Contract Can Be Said To Be ‘Concluded’ Only When Parties Are Ad Idem On All Essential Terms

Karnataka Power Corporation vs JSW

The Supreme Court in the case Karnataka Power Transmission Corporation Limited vs JSW Energy Limited observed that a contract can be said to be concluded only when parties are which are containing all the essential terms of the contract.
In the present case, it was observed by the three judges’ bench of the Apex Court, while partly allowing the appeal filed by the Karnataka Power Transmission Corporation Limited against the High Court of Karnataka that had set aside the orders passed by the Karnataka Electricity Regulatory Commission.
However, the issue raised before the High Court being whether there is existed a binding contract between the JSW Energy Ltd and the KPTCL on the tariff which is being prior to commencement of Karnataka Electricity Reform Act, 1999 with effect from June 01, 1999, in relation to the terms of Explanation to Section 19 and proviso to Section 27(2) of the Act? It has been answered against the KPTCL by the High Court.
The court observed that while reappreciating the material on record and interpreting the communications exchanged between the parties, the Apex Court bench comprising of Justice KM Joseph, Justice Aniruddha Bose and Justice Hrishikesh Roy observed and has came up to the conclusion that there was no concluded contract within the meaning of proviso to Section 27 of the Act. Further, the bench in its judgement referred to various provisions of Contract Act.
The court observed that in order that there must be a contract undoubtedly, concluded and there must be a proposal being made which must be accepted. Thus, there must always be a consideration for the promise and the proposal needs to be accepted, which needs to be communicated and it has already been explained. The acceptance given must be unqualified. This being an over simplification of the complex process. It can be said that as the parties can be said to have entered into a contract or a contract and the same would have been said to be concluded only when they are ad idem on all the essential terms as stated under the contract. However, in a contract, if the proposals containing the essential terms have been accepted, and has communicated the acceptance and, if the other conditions as stated under Section 2 of the Indian Contract Act, 1872 are compiled with and that there being no consideration and the contract is enforceable in law, within the meaning of Section 10 of the Act, it would be leading to the creation of a concluded contract.
Further, the court while partly allowing the appeal stated that there being no concluded contract and a Power Purchase Agreement was not being a mere desire but an indispensable requirement for concluding the terms. Thus, it is being clear that all through the parties undoubtedly contemplated while entering into a power purchase agreement. The position of the parties and the subject matter of the contract, the implications of the working of the contract and more importantly, the intention of the parties have persuaded us to safely gather that there was a concluded contract.

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