The Municipal Council vs Pasupathi Muthuraja

M. Natesan, J.—The Municipal Council, Karur, has preferred this Second Appeal against the decision of the learned Subordinate Judge of

Tiruchirappalli, reversing that of the District Munsif, Karur, and dismissing the Municipality''s suit for recovery of a sum of Rs. 2,651 as damages

from the respondent herein. The facts, which have led up to this appeal may be briefly stated. At a public auction held of the Non-Vegetarian Tea

Stall near the Karur Municipal Bus Stand for the year 1960-61, by the Commissioner of the Municipality on 15th February, 1960, the respondent

was the highest bidder, his bid being a rent of Rs. 276 per mensem. The next bid was Rs. 275 per mensem. Before the acceptance of the bid by

the Municipal Council, the defendant on 23rd February, 1960 revoked the bid and requested the Council not to accept his bid. Nevertheless, the

Council on 8th March, 1960, passed a resolution accepting the defendant''s bid and on the defendant refusing to execute a rent deed and pay

advance as provided for under the terms of the lease, conducted a re-auction on 22nd April, 1960. The highest bid at the re-auction was a rent of

Rs. 51 per mensem. The Municipality accepting this bid, has filed the suit against the defendant claiming the difference in bids for the year as

damages. It is the defendant''s case that the price was boosted at the original auction by some of the Municipal officials, the rival bidders being

persons of no substance or means and that in the previous year the bid was only Rs. 10 per mensem. He found that a fraud had been played upon

him and therefore, withdrew his bid before its acceptance. He contended that there was no completed contract for any breach and to sustain any

liability for damages. He further pointed out that the Municipality could have under the terms of the auction, accepted the next immediate bid of Rs.

275 per mensem instead of holding a re-auction.

The principal question for consideration is, whether there is a concluded contract on 15th February, 1960 when the defendant''s bid was the

highest and was reserved by the Commissioner of the Council, who conducted the auction for acceptance of the bid by the Municipal Council.

While it is contended for the Municipality that there has been a conditional acceptance of the bid subject to affirmation by the Council, it is the case

of the defendant that there was and there could be no acceptance of the bid by the Commissioner and that therefore, there was no contract till the

acceptance of the. bid by the Council. Before its acceptance, he had duly revoked the offer.

The lease in this case was offered by public auction conducted by the Commissioner of the Municipality. It is a well-established rule that at an

auction, the auctioneers calling for bids is not an offer, which is accepted by the highest bidder. It is the bid that constitutes an offer and the

auctioneer may accept or reject the bid. Before its acceptance, the bidder has the liberty of revoking his offer It may also be stated that quite often

in conditions of auction sale, a proviso is found that bidding shall not be retracted. The term as such would be inoperative in law there being no

consideration for assenting not to retract from the bid. To imply such a term is to postulate that there is a contract to enter into a contract. That

there may be an obligation not to retract, it must be supported by consideration or there must be some statutory provision having the force of law

providing against the withdrawal of the bid. Section 5 of the Indian Contract Act entitles the maker of a proposal to revoke the proposal at any

time before the communication of its acceptance is complete as against him. It is based on the principle found in Section 25 of the Act that an

agreement made without consideration is void. What has to be seen now is whether there has been an acceptance of the bid preventing the

defendant from resiling, or there is any provision under the Madras District Municipalities Act or the statutory rules made thereunder having the

force of law which would create a statutory bar against the withdrawal of bids at a Municipal auction. Sections 68, 68-A and Section 69 of the

District Municipalities Act deal with contracts by Municipalities. Section 68 (1) provides that the Council may delegate to the Chairman or a

committee consisting of two or more members the power of making on its behalf any contract whereof the value or amount does not exceed Rs.

1,000 and Sub-clause (2) provides that in respect of a contract whereof the value or amount exceeds Rs. 1,000 the sanction of the council for the

making thereof should be obtained before the same is made. Section 68-A provides for rules being prescribed regarding the conditions on which

contracts may be made and the mode in which contracts may be made or sanctioned by or on behalf of the Municipal Councils and Section 69

deals with mode of executing contracts. The learned Counsel appearing for the Municipality has not drawn my attention to any statutory rule or

provision which would enable the Municipality to impose as a condition at its auctions that a bid made to the Commissioner shall not be withdrawn

before acceptance or refusal by the Municipal Council. The matter has, therefore, to be examined under the ordinary law governing contracts

between private parties.

The contract in this case is a lease for a period of one year and the value exceeds Rs. 1,000. The Municipal Council is therefore the authority

that has to sanction and accept the contract and that is not in dispute. The auction was held by the Commissioner and it is not contended that the

Commissioner had any power in himself to accept the bid and conclude the contract of lease. Clause 4 of the conditions of lease provides for initial

cash deposit by intending bidders. Without such deposit a person would not be permitted to bid. It reads, that on the conclusion of the auction the

deposits made by the unsuccessful bidders would be returned and that at his discretion the Commissioner may retain also the deposit of the next

highest bidder till the auction was confirmed by the Council or the Committee for acceptance on their sanction. The Commissioner may for

reasons, exclude from the auction any person and refuse to accept his deposit. He may also refuse to accept any bids. The most important

condition is 11 in terms of which after the close of the auction, the auction lists have to be placed before the Municipal Council for approval in

accordance with Section 68 of the District Municipalities Act. The Council alone, the condition provides, has got the right to select and approve

the bid and grant the lease. The Council has power to reject the highest bid or any other bid without showing any reason to the bidder and no claim

for damages could be made on such rejection. There are provisions for execution of the document, evidencing the contract registration, etc., on the

acceptance of a bid. Here, we are not concerned with the same. What is relevant for us is that the conditions of the auction as they stand, show no

power in the Commissioner, who conducts the auction to accept the highest bid. The District Municipalities Act does not permit him to do so. The

final acceptance of the bid is left to the Council. The Commissioner has only to carry to the Council the bids.

Counsel on both sides relied on and referred to the decision of Satyanarayana ""Rao, J., in The Rajanagaram Village Co-operative Society Vs.

P. Veerasami Mudaly, . In that case a property was put up in auction by the Co-operative Society and the sale was got knocked down in favour

of the highest bidder subject to the approval of a Mahasabha and the Chittoor District Central Bank. The sale was approved by resolution of the

Bank and there was no question that the Mahasabha had not approved the same. The only point was, the resolution of the Bank was not

communicated to the successful bidder. When he demanded a conveyance, the Bank cancelled its resolution and directed a resale of the property,

which resulted In the suit for specific performance giving rise to the second appeal. Satyanarayana Rao, J., observed in the course of the judgment

as follows:

An absolute acceptance is whether the sale officer, or the auctioneer as the case may be, is given full authority to accept a bid unconditionally. A

provisional acceptance means that the auctioneer had only a right to receive the bids and pass them on to his superior, who is the final authority to

confirm and conclude the contract. In that case the auctioneer acts merely as a sort of conduit pipe to convey the highest bid to the superior.

Conditional acceptance has the effect of binding the highest bidder to the contract if finally there is the approval or confirmation by the superior

person indicated in the terms of sale. He cannot resile from the contract; it is not open to him to withdraw the offer as in the case of a provisional

acceptance and if there is approval the contract becomes concluded and becomes enforceable.

The Courts below rely upon the aforesaid decision for their different views in the present case. The learned District Munsif thought that there was a

conditional acceptance of the offer by the Commissioner of the Municipality and that therefore, the auction bidder cannot withdraw his bid. The

learned Subordinate Judge concludes that this is a case of a provisional acceptance and therefore, the bidder could at any time withdraw before

acceptance by the Council. The learned District Munsif has clearly misunderstood the decision. On the facts, the present would be a case of

provisional acceptance as found in appeal. The reference to conditional acceptance in the above cited decision does no doubt give some difficulty.

It has been the subject of criticism by a Division Bench of the Andhra Pradesh High Court in Raghunadha Reddy v. State of Hyderabad (1962) 1

An.W.R. 385, and in Pollock and Mulla''s Indian Contract Act, 8th edition. An acceptance which is qualified ceased to be an acceptance that

could complete a contract in law. It is pointed out in the decision of the Andhra Pradesh High Court, that where the offer and acceptance

culminating in a concluded contract are themselves subject to conditions and are not final, there is no contract at all till the conditions are fulfilled

and an offer before the fulfilment of these conditions can be withdrawn. The Editors of Pollock and Mulla''s Indian Contract Act consider that The

Rajanagaram Village Co-operative Society Vs. P. Veerasami Mudaly, , is a case of a condition precedent where the bidder could have retracted

his offer before final acceptance. That is how I also view the case and on my reading of the case I do not think that the learned Judge

Satyanarayana Rao, J., viewed otherwise. The learned Editors dissent from what they see as the reasoning in the case that even when the offeree

has full power to accept the offer, if he gives only a qualified acceptance, the offerer cannot withdraw although the offeree is not finally bound by it,

and point out that acceptance is either absolute or conditional and there cannot be any half way between the two. I have examined the decision in

The Rajanagaram Village Co-operative Society Vs. P. Veerasami Mudaly, , with great care and in my view the observations therein are with

reference to the facts of the case. In that case admittedly the sale officer had authority to accept the bid on behalf of the defendant. The bid had

also been approved by the Mahasabha and the Bank. Before a formal communication of the approval when the offeror claimed specific

performance, the society resiled from the contract. In the circumstances, all that the learned Judge particularly decides is, that once a conditional

acceptance is communicated, there is no need or necessity for a further communication of the fulfilment of the condition. The communication of the

acceptance twice is not needed, that is, once when the conditional acceptance is made and again when the condition is fulfilled.

Now u/s 4 of the Indian Contract Act the communication or acceptance is complete as against the proposer when it is put in the course of

transmission to him so as to be out of the power of the acceptor and as against the acceptor, when it comes to the knowledge of the proposer. It is

in the light of Section 3 of the Indian Contract Act, the above principles relating to acceptance in Section 4 and in the context of the facts of the

case the observations of the learned Judge have to be read. The learned Judge has proceeded in the view that there was due acceptance of the

contract. In the case of an auction by a statutory or public authority where there are provisions governing the acceptance of contracts on behalf of

the authority, and the terms of the auction indicate the same, one may if the features of the auction warrant infer that specific communication of the

final acceptance is dispensed with by the offeror when there is a conditional acceptance and the final acceptance is the formal official act of

acceptance of the authority. Waiver of communication of acceptance may be inferred from the nature of the transaction, as in Dominion Building

Corporation Ltd. v. The King L.R. (1933) A.C. 533, a case of offer to a public authority, when there is a public act of acceptance by order in

council. I do not understand the learned Judge as sanctioning the position, that before the approval of the contract by the Mahasabha and the Bank

in that case, the offeror could not have withdrawn; that would be going against the fundamental principles of the law of contract. In that case, the

suit was by the offeror to enforce the contract as a concluded one. The learned Judge only says that on approval, the contract becomes concluded

and enforceable. In the context, to my mind, these observations involve the view that till approval, it does not bind the bidder also, The bidder

could have withdrawn before the approval by the Mahasabha and the Bank, as there was no plea that conditions of the sale having statutory force

prevented the withdrawal of the bid. The only distinction the learned judge makes between provisional acceptance and conditional acceptance is

that in the latter case, no further communication of the final acceptance is necessary at the completion of the contract. In the case of a conditional

acceptance defined by the learned Judge the person who takes the bid has the power to accept subject to approval by a superior authority. That is

not to say that there is a binding contract on the one side and not on the other, when there is what is called conditional acceptance. It is not

necessary for the purpose of the present ease to discuss the rule as to communication of acceptance in the case of provisional or conditional

acceptance of the contract. The reasoning of the learned Judge does not, as I see it, run counter to the statement of the law in Pollock and Mulla

that if an acceptance is conditional, the offeror can withdraw at any moment until the : absolute acceptance has taken place. Only a concluded

contract can bind both the parties and for such a contract to come into existence, the offer and related acceptance must be absolute and not

qualified or conditional. Conditional acceptance here considered must be distinguished from contracts entered into conditionally, that is, cases of

conditions subsequent. These expressions, '' provisional acceptance '' and '' conditional acceptance '' are not statutory phrases, but convenient

words coined to denote a stage in the formation of the contract. They indicate one thing with certainty, that the proposal or offer has been made

and communicated and that it has not been finally accepted. To my mind there can be no two views about it, that conditional acceptance if by that

is meant, some condition to be fulfilled for the acceptance of the contract to be binding, any consensus of other parties on the offeree''s side having

a decisive voice in the matter of the acceptance of the offer before acceptance becomes absolute, is no acceptance at all. In such a case, the offer

is still under consideration at the other end to use a more popular expression still in the stage of negotiation, awaiting acceptance to being about a

contract. There is either an acceptance of the offer or not, and only if there is acceptance,by those who could decisively accept subject to

provisions relating to communication of acceptance, the contract comes into existence.

In Somasundaram Pillai Vs. The Provincial Government of Madras, the Division Bench observes:

To have an enforceable contract there must be an offer and unconditional acceptance. A person who makes an offer has the right of withdrawing it

before acceptance, in the absence of a condition to the contrary supported by consideration. Does the fact that there has been provisional

acceptance make any difference? We can see no reason why it should. A provisional acceptance cannot in itself make a binding contract. There

must be a definite acceptance or the fulfilment of the condition on which a provisional acceptance is based.

The aforesaid observations make it clear that a provision not to resile from an offer before final acceptance, unless supported by consideration, has

no legal validity and what is called a provisional acceptance by the offeree could be withdrawn before the performance of the conditions of the

provisional acceptance. Till then there can be no contract in law and neither party would be bound. Once the terms of the provisional acceptance

are fulfilled it becomes a concluded contract and neither party can resile. I would put it, in the absence of any legal obstacle a bid could be

withdrawn before the contract gets completed by final acceptance, however, the intermediate situation pending the final act on the offeree''s side

which would bring about a concluded contract is termed, provisional acceptance, conditional acceptance or qualified acceptance.

In the light of the above discussion it is clear that there was no contract in the present case between the Municipality and the defendant. The

Commissioner, who conducted the auction had no authority to enter into any contract or accept any bid. He had to carry the highest bid to the

Council for its consideration and before the Council by its resolution accepted the bid, the defendant had specifically and in writing revoked his bid

and requested the Council not to confirm the lease. The offer had been withdrawn before it could be accepted by the Council, the only authority

that could accept the offer. There was nothing to forbid revocation of the bid before its acceptance. u/s 5 of the Indian Contract Act, an offer may

be revoked at any time before the communication of its acceptance is complete as against the proposer. In the present case, there has been no

acceptance of the offer by the Municipality before the revocation of the proposal. It follows that there was no contract for the defendant to be

charged with for breach.

In the result, the second appeal fails and is dismissed with costs. No leave.