A Term-Sheet Is Not A Binding Agreement If It Required Execution Of A Definitive Agreement: Karnataka High Court

The Bench of Justices Anu Sivaraman and Anant Ramanath Hedge ruled that a termsheet would expire if the specified period for executing a definitive agreement passes without such an agreement being made. It held that an expired termsheet cannot be enforced or acted upon.

Facts

The parties entered into a termsheet dated 08.12.2022 wherein the respondent agreed to sell 5 acres and 18 guntas of land on an agreed sale consideration of Rs.38 Crores subject to the parties fulfilling their obligations and executing a definitive agreement within 60 days.

The parties failed to complete the transaction within the agreed period. Thereafter, the respondent agreed to sell the subject property to a third party. Aggrieved thereby, the petitioner filed an application under Section 9 of the A&C Act restraining the respondents from alienating the subject property.

The Commercial Court dismissed the petition by observing that there was no agreement between the parties and the termsheet did not constitute a concluded contract. Aggrieved thereby, the petitioner filed an appeal before the High Court.

Submissions by the Parties

The appellant made the following submissions:

• That they were ready to perform their part of the contract and the delay was due to the respondent not providing necessary documents.
• That the mere fact that a further formal agreement is to be drawn up does not negate the conclusion that an earlier agreement was a concluded contract.

The respondent made the following counter-submissions:

• That there was no concluded contract between the appellant and the respondent.
• That mere negotiations do not give rise to a binding contract. They emphasized the need for a formal acceptance of an offer for a contract to be presumed to have come into effect.

Analysis by the Court

The Court noted that the Termsheet for Buyout dated 08.12.2022, which formed the basis of the dispute, was in the nature of an offer. It specified that the offer was valid until Definitive Agreements were entered into or for a period of 90 days from the date of execution, whichever was earlier.

It observed that no Definitive Agreements had been entered into within 60 days from the date of execution of the Termsheet for Buyout. Additionally, no amount had changed hands based on the Termsheet.

The Court emphasized that the Termsheet for Buyout was only an offer and not a contract. It stated that the Commercial Court had correctly concluded that there was no concluded contract between the parties.

Accordingly, the Court dismissed the appeal.

Case Title: M/s Azeem Infinite Dwelling v. M/s Patel Engineering, Commercial Appeal No. 60 of 2024

Citation No: 2024 LiveLaw (Kar) 184

Date: 10.04.2024

Counsel for the Appellant: SHRI. K.N. PHANINDRA, SENIOR COUNSEL A/W. SHRI. SUNIL P. PRASAD, ADVOCATE

Counsel for the Respondent: SHRI. K.G. RAGHAVAN, SENIOR COUNSEL A/W. SHRI. ADITYA SWAROP, ADVOCATE

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