S.S. Subramani, J.@mdashThe plaintiff in O.S.No.6884 of 1978, on the file of XII Assistant City Civil Judge at Madras, is the appellant. The suit
filed by the plaintiff was one for declaration, declaring that there is no enforceable contract between the plaintiff and the 1st defendant for the
supply of ERWMS tubes 125mm N.B. as per the letter of acceptance dated 25-2-1978 and for permanent prohibitory injunction restraining the
1st defendant from attempting to enforce the terms or the letter of acceptance dated 28-2-1978 or collecting the Earnest Money Deposit (EMD)
given by the 2nd defendant as Bank guarantee on 9-12-1977 on behalf of the plaintiff and restraining the 2nd defendant from paying any amount to
the first defendant under the said bank guarantee and for costs.
2. On 9-12-1977, plaintiff submitted a tender to the 1st defendant for the supply of ERW MS tubes. The tender was accepted by the 1st
defendant subject to the terms and conditions set out in its letter. As per the tender notification, a rate contract agreement has been executed. If is
the case of the plaintiff that since the plaintiff and the Chief Engineer of the 1st respondent have not entered into an agreement as provided under
clause 9 of the said letter, there is no concluded contract for the supply of tubes. In the absence of such an agreement, the plaintiff is absolved from
all the liabilities for supplying the tubes of the specification referred to in the letter dated 25-2-1978 . The 2nd defendant has given a bank
guarantee for the amount of Rs.50,000/- as EMD on behalf of the plaintiff for a satisfactory performance of supply of materials mentioned in that
letter. It is said that the 2nd defendant will have to make payments in all cases where the plaintiff defaults the order or otherwise makes default in
carrying out the contract in accordance with the terms. Since no concluded contract has been arrived at between the plaintiff and the 1st defendant,
the 1st defendant is not entitled to encash the bank guarantee. The suit was, therefore, filed for declaration and consequently injunction as stated
above.
3. As against the said contentions raised by the plaintiff, the 1st defendant in its written statement contended that there are six valid tenders, out of
which the plaintiff''s tender alone was accepted. It is also said that the rates quoted are valid for one year from the date of tender and the delivery
schedule for the first order placed on 9-1-1978. The plaintiff could not supply the materials in time, and he requested extension of time and the
same was also granted upto 31-3-1978. The plaintiff was able to complete the supply for the trial orders only 15 days after the stipulated period.
There had been various other correspondence between the parties and finally when the plaintiff failed to supply the tubes, on 2-8-1978, the plaintiff
was informed that unless they take action to complete the supplies within 16-8-1978, penal action will be taken against them for forfeiting the
EMD and the undelivered materials will be procured from some other agencies at their risk and costs. It is said that in view of the acceptance of
the offer of the plaintiff as per the terms, the contract arrived at is binding upon the plaintiff and he cannot try to wriggle out of the same. Due to
non-supply of pipes, the 1st defendant has been put to very great hardship and the 1st defendant had to purchase them from other sources and it
was put to very great loss. It prayed for the dismissal of the suit.
4. Before the trial Court, Exs.A1 to A8 were marked on the side of the plaintiff and Exs.B1 to B13 were marked on the side of the defendants.
Plaintiff''s power agent was examined as P.W.1 and D.W.1 was examined on behalf of the defendants. The trial Court after elaborately
considering the documentary evidence in the case, which is based on the various correspondence between the parties, came to the conclusion that
there is a concluded contract. It further came to the conclusion that clause 9 of the tender notification is a matter which could be waived by the
party and even if clause 9 is not complied with, the contract is concluded. It also said that the plaintiff has submitted his tender. He himself has
submitted the bank guarantee along with the tender documents. The supply order was given to him and he also supplied a portion of the materials,
and thereafter, he himself was seeking time. Extension of time was also granted and thereafter the plaintiff himself wanted a revision of rates. From
his conduct, the trial Court held that de hors the written agreement as contemplated under clause 9, there is a concluded contract. Therefore, the
suit was dismissed.
5. Against the said Judgment of the trial Court, the plaintiff preferred A.S.No.154 of 1982, on the file of XI Additional Judge, City Civil Court at
Madras. The lower Appellate Court also confirmed all the findings of the trial Court and dismissed the appeal with costs.
6. In the Second Appeal, the following substantial questions of law have been raised at the time of admission:-
1. Whether there are variations between the tender notice Ex.B.1, tender Ex.B.2 and the letter of acceptance Ex.A-2 and whether Ex.B.3 and the
statement made in para-6 of the written statement are in the nature of a counter offer.
2. Whether the correspondence between the parties make out a concluded contract between them notwithstanding the fact that the rate contract
agreement has not been entered into as specified in clause-9 of Ex.A-2.
3. Whether the 1st respondent has established the loss sustained by them due to non-supply of materials by the appellant.
4. Whether the 1st respondent is entitled to claim an automatic forfeiture of the Earnest Money Deposit without filing an independent suit claiming
the damages or at least file a counter claim and proving the damages.
7. Learned counsel for the appellant also reiterating his argument as was put forward before the Courts below and contended that without
complying with Clause-9, there cannot be any concluded contract. Learned counsel relied on the letter dated 25-2-1978 issued by the 1st
defendant to the plaintiff. Clause 9 of the said letter reads thus:-
9. Rate Contract Agreement. You should enter into a rate contract agreement for a period of one year from 1-2-78 with the Chief Engineer,
TWAD Board, Madras-2 in the non-judicial stamp paper of value of Rs.2.50 which is to be produced by you. The rate contract agreement to be
entered into between you and the Chief Engineer, TWAD Board shall be the foundation of all rights for both the parties and the contract shall not
be deemed to have been completed until it is first signed by you and then by the Chief Engineer, TWAD Board, Madras-2.
The entire argument of the learned counsel for the appellant is based on the said clause.
8. Both the Courts below have come to the conclusion that even though clause 9 has not been complied with, there is a concluded contract.
Learned counsel for the appellant submitted that if the Court holds that clause 9 is not mandatory, or if it was not the intention of the parties for the
formation of the concluded contract, then finding of the courts below do not call for interference, since the same is based on an inference from the
various correspondence between the parties.
9. In ""Pollock & Mulla - Indian Contract and Specific Relief Acts"" Eleventh Edition Volume- I. commenting on Section 7 at page 125, the learned
author has said thus:-
In deciding whether a contract is a concluded contract or not the essential question is to find out whether the formal document is of such a nature
that it was the very condition of the contract or whether it was commemorative of the evidence on the point. In order to decide this matter the
entire negotiations and the correspondence on which the contract depends must be considered. It is a matter of construction whether the execution
of a further contract is a condition of the contract or a mere expression of a desire of the parties as to the manner in which the transaction already
agreed to will go through. The fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a more
formal shape does not prevent the existence of a binding contract. But there may be cases where the signing of a further formal agreement is made
a condition or term of the bargain and if the formal agreement is not approved and signed there is no concluded contract.
10. In Kollipara Sriramulu Vs. T. Aswathanarayana and Others, a similar question came up for consideration. Paragraph 3 of the Judgment of the
Hon''ble Supreme Court is relevant for our purpose, and the same reads thus:-
3. We proceed to consider the next question raised in these appeals, namely whether the oral agreement was ineffective because the parties
contemplated the execution of a formal document or because the mode of payment of the purchase money was not actually agreed upon. It was
submitted on behalf of the appellant that there was no contract because the sale was conditional upon a regular agreement being executed and no
such agreement was executed. We do not accept this argument as correct. It is well established that a mere reference to a future formal contract
will not prevent a binding bargain between the parties. The fact that the parties refer to the preparation of an agreement by which the terms agreed
upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are, however, cases where the reference to
a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question
depends upon the intention of the parties and the special circumstances of each particular case. As observed by the Lord Chancellor (Lord
Cranworth)in Ridgway v. Wharton, (1857) 6HLC 238 at 263, the fact of a subsequent agreement being prepared may be evidence that the
previous negotiation, did not amount to a concluded agreement, but the mere fact that persons wish to have a formal agreement drawn up does not
establish the proposition that they cannot be bound by a previous agreement. In Von Hatzfeldt-Wildenburg v. Alexander (1912) 1 Ch 284 at
p.288 it was stated by Parker, J. as follows:-
''It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a
further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the
bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go
through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a
contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored. In
other words, there may be a case where the signing of a further formal agreement is made a condition or term of the bargain, and if the formal
agreement is not approved and signed there is no concluded contract. In Rossiter v. Miller (1878) 3 AC 1124 Lord Cairns said:-
If you find not an unqualified acceptance subject to the condition that an agreement is to be prepared and agreed upon between the parties, and
until that condition is fulfilled no contract is to arise then you cannot find a concluded contract''. In AIR 1933 29 (Privy Council) the Judicial
Committee expressed the view that the principle of the English law which is summarised in the Judgment of Parker, J. in (1912) 1 Ch 284 was
applicable in India. The question in the present appeals is whether the execution of a formal agreement was intended to be a condition of the
bargain dated July 6, 1952 or whether it was a mere expression of the desire of the parties for a formal agreement which can be ignored. The
evidence adduced on behalf of respondent No.1 does not show that the drawing up of a written agreement was a prerequisite to the coming into
effect of the oral agreement. It is therefore not possible to accept the contention of the appellant that the oral agreement was ineffective in law
because there is no execution of any formal written document. As regards the other point, it is true that there is no specific agreement with regard
to the mode of payment but, this does not necessarily make the agreement ineffective. The mere omission to settle the mode of payment does not
affect the completeness of the contract because the vital terms of the contract like the price and area of the land and the time for completion of the
sale were all fixed. We accordingly hold that Mr.Gokhale is unable to make good his argument on this aspect of the case.
11. On the basis of the above decision, the question to be considered is whether there is a concluded contract, when there is non-compliance of
clause 9. Ex.B1 is a tender notification and Ex.B2 is a tender submitted by the plaintiff. In the tender notice, the tenderers are directed to pay a
sum of Rs.50,000/- in the form of a Demand Draft drawn in favour of the Executive Engineer, TWAD Board, Madras, or in the alternative a bank
guarantee for the amount drawn from any nationalised bank. It is also stated that in case any tender is not accepted, the earnest money deposited
will be returned. In the case of a successful tenderer, the EMD will be retained till the end of the guarantee period or till such period the contract is
in force.
12. It is not disputed that the plaintiff submitted a bank guarantee for Rs.50,000/-issued by the 2nd defendant. In the tender notice, it was also
provided that on intimation of acceptance, the tenderer should remit the security deposit demanded and enter into a rate contract agreement as
specified by the TWAD Board. Failure to comply with the above, will entitle forfeiture of the EMD. After receipt of the tender submitted by the
plaintiff under EX.B2 on 9-1-1978, TWAD Board, i.e., the 1st defendant herein sent a communication EX.A1 to the plaintiff requesting to supply
and deliver ERW MS tubes of size of 150mm for trial and it was further stated that pending consideration of the tender they are placing the trial
supply order. On 25-2-1978, the 1st defendant again sent a communication under Ex.A1 informing the plaintiff that the 1st defendant has accepted
the tender of the plaintiff for supply and delivery of the tubes. Under Ex.A2 out of these items for which the plaintiff has submitted his tender, the
1st defendant accepted the tender with regard to 150mm medium quality and 150mm heavy quality on the price quoted by the plaintiff. As per the
terms and conditions of the tender notification, the price accepted will be firm for a period of one year. After the receipt of Ex.A2, the plaintiff
informed the 1st defendant that they are agreeing to despatch the materials at the earliest and with regard to security deposit of Rs.50,000/- it was
informed that they have already submitted the bank guarantee along with the tender documents. Under Ex.B4, the plaintiff further wrote to the 1st
defendant that the quantities which had already been ordered were despatched from Calcutta by train and they expected the same at any time and
he is arranging for the supply of tubes. He also sought extension of time for the delivery of goods upto 31-3-1978. On the basis of this
arrangement itself, it is clear that even without waiting for a formal agreement as contemplated under clause 9, supply order was also given and
plaintiff also began to supply. He has also deposited the earnest money. If his tender was not accepted, as per the terms of the tender notification,
bank guarantee ought to have been returned. Admittedly, the same is not dune. The bank guarantee is also in force. Only when the 1st defendant
threatened that the bank guarantee will be enforced for the non-supply of the materials as agreed by him, he thought of filing the suit with the
contention that there is no concluded contract.
13. Learned counsel for the appellant also submitted that Ex.A2 and the further correspondence will show that the plaintiff has not accepted the
terms, but there is only a counter offer. Both the courts below on interpreting Ex.A2 have come to the conclusion that he did not want to change
any of the terms and the parties also did not intend to vary the terms in any way other than what was stated in the tender notification. Following the
decision of the Supreme Court and also the legal principle enunciated by the author (Mulla) I do not think that the Courts below have gone wrong
in applying the correct principle and in holding that there is a concluded contract. The subsequent correspondence between the parties show that
clause 9 of the tender notification was never intended as mandatory for entering into a contract. De hors clause 9, there is a concluded contract.
14. Learned counsel for the appellant further submitted that the finding regarding damages is also without any basis. I do not think that this Court
can interfere with that finding when the same is also based on appreciation of evidence. It has come out in evidence that the 1st defendant had to
take delivery of the goods from the other sources and to suffer damages. It had to incur extra amount for the purchase of tubes and the same is
evidence from Exs.B11 to B13. In the result, all the questions of law are found against the appellant, and the Second Appeal is dismissed with
costs.
