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M/s. Vedanta Limited v. M/s Emirates Trading Agency LLC

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 5448-5449 of 2017)Decided 21 Apr 2017
Civil Appeal Nos. 5448-5449 of 2017
Justice Ranjan Gogoi · Justice Navin Sinha

Background

Emirates Trading Agency had sued Vedanta (then Sesa Sterlite) for breach of contract and damages over a planned supply of phosphoric acid, and a trial court decreed the suit for over Rs. 5.25 crore with interest. Vedanta's appeal was dismissed by the High Court, and a later review petition was also dismissed. Vedanta then approached the Supreme Court, arguing that the draft agreement the courts below relied on was never actually finalized: it was only a proposal followed by Vedanta's own counter-proposal changing the quantity and supply period, which was never signed and returned.

Decision Breakdown

The Supreme Court held that under Section 7 of the Indian Contract Act, 1872, acceptance of a proposal must be absolute and unqualified to form a contract; a counter-proposal does not create one. Since Vedanta had altered the quantity and duration terms in its response rather than accepting the draft as offered, and never signed, stamped and returned the agreement, no concluded contract ever came into existence between the parties. Because a concluded contract is essential for a claim of damages under Section 73 of the Act, the courts below erred in treating the exchange of correspondence as proof of a binding agreement. The orders of the trial court and High Court were set aside and the appeals were allowed.

Lesson Learnt

A business communication is not a binding contract just because the parties corresponded extensively about it: if either side changes material terms like quantity or time period in its reply, that is a counter-proposal, not an acceptance, and no contract comes into being until there is a clear, unqualified acceptance.

Official source (sci.gov.in)View Judgment (PDF)

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