Keshavlal Lallubhai Patel and others vs Lalbhai Trikumlal Mills Ltd

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 78 of 1954

Decision Date: 21 March 1958

Coram: P.B. Gajendragadkar, Natwarlal H. Bhagwati, J.L. Kapur

In the matter titled Keshavlal Lallubhai Patel and others versus Lalbhai Trikumlal Mills Ltd, the Supreme Court of India delivered its judgment on 21 March 1958. The opinion was authored by Justice P. B. Gajendragadkar, who was joined by Justices Natwarlal H. Bhagwati and J. L. Kapur. The case is reported in the 1958 All India Reporter at page 512 and also appears in the 1959 Supreme Court Reports at page 213. The dispute concerned an agreement governed by the Indian Contract Act, 1872, particularly sections 29 and 63, relating to the extension of time for performance of a contract. The appellants had entered into a contract with the respondent mill for the purchase of certain goods, with the delivery scheduled for September and October of 1942. Before the agreed delivery period expired, a strike at the mill occurred, and on 15 August 1942 the respondent sent a letter stating that, because of the strike and the prevailing political situation, the delivery time for all pending contracts would be automatically extended for the period during which the mill’s operations were suspended and until normal conditions returned. Although the strike eventually ended, the respondent declined to deliver the goods, asserting that the contracts were void. The appellants instituted suit on 9 January 1946 seeking damages for breach of contract. In its defence, the respondent contended that there was no agreement to extend the time and consequently the suit was barred by limitation. The appellants’ evidence, consistent with the parties’ conduct at the relevant time, demonstrated that they had orally agreed to the respondent’s proposal for an extension covering the interval when the mill remained closed. However, regarding the second condition in the August 15 letter—“till the normal state of affairs recurs,” which was vague and uncertain—the evidence did not show that the appellants had accepted that condition.

The central issue before the Court was whether an enforceable agreement for extension of time existed within the meaning of the Indian Contract Act. The Court held that, under section 63, an extension of time for performance must be based on a mutual agreement between the parties; a unilateral promise to extend time for one’s own benefit does not suffice. Such an agreement need not be reduced to writing and may be established by oral testimony or by evidence of conduct. The Court observed that the respondent’s letter of 15 August 1942 contained two conditions. The second condition, being vague and uncertain, was not accepted by the appellants; consequently, no valid or binding agreement for extension arose under section 63. Because the conditions were so indefinite that the period of extension could not be ascertained with certainty, the agreement was void according to section 29 of the Act. The Court further distinguished the earlier decision of Nicolene Ltd. v. Simmonds, noting that the present circumstances did not fit that precedent. Thus, the Court concluded that there was no enforceable extension of time, rendering the respondent’s refusal to deliver the goods permissible under the contract law principles applied.

The Court observed that the second condition contained in the respondent’s letter of 15 August 1942 was expressed in vague and uncertain terms, and that such wording did not automatically render the condition meaningless. Because the appellants never manifested any acceptance of that second condition, the Court concluded that there was no enforceable agreement for an extension of time under section 63 of the Indian Contract Act. The Court distinguished the earlier authority of Nicolene Ltd. v. Simmonds, [1953] 1 Q. B. 543, and held that an agreement to extend the time for performance must be based upon a clear mutual assent between the parties. In the present case, the conditions were so indefinite that the period of extension could not be ascertained with certainty. Accordingly, the Court held that the purported extension was void under section 29 of the Indian Contract Act, following the reasoning in Scammell (G.) and Nephew Ltd. v. Oustom (H. C. and I. G.) Queston, [1941] A. C. 251.

The appeal arose from a decree dated 17 April 1950 of the Bombay High Court, which had dismissed the plaintiffs’ suit for damages of Rs 1,52,334‑8‑9 on the basis of breach of contract for non‑delivery of specified cotton goods. The trial court had originally granted a decree in favour of the plaintiffs, but this decision was set aside on appeal. The appellants were partners of the firm M/S Navinchandra and Co. They had placed an order on or about 4 July 1942 for two hundred and fifty‑one bales of printed chints, which the respondent had accepted by letters dated 11 July and 20 July 1942, with delivery stipulated for September and October 1942. A further order for thirty‑one bales was placed on 24 July 1942 and accepted on 25 July 1942, with delivery to be made in October 1942. On 9 August 1942, workers at the respondent’s mills went on strike in support of the Quit‑India movement, prompting the respondent to write to the appellants on 15 August 1942, stating that, due to the strike and the prevailing political situation, the delivery dates of all pending contracts would be automatically extended for the duration of the stoppage and until normal conditions resumed. The strike ended and the mills resumed operations on 22 November 1942. Counsel for the appellants and counsel for the respondent appeared before the Court. The judgment was delivered on 21 March 1958 by Justice Gajendragadkar.

In December 1942 the individual who was then managing the mills, Jasubhai, was approached by the appellants, Keshavlal and Ratilal, seeking delivery of the goods that had been ordered. Jasubhai informed them that the contracts they had executed were void and therefore no delivery could be claimed or made. On 6 December 1942 he sent a letter to the appellants stating that their contracts were not binding on the mills because they were null and void. It is relevant to note that at the time the contracts were originally made, Chinubhai Lalbhai was in charge of the managing agency of the mills. However, on 18 September 1942 a compromise among Chinubhai and his brothers, Jasubhai and Babubhai, resulted in the managing agency passing to Jasubhai and Babubhai. On 17 December 1942 the appellants wrote to the respondent asserting that, because the respondent had extended the time for delivery of all goods in its letter dated 15 August 1942, the respondent was now obligated to deliver the contracted goods, and that failure to do so would compel the appellants to institute legal proceedings. The respondent reiterated its earlier position in a letter dated 20 December 1942, maintaining that the contracts remained void. The appellants formally demanded delivery of the goods in January 1943 and again in February 1943. When those demands were not satisfied, they filed the present suit on 9 January 1946, claiming damages of Rs 1,52,334‑8‑9 together with interest and costs. In the plaint the appellants contended that the suit was filed within the appropriate limitation period because the respondent’s request for an extension of time had been accepted by the appellants.

The respondent opposed the suit on several grounds, chiefly arguing that there was no agreement between the parties concerning an extension of time and that, consequently, the suit was barred by limitation. The trial judge identified several issues for determination, two of which were the subject of this appeal: the question of whether time for performance of the contract had been extended, and the plea of limitation. The trial judge decided in favour of the appellants on both points and accordingly decreed the appellants’ claim. The respondent appealed this judgment to the High Court at Bombay, and the High Court allowed the appeal. The learned judges of the High Court held that the oral evidence presented by the appellants to demonstrate acceptance of the respondent’s proposal for an extension of time could not be regarded as true or reliable. They also rejected the appellants’ case on the basis that the appellants’ conduct after the stoppage of the mills did not indicate acceptance of the respondent’s proposal. Moreover, the High Court concluded that even if acceptance had been proved, the wording of the respondent’s letter of 15 August 1942 was vague and uncertain, rendering any alleged agreement to extend time void. Accordingly, the High Court held that the appellants’ suit was barred by limitation, a finding that the appellants now challenge in the present appeal.

It was held that the words used by the respondent in its letter dated 15 August 1942 (Ex. P. 78) could not be given any definite meaning, and consequently the agreement to extend the time for performance was declared void because it was vague and uncertain. Because of that finding the trial court concluded that the appellants’ suit was barred by limitation. The appellants have challenged those findings in the present appeal. The amount involved in the suit, both at the trial stage and at the present stage, exceeded Rs 20,000, and the judgment of the High Court that is now under appeal had set aside the decree that the trial judge had originally passed. Accordingly, the appellants were permitted to raise both factual and legal questions before this Court in the appeal. The first issue that the appellants raised concerned the finding of the High Court that they had failed to obtain an extension of time for the performance of the contract. Their contention was that the High Court erred in rejecting the oral evidence that the appellants had led on that point, and therefore the material evidence bearing on the question of extension had to be examined. The proposal to extend time had been made by the respondent in its letter (Ex. P. 78) dated 15 August 1942. Ratilal, who testified, stated that four or five days after receiving that letter he travelled to Ahmedabad, where he met and consulted Keshavlal. He then saw Chinubhai at the mills and told him that he accepted the extension of time as set out in the letter. During cross‑examination Ratilal added that he had met Chinubhai at the office in his mills and that, apart from the matter of extending time, no other subject was discussed at that meeting. He also admitted that the appellants had not sent any letter confirming their acceptance of the respondent’s proposal to extend time. The testimony of Ratilal was supported by the evidence of Keshavlal, who corroborated the same sequence of events. Both witnesses recounted that after the mills reopened they proceeded to Jasubhai and demanded delivery of the bales in accordance with the contracts. The appellants argued that there was no justification for disbelieving the evidence of these two witnesses. It was also noted that the principal defence raised by the respondent against the appellants’ claim was that the original contract was invalid and therefore not binding on the respondent, and that the letter written by Laxmidas on 15 August 1942 was likewise unauthorised and not binding. Those defences had been rejected by the courts below. The record showed that the respondent’s stance in the present dispute was influenced more by Jasubhai’s prejudice against Chinubhai, and it could be safely said that some of the respondent’s pleas were known to be untenable.

The Court examined the behaviour of the respondent and concluded that the oral statements of Ratilal and Keshavlal were consistent with the surrounding circumstances and therefore deserved credence. In addition, the Court considered the testimony of a third witness, Chinubhai, who also appeared in the proceedings. Chinubhai recounted that the proposal to extend the time for performance had been communicated by Laxmidas acting under his instructions. It was accepted as a matter of common ground that an identical request for extension had been made to every constituent of the mill, both those located in Ahmedabad and those situated elsewhere. When questioned about whether any written reply had been received from the appellants to the letter dated 15 August 1942, Chinubhai could not recall having received such a reply. Nevertheless, the overall effect of his statements suggested that he had obtained an oral acceptance of the proposed extension from the appellants. Subsequently, during cross‑examination, Chinubhai again expressed uncertainty, stating that he did not remember whether the appellants had accepted the offer. The Court observed, however, that Chinubhai’s evidence did not conflict with the statements made by Ratilal and Keshavlal. Both parties also agreed that, at the relevant time, the prices of the goods were rising, making it more plausible that the appellants would have been eager to secure delivery and therefore willing to agree to an extension of time under the contract.

Both the trial court and the High Court had heard arguments that relied on the sauda books maintained by the respondent. Shri Dharamasi Harilal had produced the sauda books in court, yet neither party succeeded in having the books formally exhibited as evidence. The trial judge reasoned that because the respondent failed to produce and prove the contents of the sauda books, an inference could be drawn that, had the books been produced, they would have contained an endorsement showing that the appellants had agreed to the time‑extension. Conversely, the High Court judges inclined themselves to infer that the appellants’ reluctance to have the sauda books shown indicated that the books did not contain any entry concerning the extension. The Court held that drawing either of those inferences would be unsafe in the present dispute. Accordingly, the decision had to be based on an assessment of the oral evidence, weighed against the probabilities and the other relevant facts of the case. After considering the entirety of the evidence, the Court was persuaded that the testimonies of Ratilal and Keshavlal were truthful. Moreover, the conduct of the parties supported the same conclusion. If the delivery period had not been mutually extended, the Court would have expected the appellants to demand delivery on the original due dates. It was acknowledged that no such demand was made. Instead, the appellants only approached Jasubhai after the mills had reopened, a fact that further aligned with the inference that an extension had been mutually accepted.

In this case, the Court observed that after the mills had reopened, the parties discussed the question of delivery of the goods with the respondent. The respondent acknowledged this discussion in a letter dated 6 December 1942, which was entered as Exhibit P‑62. Nonetheless, the respondent informed the appellants that the saudas executed by their firm were not binding on the respondent and that they were to be considered void. The Court found it noteworthy that, although that document denied the validity of the sauda, it did not expressly state that the parties had not agreed to an extension of time. It was possible, the Court said, that Jasubhai, seeking to contest the contracts themselves, chose not to raise any alternative plea regarding the extension. Regardless of the motive, the Court concluded that the conduct of the appellants was consistent with their claim that a time‑extension had been agreed.

The Court then turned to the legal position on extending the time for performance of a contract. Section 63 of the Indian Contract Act makes clear that a promise may lawfully extend the time for performance. The question of how such an extension may be agreed upon had been argued before the Bar in the present appeal. The Court held that both the buyer and the seller must assent to any extension of the delivery period; a unilateral promise by one party to extend the time for personal benefit could not be effective. The Court further explained that an agreement to extend time need not be reduced to writing; it may be proved by oral testimony or, in some cases, by evidence of conduct. For example, the buyer’s forbearance from demanding delivery on the original due date could be relevant to the buyer’s intention to accept the seller’s proposal for an extension.

The Court noted that no rigid rule could be laid down as to the precise proof required for such an agreement. Each case must be decided on the facts presented and the evidence adduced by the parties. Applying this principle to the present facts, the Court found that, taking into account the probabilities and the parties’ conduct at the relevant time, the appellants were entitled to have their oral evidence on the acceptance of the respondent’s time‑extension proposal believed. Consequently, the Court affirmed the trial judge’s finding that the appellants’ oral evidence was credible.

However, the Court clarified that this finding was not decisive of the entire dispute. The remaining issue to be examined was whether the agreement on the extension suffered from uncertainty or vagueness, which could render it unenforceable. The Court indicated that this matter would be considered subsequently.

In this case the Court held that the letter dated 15 August 1942, which formed the basis of the alleged agreement to extend time for delivery, was so vague and uncertain that the purported extension agreement was void and could not be enforced. The Court indicated that the correctness of this conclusion required careful examination, because the letter itself was the foundation of the alleged agreement and therefore its interpretation bore great significance. The letter was reproduced in full: “Dear Sirs, Your good selves are well aware of the present political situation on account of which entire working of our Mills is closed. At present, it is difficult to say as to how long this state of affairs will continue and as such we regret we cannot fulfil the orders placed by you with us in time. Under the circumstances, please note that the delivery time of all your pending contracts with us shall be automatically understood as extended for the period the working is stopped and till the normal state of affairs recurs.” The opening of the letter clearly refers to the prevailing political turmoil that had forced the mills to shut down, and it expressly states that it was very difficult to anticipate the duration of that situation.

It was common knowledge at the material time that the whole country, and particularly the city of Ahmedabad, was engulfed in a serious political agitation, and that no one could foresee how long the strike resulting from that agitation would last. It was in this atmosphere of uncertainty that the respondent asked the appellants to note that the delivery period would be automatically extended “for the period the working is stopped and till the normal state of affairs recurs.” The Court observed that the first condition—“the period the working is stopped”—presented no difficulty, because it would be satisfied as soon as the strike ended and the mills reopened. However, the second condition—“till the normal state of affairs recurs”—created a real problem, because the precise meaning of that phrase was extremely difficult to determine.

The Court explained that many factors would be required to restore the normal state of affairs, and that the need to satisfy those factors inevitably introduced grave uncertainty and vagueness into the proposal. If the phrase “normal state of affairs” was intended to refer to the overall political situation in the country, then the condition was patently uncertain. Even if the phrase were construed favorably to the appellants and understood to refer to the normal operation of the mills, the uncertainty remained because it was unclear when the mills could be said to have returned to normal working. The Court noted that normal working of the mills would depend on several essential elements, such as the full complement of workmen being present, and that without a clear specification of those elements the general expression used in the letter could not be interpreted as establishing a definite and certain condition.

The Court observed that for the mills to operate in a truly normal manner, the requisite raw material must be readily available and sufficient quantities of coal must be in stock. In addition, the Court noted that other unspecified conditions might also be necessary to ensure fully normal operation of the mills. Consequently, the Court held that unless every essential element of normal working was clearly defined and mutually agreed, the vague expression used in the letter could not be interpreted as conveying any definite or certain obligation. The Court therefore concluded that the phrase “normal state of affairs” remained ambiguous without an exhaustive list of required factors.

The Court further explained that even if the appellants’ testimony regarding acceptance of the proposal were accepted, such testimony would only demonstrate a very general and loose acceptance of the letter’s contents. This general acceptance, according to the Court, did not clarify what the parties actually understood or agreed to constitute the normal state of affairs mentioned in the correspondence. As a result, the Court found that the evidence did not assist in determining the precise meaning of the contested condition.

Turning to the plaint, the Court referred to paragraph seven, where the plaintiff asserted that it had agreed to the extension of time for delivering the goods as suggested by the defendant, and that this extension corresponded to the period during which the mills would remain closed. In other words, the Court noted that the entire complaint proceeded on the assumption that the extended delivery period related solely to the stoppage of the mills. The Court emphasized that this assumption formed the factual basis of the plaintiff’s claim.

The Court recorded that one line of argument advanced by the appellants sought to treat the second condition in the letter as a meaningless surplusage, proposing that the extension of time should be read only in light of the first condition. To support this argument, the appellants relied upon the decision in Nicolene Ltd. v. Simmonds (1). The Court explained the relevance of that earlier case to the present dispute.

In Nicolene Ltd. v. Simmonds (1), the Court described a contract for the sale of a quantity of reinforcing steel bars that was expressed as being subject to “the usual conditions of acceptance.” After the seller repudiated the contract, the buyers obtained a trial‑court judgment awarding damages for breach. On appeal, the seller contended that no contract existed because there was no consensus ad idem regarding the conditions of acceptance. The appellate Court held that, since there were no “usual conditions of acceptance,” the clause was meaningless, and the contract was nevertheless complete and enforceable. Denning L.J. observed that the clause was so vague and uncertain that it could not bear any precise meaning, was clearly severable from the remainder of the contract, and should be ignored without impairing the contract’s overall sense or reasonableness. The learned Lord Justice added that the parties themselves treated the contract as subsisting, regarded it as creating binding obligations, and it would be unfortunate if the law were to say otherwise.

In the earlier case, the learned Lord Justice had remarked that “defaulters all scanning their contracts to find some meaningless clause on which to ride free.” The Court considered that observation irrelevant to the present appeal and stated that the decision could not assist the appellants. The Court explained that the second condition set out in the letter under dispute formed a clause that required the agreement of both parties because it was one of the conditions attached to the respondent’s proposal for an extension of time. The respondent’s proposal sought to lengthen the period for performance of the contract, but it was conditional upon two separate requirements, and, according to section 63 of the Indian Contract Act, the extension would be valid and binding only if both conditions were mutually accepted. Although the second condition articulated by the respondent was described as vague and uncertain, the Court held that this vagueness did not automatically demonstrate that the respondent intended the clause to be a meaningless surplus. If that were the case, the allegations contained in the plaint would clearly show that the appellants never accepted the second condition that the respondent had inserted in its time‑extension proposal. Moreover, the Court reiterated that it was difficult to conclude that the respondent possessed a clear and precise understanding of the essential elements of the second condition, and that the appellants were properly informed of those elements and accepted the condition with that knowledge. To illustrate this point, the Court referred to the House of Lords decision in Scammell (G.) and Nephew Ltd v. Ouston. In that case the respondent agreed to purchase a new motor‑van on the basis that the balance of the price would be paid under hire‑purchase terms spread over two years. The House of Lords found that the hire‑purchase clause was so vague that it could not be given a precise meaning, and therefore there was no enforceable contract. Lord Wright, speaking for the House, observed that the court’s task is to achieve justice between the parties and, when an ascertainable intention to contract exists, the court should give effect to that intention by looking at the substance rather than the form. He added that the test of intention lies in the words used; if, even when interpreted broadly and with due regard to all implications, the words fail to convey a definite meaning on which the court can act safely, the court must conclude that no contract exists. The learned Law Lord further explained that his conclusion of vagueness was based not only on the literal obscurity of the wording but also on the inability to derive a coherent meaning from it.

The Court observed that the lack of clarity in the wording was not only evident from the terms themselves but was also confirmed by the remarkable variety of explanations offered by those who claimed a bargain existed and attempted to define its content. The Court added that when the appellants tried to clarify the true meaning of the second condition, it became apparent that the explanations presented by the appellants’ counsel were varied and internally inconsistent. Consequently, the Court held that the learned judges of the High Court were correct in concluding that the conditions referred to by the respondent in its letter seeking an extension of time were so vague and uncertain that the precise period for which the contractual performance was to be extended could not be definitively ascertained. In such circumstances, the agreement for extension must be considered vague and uncertain and, accordingly, void under section 29 of the Indian Contract Act, as illustrated by the cited authority (1) [1941] A.C. 251. The Court noted another point raised by the appellants, namely that in the trial court the respondent had not pleaded that the extension agreement was vague and uncertain. No record shows that such a plea was raised in the grounds of appeal filed by the respondent in the High Court at Bombay; nevertheless, the High Court allowed the plea to be raised and the appellants did not object at that stage. The Court explained that it was not improper for the High Court to permit a legal plea based solely on the construction of the letter that formed the basis of the claim for an extension of time, and that the appellate court was competent to entertain that plea under Order 41, Rule 2 of the Code of Civil Procedure. The Court further stated that if, upon a proper construction, the condition in the document is found to be vague or uncertain, no extrinsic evidence may be admitted to cure the vagueness, as section 93 of the Indian Evidence Act makes clear that the language of the document alone determines the issue. Allowing external evidence would amount to creating a new contract between the parties, which the Court deemed impermissible. Accordingly, the Court concluded that the appellants could not successfully argue that the High Court should not have entertained the plea of vagueness. The Court therefore affirmed the High Court’s finding that the agreement to extend time was vague and uncertain, confirming that conclusion as the correct legal determination.

The judgment observed that, based on the earlier determinations, the appeal necessarily had to be dismissed. Although the conclusion was reached reluctantly, the Court expressed that it was convinced there was no bona‑fide conduct on the part of the respondent throughout the present proceedings. The principal arguments advanced by the respondent challenged both the binding nature of the contracts and the authority of Laxmidas to issue the letter extending time; both of these contentions had been rejected by the lower courts. The only ground on which the respondent achieved any success before this Court was a point raised for the first time in the present appeal. Given these circumstances, the Court considered that fairness required each party to bear its own costs for the entire litigation. Accordingly, the appeal was held to have failed and was dismissed, without any further order as to costs. The final order therefore dismissed the appeal.