Bhagwandas Goverdhandas Kedia v. M/s Girdharilal Parshottamdas & Co. (1965)

Section 10A of the Information Technology Act tells you that a contract is not unenforceable merely because it was made electronically. It does not tell you the moment at which the bargain is struck, and on that moment depend jurisdiction, revocation and breach. Kedia settles the prior question the Act never answers: does a given exchange belong to the instantaneous class, where the acceptance must be intimated to the proposer, or to the postal class, where despatch alone completes the contract? Once that is decided, s. 13 of the Act supplies the mechanical rule for electronic records. Kedia is therefore the first half of every answer on when an electronic contract is formed, even though it is a case about a telephone call and not about computers.

The respondents at Ahmedabad contracted with the appellants by long-distance telephone. The offer was spoken at Ahmedabad; the acceptance was spoken at Khamgaon. The respondents sued at Ahmedabad for breach and the appellants objected that the Ahmedabad court had no jurisdiction. Everything therefore turned on where the contract was made, and that turned on when the acceptance became complete.

The majority held that a contract made by telephonic conversation falls under the ordinary rule which regards a contract as complete only when acceptance is intimated to the proposer, and not under the postal exception. The acceptance having been heard at Ahmedabad, the contract was made there and the Ahmedabad court had jurisdiction.

Hidayatullah J. dissented. Applying s. 4 of the Contract Act by its own words — the communication of an acceptance is complete as against the proposer when it is "put in a course of transmission to him, so as to be out of the power of the acceptor" — he would have held the acceptance complete at Khamgaon, the moment the acceptor spoke and put it beyond recall. He pointed out that the English rule on instantaneous communication was worked out without a written provision to construe, whereas the Indian Act supplies s. 4 and does not "provide separately for post, telegraph, telephone, or wireless". The majority is the law; the dissent is examinable and is the reason the Indian rule cannot simply be recited as English law.

Two competing rules were before the Court.

1. The postal exception. Where the acceptance is put into a course of transmission by posting a letter or despatching a telegram, the contract is complete at that moment, before the offeror knows anything of it. The Court described the exception as resting not on logic or principle but on "long acceptance by judicial decision", its justification being commercial expediency.
2. The ordinary rule, which requires the acceptance to be intimated to the proposer.

The majority placed the telephone in the second class for a reason that a student can reuse on any new technology. In a telephonic conversation the parties are in a sense in each other's presence: "There is instantaneous communication of speech intimating offer and acceptance, rejection or counter-offer." The machinery is irrelevant — "Intervention of an electrical impulse which results in the instantaneous communication of messages from a distance does not alter the nature of the conversation so as to make it analogous to that of an offer and acceptance through post or by telegraph." What distinguishes the two classes is the presence of a third agency: with post or telegram "a third agency intervenes and without the effective intervention of that third agency, letters or messages cannot be transmitted", whereas on a telephone call the parties "are in the hearing of each other by the aid of a mechanical contrivance" and "communication does not depend upon an external agency". Where negotiations are concluded by instantaneous communication of speech, communication of the acceptance is a necessary part of the formation of the contract.

The method to carry away: ask not what device was used but whether the exchange is in substance instantaneous and free of an intervening agency. If it is, the acceptance must reach the offeror.

Kedia opens the question when and where is an electronic contract complete. Lead with it, then move to the statute, in this order:

• Kedia decides the kind of communication. An exchange that is in substance instantaneous calls for the acceptance to be received.
• Section 13 of the Information Technology Act supplies the rule for electronic records. Sub-section (1) fixes despatch when the record "enters a computer resource outside the control of the originator" — the loss-of-control idea Hidayatullah J. drew out of s. 4, now enacted, but as a rule of despatch only. Sub-section (2) fixes receipt. Sub-section (4) makes the location of the computer resource irrelevant, so the accident of where a server stands cannot decide jurisdiction the way the place of speaking and the place of hearing did here.
• Section 10A does no more than stop the objection that the exchange is worthless because it was electronic.

What Kedia does not decide: it says nothing about electronic records, e-mail, servers or the Information Technology Act, none of which existed for it. It is not displaced by the Act either. Do not use it to settle which of despatch or receipt completes a contract made by e-mail; use it to classify the exchange, and then argue from s. 13 and the general law.