Contract Considered To Be Concluded Only Once Parties Are Ad Idem On All Essential Terms- Supreme Court

A Supreme Court Bench of Justice KM Joseph, Justice Aniruddha Bose, and Justice Hrishikesh Roy has held that a contract can be considered to be concluded only once the parties are ad idem on all the essential terms of the contract. In that context, it was observed that "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."

Senior Counsel S.S. Naganand appeared along with Counsel Raghavendra S. Srivastava for the appellant. Senior Counsel Dr A.M. Singhvi appeared along with Senior Counsel Gopal Jain for the first respondent. 

In this case, an appeal was filed by the Karnataka Power Transmission Corporation Limited (KPTCL) against an order passed by the Karnataka High Court. The issue raised was whether there existed a binding contract between the appellant and the KPTCL on the tariff prior to the commencement of the Karnataka Electricity Reform Act, 1999, with effect from June 1, 1999, in terms of Explanation to Section 19 and proviso to Section 27(2) of the Act.

As the High Court had decided against KPTCL, the party approached the Supreme Court. 

The Supreme Court made the observation that "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."

Consequently, the Court concluded that there was no concluded contract within the meaning of the proviso to Section 27 of the Act, and in that context said that "the facts are distinguishable and, on the facts, herein, there was no concluded contract and what is more, a PPA was not a mere desire but an indispensable requirement to conclude the terms." 

In similar context, the Court made the observation that "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 appeal filed by the KPTCL was partly allowed and the impugned judgment was set aside. The case was remanded back to the High Court for reconsideration on a few points. 

Cause Title: Karnataka Power Transmission Corporation Limited v. JSW Energy Limited

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