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There must be a concluded contract in compensation claim for loss and damages

Supreme Court

Vedanta Limited V.  Emirates Trading Agency LLC

MANU/SC/0474/2017

21.04.2017

Contract

Existence of a concluded contract is sine qua non in compensation claim for loss and damages

Respondent's Suit for breach of contract and damages was decreed by Principal District Court, in Original Suit for a sum of Rs. 5,25,55,460/- with interest @ 8% from date of plaint till realisation. First Appeal by Appellant was dismissed by High Court. In Special Leave Petition preferred against same, liberty was granted to approach High Court in the review jurisdiction, on issue whether agreement between parties constituted a concluded contract or matters rested at stage of a proposal and a counter proposal only. Liberty was further granted to approach this Court again, if aggrieved. Review application was dismissed by High Court. Appellant submitted that, agreement was a draft proposal from Respondent regarding supply of phosphoric acid by Appellant in a specified duration. Appellant made a counter proposal to Respondent; both with regard to quantity of supplies and duration of supply. No concluded contract had arisen between parties in absence of any final agreement having been executed.

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

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

High Court, despite noticing specific plea of Appellant with regard to absence of a concluded contract between parties in view of a counter proposal, much less that, agreement was never signed, stamped and returned, reiterated earlier observations of First Appellate Court of a concluded contract between parties based on exchange of correspondence preceding draft agreement, and also on premise that, Respondent had submitted its offer to BCIC on assurance of Appellant for backup support, if contract was awarded to former. High Court declined to delve further into agreement holding it, to be impermissible in review jurisdiction and concluding that, grounds urged were superficial in nature without any material proof, designed to avoid payment, and dismissed review application. High Court failed to notice that, as recent as 28.01.2008, Respondent was still awaiting confirmation of its proposal from Appellant, and soon thereafter performance guarantee was invoked by BCIC against Respondent on 13th April, 2008.

Section 7 of Indian Contract Act, 1872 provides that, in order to convert a proposal into a contract, acceptance must be absolute and unqualified. Existence of a concluded contract is a sine qua non in a claim for compensation for loss and damages under Section 73 of 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. In U.P. Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd., Apex Court observed that, material alterations in contract make a world of difference to draw an inference of concluded contract.

Fulcrum of entire controversy is draft agreement dated 26th October, 2007 marked Exhibit 8-A, for supply of phosphoric acid by Appellant to Respondent. Proposal of Respondent, led to a counter proposal by Appellant. There was no acceptance of proposal by Appellant giving rise to a concluded contract. Quantity and duration of supply, therefore, remained in realm of uncertainty and was never agreed upon so as to give rise to a concluded contract. In absence of a concluded contract between parties having been established by Respondent, claim under Section 73 of Act was not maintainable. Supreme Court set aside Impugned orders and allowed the appeals.

Relevant

U.P. Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd. MANU/SC/0362/1996
 : (1996) 2 SCC 667

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