Contract Can Be Said To Be 'Concluded' Only When Parties Are Ad Idem On All Essential Terms : Supreme Court

The Supreme Court observed that a contract can be said to be concluded only when parties are ad idem on all the essential terms of the contract.

The three judges bench of the Apex Court observed thus while partly allowing the appeal filed by the Karnataka Power Transmission Corporation Limited against the Karnataka High Court that had set aside orders passed by the Karnataka Electricity Regulatory Commission.

The issue raised before the High Court was whether there existed a binding contract between the JSW Energy Ltd and the KPTCL on the tariff prior to commencement of Karnataka Electricity Reform Act, 1999 with effect from 01.06.1999, in terms of Explanation to Section 19 and proviso to Section 27(2) of the Act? The High Court answered it against the KPTCL.

Reappreciating the material on record and interpreting the communications exchanged between the parties, the Apex Court bench of Justices KM Joseph, Aniruddha Bose and Hrishikesh Roy  came to a conclusion that there was no concluded contract within the meaning of proviso to Section 27 of the Act. In its judgment, the bench referred to various provisions of Contract Act, and observed thus:

"In order that there must be a contract concluded, undoubtedly, there must be a proposal made, which must be accepted. There must be consideration for the promise. The proposal must be accepted, which must be communicated, as already explained. The acceptance must be unqualified. This is an over simplification of a complex process. We say this, as the parties can be said to have entered into a contract or a contract would be said to be concluded only when they are ad idem on all the essential terms of the contract. In other words, if the proposals containing the essential terms have been accepted, and the acceptance is communicated and, if the other conditions in Section 2 of the Indian Contract Act are complied with, viz. , that is there is consideration and the contract is enforceable in law, within the meaning of Section 10 of the Act, it would lead to the creation of a concluded contract."

The court observed that there was no concluded contract and a Power Purchase Agreement was not a mere desire but an indispensable requirement to conclude the terms. "It is clear as day light that all through the parties undoubtedly contemplated entering into a power purchase agreement. The subject matter of the contract, the position of the parties, the implications of the working of the contract and more importantly, the intention of the parties do not persuade us to safely gather that there was a concluded contract", the court said while partly allowing the appeal.

The other legal aspects dealt in the judgment are noted in the headnotes below.

Case details

Karnataka Power Transmission Corporation Limited vs JSW Energy Limited | 2022 LiveLaw (SC) 981 | CA 8714 OF 2022 | 22 Nov 2022 | Justices KM Joseph , Aniruddha Bose and Hrishikesh Roy 

Headnotes

Indian Contract Act, 1872 ; Sections 2, 10 - Concluded Contract - In order that there must be a contract concluded, undoubtedly, there must be a proposal made, which must be accepted. There must be consideration for the promise. The proposal must be accepted, which must be communicated - The acceptance must be unqualified - The parties can be said to have entered into a contract or a contract would be said to be concluded only when they are ad idem on all the essential terms of the contract - If the proposals containing the essential terms have been accepted, and the acceptance is communicated and, if the other conditions in Section 2 are complied with, viz. , that is there is consideration and the contract is enforceable in law, within the meaning of Section 10, it would lead to the creation of a concluded contract. (Para 78)

Karnataka Electricity Reforms Act, 1999 ; Section 41 -A Right of Appeal is a creature of a Statute. The right can be qualified or conditioned. The ambit of the appellate power is to be discerned from the terms of the Statute. A 'question of law' is not the same as a 'substantial question of law' . However, when the Statute insists on a 'question of law' to maintain an appeal, the Appellate Body stands constrained to that extent. (Para 88)

Karnataka Electricity Regulatory Commission - The Commission is an Expert Body. Interference with its findings cannot be sustained, to begin with, if it is bereft of reasons. Findings of such a body must receive due deference. Perversity in the sense of findings, which are wholly without basis or material or which no person with the professed skills would arrive at, may merit interference. A finding, which ill squares with a clear statutory injunction, would leave the door ajar for overturning the finding. (Para 89)

Karnataka Electricity Reforms Act, 1999 ; Section 27(2) - The proviso when it uses the words 'contracts concluded', does not use the words 'contracts concluded as regards tariffs' . A contract of the nature cannot be said to consist only of a rate and the term or even the quantum included. In a contract of this nature, there are obviously variou other aspects about which the parties must be ad idem. The rate, the term and quantum are integrally interconnected with other terms. There cannot be concluded contract without parties being ad idem about those terms. (Para 79)

Indian Contract Act, 1872 ; Section 10 - It is not essential to form a contract, that it should be in writing - If a law stipulates that a contract be in writing in which case a contract must be reduced to writing. (Para 56)

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