and accepted the bids but before it happened, the appellant had already withdrawn them, which he was entitled to do.
The Bench held that the appellant was entitled to withdraw his bids because the prohibition against withdrawal had not been the force of law and there was no flow of consideration to bind him down within the conditions.
LEGAL PRINCIPLE INVOLVED
Section 2(h) of the Indian Contract Act, 1872, defines the term contract. According to the Section, a contract is an agreement enforceable by law. Therefore, according to the Section, there are two essentials for the formation of a contract.
∙ Firstly, there should be an agreement to do or abstain from doing an act; Secondly, the agreement should be enforceable by law.
Therefore, the law of contracts is that branch of law which decides the circumstances in which the promise made by a person shall be legally binding on the person who makes the promise. While all the contracts are agreements but not all agreements are contracts. An agreement, in order to turn into a contract, should have its legal enforceability. The agreements which are not legally enforceable are not contracts but are mere void agreements which are not enforceable by law or are voidable at the option of one party.
Section 10 of the Indian Contract Act enlists the conditions which are essential for a valid contract. The essential conditions for a valid contract are as follows:
∙ Offer: Section 2(a) of the Indian Contract Act defines the meaning of the term offer or proposal. According to the Section an offer or proposal is said to be made by a person who signifies to the other person his willingness to do or abstain from doing an act with a view to obtain the assent of the other person;
∙ Acceptance: Section 2(b) of the Indian Contract Act talks about “acceptance”. According to the Section, when the person to whom an offer is made gives his assent thereto is said to have accepted the offer;
∙ Consent: Section 13 of the Indian Contract Act defines the term consensus, as the agreement of the parties to the contract upon the same thing in the same sense. For the formation of a valid contract, it is essential that they should have “consensus ad idem” i.e. they should agree to the same thing in the same sense;
∙ Capacity to contract: Section 11 lays down the criteria for competency to contract. To enter into a valid contract, the parties entering into a contract should have the capacity to enter into a contract;
∙ Lawful consideration: Consideration essentially means ‘quid pro quo’ which means something done in the return of the other. It is the compensation for the act or omission committed by a person for the fulfilment of the terms of the contract;
∙ The agreement should not be expressly declared void: The agreement entered into by the parties should not be expressly declared void or illegal by any law in force.
Provisional acceptance is the type of acceptance by the offeree which is made subject to the final approval. A provisional acceptance does not ordinarily bind either party to the contract until the final approval is given to the provisional acceptance made by the offeree. Until the approval is given, the offeror is at liberty to cancel the offer made to the offeree.
In Union of India v. S. Narain Singh, the High Court of Punjab held that where the condition attached to the auction sale of the liquor was that the acceptance of the bid shall be subject to confirmation by the Chief Commissioner. The contract will not be complete till the highest bid is confirmed by the Chief Commissioner and till the confirmation is made the person whose bid is provisionally accepted is at liberty to withdraw the bid.