The article is written by Vanshika Shukla and aims to discuss this case at length as it delivered an important ruling regarding offer and acceptance in case of tenders. This article attempts to direct one’s attention to the essential parts of a case i.e., the facts, arguments, provisions, case laws, judgement and rationale that follow, as well as a case analysis. This article also discusses Articles 226 and 229 of the Constitution, which are the heart of the case.

Introduction

Contracts play a major role in our day-to-day life, be it in the form of bank loans, insurance policies, or privacy policies. Even something as simple as downloading an app is equivalent to entering into a contract. However, every contract is not considered valid unless and until it contains the essential elements. According to the Indian Contract Act, 1872, a contract shall be considered valid only when one party makes an offer and the other party accepts the offer. Therefore, offer and acceptance are the essential elements of a contract. 

In the case of Rajendra Kumar Verma vs. State of Madhya Pradesh and Ors. (1972), the importance of offer and acceptance was pivotal in determining whether a valid contract existed between the parties. The case involved a tender submission by Rajendra Kumar Verma to supply goods, which constituted the offer, and the State’s response, which was scrutinised to see if it amounted to a clear and unequivocal acceptance. This analysis explores the functioning of this offer and acceptance with regard to government tenders as well as the contractual requirements for contract execution of Article 299.

Details of the case

Case name: Rajendra Kumar Verma vs. State of Madhya Pradesh and Ors.

Case no.: Petition No. 132 of 1970

Equivalent citation: AIR 1972 MP 131

Court: Madhya Pradesh High Court

Date of Judgement: 18.01.1972

Acts involved: Constitution of India 

Important provisions: Article 226 and Article 299 of the Constitution of India

Facts of the case 

The respondent (State of Madhya Pradesh) issued an advertisement inviting tenders for the sale of tendu leaves (Patta) from Budni. Pursuant to this advertisement, on 25th March 1969, the petitioner (Rajendra Kumar Verma) accepted the tender at the rate of Rs. 38.25 p per bag. He also made a security deposit of a specific amount for the tender. The tenders were scheduled to open on 9th April 1969, but just prior to the opening, the petitioner withdrew his tender through an application and requested that since he had withdrawn it beforehand, his tender should not be opened or reviewed.

The tender, however, was opened and accepted by the Government as it was the only tender received for that particular unit. Since the petitioner failed to execute the tender, a suit had been initiated for the recovery of Rs. 24,846.12 p on the claim that the Tendu leaves from the unit were sold to another party, resulting in the remainder being recoverable from the petitioner.

The petitioner then filed a writ petition under Article 226 of the Constitution of India, challenging the recovery being made against him by the respondent.

Issues raised

1. Can an offer be revoked/withdrawn before the notification of acceptance has been received?
2. Is there any tender from the side of the petitioner as he had withdrawn his tender before it was opened?

Arguments by the parties 

Petitioner 

The petitioner presented two arguments before the Hon’ble Madhya Pradesh High Court. The first argument being that he withdrew his tender before it was opened and approved. According to him, any consideration of the proposal after the withdrawal is to be considered as invalid. Thus, at the time of opening, there was no valid tender from the side of the petitioner.

The second argument was that since no valid contract had been entered into between the parties as per Article 299 of the Constitution, an enforceable contract wouldn’t exist between them as well. The petitioner claimed that no recovery can be made against him on the basis of the existence of a contract as no valid contract existed between the parties.

Respondent 

The respondent i.e. the State of Madhya Pradesh countered the arguments presented by the petitioner by the following contentions. The first contention was that according to condition No. 10(b)(i) of the tender, a tender may be withdrawn prior to acceptance only in situations where there is at least one valid tender for consideration of that particular unit. In this particular case, there wasn’t any other valid tender presented, thus the petitioner’s tender could not be withdrawn. 

The respondent further stated that the tender notice issued had been issued in compliance with Section 12 of the M.P. Tendu Patta (Vyapar Viniyaman) Adhiniyam of 1964 denoting that in this matter the terms should be recognised as law and must be enforced. Along with the arguments, the respondent also cited the case of Century Spinning & Manufacturing Company Ltd. and Anr. vs. The Ulhasnagar Municipal Council and Anr. (1970) to support their claims and arguments.

Provisions and case laws discussed in the case

The case laws and provisions discussed within the case, play an important role in reaching to the conclusion. In order to understand and analyse the case, these provisions and case laws need to be understood beforehand. The provisions and cases referred to in this case law have been listed as follows:

Provisions discussed 

Article 226 of the Constitution

Article 226 of the Constitution provides the High Court with the power to issue writs to any person or authority, including Government in appropriate cases for enforcing our fundamental rights or for any other purpose.

• Article 226(1) provides every High Court the power to issue orders or writs. The writs include habeas corpus, mandamus, prohibition, quo warranto, and certiorari as mentioned in Article 32 of the Constitution.
• Article 226(2) provides every High Court the power to issue writs or orders to any person, government, or authority.
  • Present within its jurisdiction or,
  • Outside its local jurisdiction if the facts of the cause of action arise either entirely or partially inside its territorial jurisdiction.
• Article 226(3) states that if a High Court issues an interim order against a party in the form of an injunction, stay, or any other manner, that party may apply to the court for the order to be vacated, and the application must be resolved by the High Court within two weeks.
• Article 226(4) states that the power conferred by this article to a High Court shall not reduce the authority granted to the Supreme Court by Article 32(2).

Article 299 of the Constitution

• Article 299(1) of the Constitution asserts that all contracts issued in the name of the Union or Governor of the State must clearly state that they were made by the President or Governor, respectively, and that they will be performed by authorised people as per the direction of the President or the Governor. 
• Article 299(2) states about legal protection by assuring that neither the President nor the Governor, or anybody acting on their behalf, will be held personally accountable for any contracts or property promises made in their official role.

Case Laws discussed 

 K. P. Chowdhary vs. State Of Madhya Pradesh & Ors (1966) 

In this case, the lordships of the Supreme Court highlighted the importance of Article 299(1) of the Constitution. The court stated that an implied contract shall cease to exist between the Government and another party as it would render the Article 299 ineffective. Further if implied contracts are allowed then any contract between the Government and another person which was not executed as per Article 299(1) may get away by simply claiming that an implied contract was formed between the parties from the facts and circumstances of the particular case.

Century Spinning and Manufacturing Company Ltd. vs. The Ulhasnagar Municipal Council and Anr. (1971)

In this case, the Supreme Court ruled that public bodies, just as private individuals, are required to honour their promises, especially in cases where others have relied on these promises and it changes their position to their detriment. This obligation, though enforceable against private individuals through contract law, could be enforced against a public body in equity when a promise has been made, even if not formally executed in the statutory form required by law.

The court in Rajendra Kumar Verma’s case, however, distinguished this precedent by highlighting that the Century Spinning case involved the imposition of a tax that affected the fundamental rights of the factory owners to conduct their business, and the principles of equity were invoked to prevent unreasonable restrictions. The court held that the Century Spinning case was not applicable to the present case, which was governed by contract law and the provisions of Article 299 of the Constitution, and it dealt with contracts entered into by the government. The principles of equity used in the Century Spinning case, therefore, did not apply because the case at hand dealt strictly with contract formation and enforcement. 

Judgement by the court 

The judgement was given by a division bench composed of Judges Bishambar Dayal and A.P. Sen. 

After assessing the facts, circumstances and listening to the contentions presented by both the sides, the bench came to the conclusion that a person who makes the offer/tender is entitled to withdraw the offer/tender before its acceptance is made known to the other party. The court further stated that merely showing a clause in the tender notice cannot be considered as a valid form of argument to take away the legal right of the petitioner.

Thus, the court determined that since there was no implied or explicit contract between the parties the writ petition would be allowed. Lastly, both the parties had to bear their own cost, and the outstanding amount of security deposit was refunded to the petitioner by the respondent. 

Rationale behind the judgement

The division bench reviewed the facts and circumstances as well as the arguments made by the counsels of both parties, i.e., the respondent and the appellant and came to the conclusion that the petitioner had a legal right to withdraw his tender before it was opened and accepted by the respondent. The petitioner withdrew his tender prior to the opening which means that, by the time the tenders were actually reviewed, there was no valid tender from the petitioner’s side.

The court referred to Article 299 of the Constitution and stated its importance for contract execution. According to the provision, all the contracts made by the government clearly stated that they were made by the President or Governor and had to be executed in the way as authorised. In this case, the petitioner’s tender did not match up to the requirements given in the provision, thus it could not be considered as a valid contract. Therefore, since the contract in itself lacked the validity and wasn’t properly executed any recovery claims against the tender would also be considered invalid.

The argument presented by the respondent with regard to condition No. 10(b)(i) of the tender notice which stated that the petitioner’s tender could not be withdrawn as it was the only one submitted was rejected as contractual conditions cannot override fundamental legal rights. 

The court disagreed with the respondents’ argument that the terms of the tender notice should be treated as legal mandates under Section 12 of the M.P. Tendu Patta (Vyapar Viniyaman) Adhiniyam of 1964 as no specific rules had been established for the disposal of Tendu leaves under this Section. The court pointed out that the tender notice was merely an executive form of direction, it did not possess any legal status. Thus, the terms stated in the tender notice cannot be enforced as a mandatory legal provision.

Lastly, the case cited by the respondent i.e. Century Spinning and Manufacturing Company Ltd.  and Anr. vs. The Ulhasnagar Municipal Council and Anr. (1971) was found to be inapplicable in this particular case because of the differing circumstances. The cited case deals with a public body’s undertaking which affects the fundamental rights, whereas the current case is with regard to the procedural requirements for government contracts under Article 299. The principles from the Century Spinning case were thus irrelevant to the issues at hand.

Due to these reasons, the High Court came to the decision that the petitioner’s writ petition be allowed and the outstanding amount to be collected from the petitioner was quashed and refunded.

Analysis of the case

The case highlights the concept of offer and acceptance within contract law. If one has to state particularly, it addresses the legal implications of withdrawing an offer before the acceptance. In this particular case, the petitioner i.e. Rajendra Kumar Verma withdrew his tender before it was formally opened or reviewed by the respondent. As per Section 5 of the Indian Contract, an offeror has the right to withdraw their offer at any time before acceptance. The court upheld this principle and confirmed that since the petitioner withdrew his offer before its opening, there was no valid offer to be accepted by the respondent. Thus no valid contract could be formed.

A contract will only be considered valid, if there’s an offer, acceptance of that offer, and consideration. This case highlights the elements and their importance in a valid contract for it to be considered legally valid. Since the petitioner had withdrawn his offer, no acceptance could have been possible in any circumstance, thus, no contract could have been formed. This conclusion was reaffirmed by the court’s ruling that no binding contract can exist without the existence of a valid offer at the time of acceptance.

The requirement under Article 299 of the Constitution for government contracts to be formally executed is crucial in understanding the enforceability of contracts. The requirement presents an essential point i.e., even if an offer has been valid and accepted, if it isn’t in compliance with the requirements under Article 299, the contract will not be binding or enforceable. Thus, the importance of adherence to constitutional and procedural requirements in order to form a valid and enforceable contract with the government was highlighted in this case.

Conclusion 

This case analysis shows the court’s approach towards fundamental concepts of contract law and their importance in regard with the constitutional requirements. The judgement given by the court is in favour of the principle that an offer can be withdrawn before acceptance without resulting in an enforceable contract as stated in Section 5 of the Indian Contract. This is a clear example of how offer and acceptance must be conducted in accordance with legal standards to enable a valid contract formation.

The judgement given within this case serves as a valuable precedent for future cases concerning contract formation, particularly regarding the principles of offer, acceptance, and revocation. This ruling emphasises that, until acceptance is communicated, no binding agreement exists, and the offeror is within their rights to withdraw the offer. Future cases can rely on this decision to underscore the importance of mutual agreement and timely acceptance in forming enforceable contracts, ensuring that the foundational principles of contract law are consistently applied across legal disputes.  

Frequently Asked Questions (FAQs) 

What is the definition of offer & acceptance as per the Indian Contract Act, 1872?

According to Section 2(a) of the Indian Contract Act 1872, offer is explained as to when one person will indicate to another person his will to do or not do something (abstain) with the aim of obtaining the assent of such person to such an act or abstinence, he is said to make a proposal or an offer.

Section 2(b) of the Indian Contract Act 1872 defines acceptance as to when the person to whom the proposal is made indicates his assent thereto, the offer is said to be accepted. Thus, when the proposal is accepted, it becomes a promise.

What are the elements of a valid offer as per the Indian Contract Act, 1872?

According to the Indian Contracts Act, 1872, the following are the elements of a valid offer:

• Consist of two parties.
• Communicated clearly.
• The offer must consist of clear and definite terms and be stated in an understandable way for all the parties involved. 
• Include an expiry date for the offer and product or service specifications.
• Offer must be either oral or written.

References 

• https://www.scconline.com/blog/post/2021/09/15/scope-of-interference-under-article-226-of-constitution/ 
• https://www.lkouniv.ac.in/site/writereaddata/siteContent/202004301208150409Dr-Lalit-Kishore-Srivastava-Government-Contract.pdf 

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