Holding

Encashment of the cheques without a prior protest constitutes acceptance of the Railways' offer under Section 8 of the Contract Act, barring the appellant from claiming the balance.

Summary

The appellant claimed full compensation for two consignments of salt that were not delivered. The Railways admitted liability only partially and sent two cheques with a letter stating that if the offer was not acceptable, the cheques should be returned, otherwise their retention or encashment would constitute full and final settlement. The appellant sent protest letters on August 20, 1993, but also encashed the cheques; the date of encashment was not recorded. The Railway Claims Tribunal and the Gauhati High Court dismissed the appellant’s claim, holding that encashment amounted to acceptance of the offer. The Supreme Court affirmed that under Section 8 of the Contract Act, acceptance can be effected by performance of the conditions of the proposal, and that encashment of the cheques without a prior protest constitutes unequivocal acceptance, placing the burden on the offeree to prove a protest before encashment. As no such proof was offered, the appeals were dismissed.

Issues considered

Whether encashment of cheques offered with a condition of return amounts to acceptance of the offer under Section 8 of the Contract Act.
Whether a protest letter sent after encashment can defeat the acceptance presumed by conduct.
Who bears the burden of proving that acceptance did not occur when the offer prescribes a mode of acceptance.

Legislation cited

Indian Contract Act, 1872s. 8

Subjects

contract lawacceptance by conductSection 8offer and acceptancechequeprotestaccord and satisfactionrailway claimscivil appeal

Judgment

•· MIS. BHAGWATI PRASAD PAWAN KUMAR A
v.
UNION OF r_NDIA

MAY 25, 2006

[B.P. SINGH AND R.V. RA VEENDRAN, JJ.] B

Contract Act, 1872-Section 8-Acceptance by performing conditions
of a proposal-Claim for compensation-Offer ofpayment of lesser amount
than the amount claimed-With condition that if not acceptable, the cheque
to be returned otherwise it would be deemed that offer was accepted in full c
and final satisfaction of its claim-Encashment of cheque-Protest and non
acceptance of the offer conveyed to the offerer-Further demand of balance
compensation-Propriety of-Held: The offer prescribed the mode of
acceptance, and the offeree, by conduct accepted the offer-Hence, cannot
make a claim later-Determination of acceptance of offer would depend on
D
the facts and circumstances of the case-The conduct of offeree whether
amounted to unequivocal acceptance of offer has to be tested in view of the
evidence of the case-In the instant case, there is absence of pleading or
evidence to establish the encashment of cheques subsequent to the protest-
By enchasing the cheques offeree accepted the offer by adopting mode of
acceptance prescribed in the offer. E

Two consignments were booked in favour of appellant. As the same
were not delivered, appellant lodged two claims claiming the value of
the .said goods. Railways admitted the claims, but the amount was lesser
than that claimed. It enclosed two cheques, accompanying - Letters F
stipulating the condition that if the offer was not acceptable to the
appellant, they should be returned forthwith, failing which it would be
deemed that the offer was accepted in full and final satisfaction.
Appellant encashed the cheques (date of encashment not apparent from
the records) and wrote letter to the Railways stating that the claims
were placed under protest and could not be accepted and asked to remit G
the balance amount. The balance amount was not paid by the Railways.
Appellant filed claim before Railway Claims Tribunal claiming balance·
compensation with regard to the two invoices. The claim application was
dismissed by the Tribunal. High Court dismissed the appeal, holding
that it would be assumed that the cheque was encashcd on the terms H
975
976 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A offered by the Railways. Hence the present appeals.

Dismissing the appeals, the Court

HELD: I. Section 8 of the Contract Act provides for acceptance
by performing conditions of a proposal. In the instant case, the Railways
B made an offer to the appellant laying down the condition that ifthe offer
was not acceptable the cheque should be returned forthwith, failing
which it would be deemed that the appellant accepted the offer in full
and final satisfaction of its claim. This was further clarified by providing
that the retention of the cheque and/ or encashment thereof will
C automatically amount to satisfaction in full and final settlement of the
claim. Thus, if the appellant accepted the cheques and encashed them
without anything more, it would amount to an acceptance of the offer
made in the letters of the Railways. The offer prescribed the mode of
acceptance, and by conduct the appellant must be held to have accepted
the offer and therefore, could not make a claim later. What, however,
D is significant is that the protest and non acceptance must be conveyed
before the cheques are encashed. If the cheques are encashed without
protest, then it must be held that the offer stood unequivocally accepted.
An 'offeree' cannot be permitted to change his mind after the unequivocal
acceptance of the offer. (984-B-F]
E
2. An offer may be accepted by conduct. But conduct would only
amount to acceptance if it is clear that the offeree did the act with the
intention (actual or apparent) of accepting the offer. Each case must rest
on its own facts. The courts must examine the evidence to find out
F whether in the facts and cireumstances of the case the conduct of the
"offeree" was such as amounted to an unequivocal acceptance of the
offer made. If the facts of the case disclose that there was no reservation
in signifying acceptance by conduct, it must follow that the offer has
been accepted by conduct. On the other hand if the evidence discloses
that the "offeree" had reservation in accepting the offer, his conduct
G may not amount to acceptance of the offer in terms of Section 8 of the
Contract Act. (984-F-H, 985-A]

3. In the instant case there is neither pleading nor evidence on
record as to the date on which the cheques were received and the date
..
H on which the same were sent for encashment. It is, therefore, not
BHAGWA TI PRASAD PA WAN KUMAR v. U .O.I. 977

possible to record a categoric finding as to whether the letters of protest A
were written after encashing the cheques or before encashing the
cheques. It was for the appellant to plead and prove that it had not
accepted the offer and had called upon the Railways to pay the balance
amount. This it must have done before encashing the cheques. If the
appellant encashed the cheques and then wrote letters of protest to the
Railways, it cannot be held that it had not accepted the offer by conduct,
B
because at the time when it sent the cheques for encashment, it had not
conveyed its protest to the offerer. In the absence of any pleading or
evidence to establish that the encashment of the cheques was subsequent
to the protest letters by the appellant, it is not possible to hold that by
encashing the cheques the appellant had not adopted the mode of c
acceptance prescribed in the letters of the Railways. In the absence of
such evidence it must be held that by encashing the cheques received
from the Railways, the appellant accepted the offer by adopting the
mode of acceptance prescribed in the offer of the Railways. (985-C-GJ

D
Lala Kapurchand Godha and Ors. v. Nawab Himayatalikhan Azamjab,
AIR (1963) SC 250, distinguished.

Amar Nath Chand Prakash v. Bharat Heavy Electricals Limited, AIR
(1972) All 176 and Union ofIndia and Anr. v. Mis. Gangaram Bhagwandas,
AIR 1977 Madhya Pradesh 215, referred to. E

Day v. Mciea, [1889] 22 QBD 610, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.150-151 of
~I. F
From the Judgment and Order dated 19.5.2000 of the High Court of
.
Guwahati in M.A.F. No. 180/1996
. and Order dated 28.7.2000 in Review
Petition No. 85/2000 in M.A.F. No. 180/1996.

Rajiv Mehta, Adv., for the Appellant. G

A. Sharan, ASG, T.S. Doabia, Sr. Adv., Ms. Sunita Sharma, D.S. Mabra
and Mrs. Anil Katiyar, Advs., with them for the Respondent.

The Judgment of the Court was delivered by H
978 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

A B.P. SINGH, J. : These two appeals by special leave have been
preferred by the appellant against the judgment and order of the Gauhati
High Court in MA (F). No.180 of 1996 dated May 19, 2000 and the order
passed in Review Petition No.85 of 2000 dated July 28. 2000. The High
Court by its judgment and order impugned dismissed the appeal preferred
by the appellant against the order of the Railway Claims Tribunal, Guwahati
B Bench dated August 30. 1996 in Application No.915 of 1993. The review
petition preferred against the judgment and order of the High Court was also
rejected by order dated July 28, 2000.

The factual background in which the dispute arose is as follows:-
c
Two consignments of iodised salt were booked in favour of the
appellant. The first consignment consisted of 767 bags and the second 744
bags. These consignments were not delivered. The appellant, therefore,
lodged two claims dated April 26, 1991 claiming the value of the said goods,
namely Rs. 53,264/- and Rs. 51,686/- in respect of the two consignments.
D
By letters dated April 7, 1993 (despatched in August, 1993) the
Railways admitted the claims only to an extent of Rs. 9, 111 and
Rs. 9,032/- and enclosed two cheques in favour of the appellant for the
su111 of Rs. 9,111/- and Rs. 9,032 1- in respect of the two claims. Both the
cheques were dated July 27. 1993. The letters contained the following
E condition :-

'"In case the above offer is not acceptable to you, the Cheque should
be returned forthwith to this office: failing which it will be deemed
that you have accepted the offer in full and final satisfaction of your
F claim.

The retention of this cheque and/or encashment thereof will
automatically amount to acceptance in full and final satisfaction of
your above claim without reason and you will be estopped from
claiming any further relief on the subject".
G
On receipt of two letters alongwith the two cheques, the appellant wrote
to the Railways two identical letters of August 20, I993 stating that the
claims were placed under PROTEST and could not be accepted and that the
balance amount should be remitted within 15 days. We extract below one
H of the letters dated August 20, 1993 :-
BHAGWATI PRASAD PAW AN KUMAR v. U.0.1. [B.P. SINGH, J.] 979

"We regret to infonn you that our above noted claim has been A
settled for Rs. 9111 instead of Rs. 53284 the claimed amount. The
same is therefore placed under : PROTEST : and cannot be
accepted. Please therefore remit the balance amount to us within a
period of 15 days from the date of receipt of this letter, failing
which, we shall be compelled to lodge a Civil suit against the Rly
for recovery of the balance amount. Please treat this as most B
urgent".

It is not in dispute that the cheques were encashed, though the exact
date of encashment is not apparent from the record. It is also not disputed
that the balance amount claimed by the appellant was not paid by the C
Railways. In these circumstances the appellant filed a claim application
before the Railway Claims Tribunal, Guwahati Bench for Rs. 21, 151 and
Rs.20,258/- (after adjusting the freight payable namely Rs. 23,022 and
Rs.22,396/-) in all Rs.41,409/- as balance compensation in regard to the two
invoices.
D
Before the Railway Claims Tribunal the Railways pleaded full and final
settlement since the cheques were not returned and were in fact encashed.
The Tribunal took the view that there was no scope for the applicant to treat
the amount as part payment by making a protest and if the applicant found
the amount to be insufficient he should have returned the cheques because
the offer made by the Railways was in very clear tenns, namely - that the
E
amount could be accepted only in full and final satisfaction of the claim or
else the cheques had to be returned. In this view of the matter the claim
application was dismissed by the Railway Claims Tribunal.

The appellant preferred an appeal before the High Court which came F
up for hearing before a learned Single Judge of the High Court who referred

- the matter for consideration by a Division Bench, since it appeared to the
learned Judge that there was a conflict of opinion between two judgments
of Single Judges of the Court in case reported in AIR 1973 Gauhati 111 :
Union ofIndia v. Mis. Rameshwarlal Bhagchand and an unreported decision
in Second Appeal No. 77 of 1982 of March 11, 1991 (Mis. Assam Bengal G
Cereals Ltd. v. Union of India). The matter was he~rd by a Division Bench
of the High Court and by judgment and order of May 5, 2000 the appeal
preferred by the appellant was dismissed.

The moot question that arose for consideration of the High Court was H
980 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A whether the acceptance of the two cheques by the appellant and their
encashment by it did not amount to acceptance of the offer contained in the
two letters of April 7, 1993. The aforesaid letters of April 7, 1993, as noticed
earlier, offered the amounts contained in the two cheques in full and final
settlement of appellant's claim and further provided that in case the offer was
not acceptable, the cheques should be returned forthwith. It is the case of
B the Railways that by retaining the cheques and encashing them, the appellant
signified its acceptance of the amounts comprised in the two cheques in full
and final settlement of its claims. Such acceptance by conduct is recognized
by Section 8 of the Contract Act.

c rejecting
On the other hand the appellant contended that it had written a letter
the offer and placing the claims "under protest" and called upon
the respondent to pay the balance amount claimed by it. The appellant,
therefore, submitted that there was no acceptance by conduct as envisaged
by Section 8 of the Contract Act, and that its retention of the cheques must
be viewed in the light of the protest made by it under its letters of August
D 20, 1993. The sole question which, therefore, arises for consideration by us
is whether by its conduct, the appellant accepted the offer contained in the
letters of the Railways dated April 7, 1993.

Section 8 of the Contract Act reads as under :-

E "8.Acceptunce by performing conditions, vr receiving
consideration - Performance of the conditions of a proposal, or the
acceptance of any consideration for a reciprocal promise which may
be offered with a proposal, is an acceptance of the proposal".

The High Court considered the case of Rameshwar/a/ Bhagchand
F

..
(supra) on which reliance was placed by the Raiwlays. In that case the
plaintiff-respondent, Mis. Rameshwarlal Bhagchand had transported 210
bags of groundnut through Railways, but when it took delivery, the
consignments were found to be so damaged as not fit for human consumption.
It was so certified by the Railway Officer concerned. The consignee served
G a notice on the Railway Administration claiming compensation in the sum
of Rs.2,368.25 ps .. The General Manager sent a cheque in the sum of
Rs.1173.19 ps. to the consignee on May 5, 1964 alongwith a letter stating
that the cheque was being sent in full and final settlement of the claim. The
consignee encashed the cheque but subsequently communicated to the
General Manager by its letter dated July 29, 1964 that the cheque received
H
BHAGWATI PRASAD PAW AN KUMAR v. U.0.1. [B.P. SINGH, J.] 981

satisfied only a part of the claim and that the balance amount should be .A
remitted. Since the General Manager failed to make payment of the balance
amount claimed by the consignee a suit for recovery of the balance amount
was filed. In these facts the High Court took the view that the plaintiff having
encashed the cheque without first communicating to the General Manager
that it did not agree to the proposal made by him, it must be assumed in terms
Section 8 of the Contract Art to have accepted the proposal by mere
B
acceptance of the cheque. It was held that the fact that it wrote a letter on
July 29, 1964 after encashing the cheque, and denying that the amount had
fully settled its claim, did not alter the position. If the consignee did not agree
to the offer made by the General Manager in his communication dated May
5, 1964, it should have communicated its refusal to accept the offer, before c
encashing the cheque. Otherwise it would be assumed that the cheque was
encashed on the terms offered by the General Manager, and only later the
consignee changed its mind after realizing the proceeds of the cheque.

The judgment of the Gauhati High Court in Assam Bengal Cereals
Limited (supra) proceeded on a different set of facts. In that case the
D
consignee/claimant had received an offer from the Railways to accept the
cheque in full and final settlement of its claim. In response thereto, by letter
addressed to the Railways, it informed the Railways that the cheque had been
retained and the Railways should give reasons for withholding the balance
amount. It was stated in the letter that if no reply was received within 15 E
days, the acceptance of the cheque would not amount to full and final
settlement. In fact, the cheque was not encashed for 15 days after issuance
of the letter by the claimant/consignee. In these facts it was held that that
principle laid down in Rameshwar/al Bhagchand case (supra) was not
applicable to the case since the claimant had responded to the offer of the F
Railways demanding from them the reasons as to why the entire claim was
not admitted, and further provided that unless reasons are assigned within
15 days from the receipt of the letter, the retention of the cheque would not
be treated as acceptance of the payment in full and final settlement. In the
peculiar facts of the case, therefore, it was held that the encashment of the
cheque did not amount to acceptance of the offer made by the Railways. G
In the impugned judgment and order, the Division Bench of the High
Court has agreed with the view in Rameshwarlal Bhagchand case (supra).

We may refer to the other decisions cited at the Bar.
H
982 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A In AIR 1972 All 176 : Amar Nath Chand Prakash v. Bharat Heavy
Electricals Limited the facts were that the respondent gave a contract to the
appellant for doing certain construction work which was completed by the
first week of March 1965. The appellant company prepared a final bill of
the work done on March 29, 1965. The appellant signed a no claim
declaration and also gave a receipt in token of accepting the amount found
B due to the appellant. The appellant thereafter raised a dispute alleging short
payment etc. It invoked the arbitration clause and called upon the respondent
to appoint an arbitrator. When the respondent did not respond to the notice
issued by the appellant, an application under Section 20 of the Arbitration
Act was filed by the appellant. The respondent contested the application •
c contending that the appellant having given a no claim certificate in final
settlement of its claim and having accepted the payment by means of a
cheque in full and final settlement of its dues, it amounted to discharge of
the contract alongwith which the arbitration agreement also stood extinguished
and. therefore, there was no dispute capable of being referred to arbitration.
The High Court considered the material on record and found that though the
D declaration was signed by the appellant, as also the memorandum of
payment, in the final bill there was an endorsement to the effect that the
appellant had accepted the payment under protest. This was done on March
29, 1965 wh.:reas the cheque was actually prepared and delivered much later
on December 14, 1965. In the absence of any oral evidence, the High Court
was required to construe the document in order to ascertain the intention of
E the contractor in making such an endorsement and of the company in
permitting such an endorsement to be made. In the facts of the case the High
Court observed that the endorsement dispelled any intention to remit the
performance in regard to the balance of the claim. On the contrary it clearly
evinced that the receipt of the amount was not unconditional so as to effect
F the discharge of the contract. On the contrary it safeguarded the position of
the contractor and indicated that he was not accepting the payment without
any reservation. The appellant specifically stated that he was receiving the
money 'under protest' which clearly amounted to making a reservation. The
reservation could only be that the acceptance of payment was not in
discharge of the contract. Consequently it could not be said that the appellant
G dispensed with, or remitted the performance of the contract, for the rest of
his dues. Reliance was placed on the principle enunciated in [ 1889) 22 QBD
610 : Day v Mciea in which it was observed :-

"lfa person sends a sum of money on the terms that it is to be taken,
if at all, in sattsfaction of a larger claim: and if the money is kept
H
BHAGWATI PRASAD PAWAN KUMAR v. U.0.1. [B.P. SINGH, J.] 983

it is a question of fact as to the terms upon which it is so kept. A
Accord and satisfaction imply an agreement to take the money in
satisfaction of the claim in respect of which it is sent. If the accord
is a question of agreement, there must be either two minds agreeing
or one of the two persons acting in such a way as to induce the other
to think that the money is taken in satisfaction of the claim, and to
cause him to act upon that view. In either case it is a question of B
fact."

Applying this principle it was held that there was no accord and
satisfaction in the sense of bilateral consensus of intention. The appellant
made it clear that it was accepting the money 'under protest', that is, C
conditionally. Under the circumstances it cannot be said that signing the no
claim certificate and the grant of the receipt amounted to discharge of the
contract.

In AIR (1977) Madhya Pradesh 215: Union of India and Another v.
Mis. Gangaram Bhagwandas, the respondent had filed a suit on January 6, D
1970 claiming by way of damages a sum of Rs.504.58 ps. on account of
goods being damaged due to negligence and misconduct on the part of the
Railways and its employees. While the suit was pending a cheque for
Rs.283.05 was sent under cover of a letter dated March 6, 1970 which stated
that the amount was being sent in full and final settlement of the claim. The E
respondent encashed the cheque. The High Court on facts found that there
was no denying the fact that the plaintiff did not accept the cheque in full
satisfaction. It had not passed a receipt in full satisfaction, nor did it send
a receipt to the Railways acknowledging receipt of the amount. On the
contrary, even after receiving the cheque the respondent prosecuted the suit
for the balance of the amount. The Railway had led no evidence to show F
that the intention of the plaintiff was to accept the cheque in full and final
settlement of its claim. On this finding, relying upon the principle laid down
in Day v. Mciea it was held that :

"The question was thus primarily one of fact and since the G
defendant did not choose to lead any evidence on the point nor are
there such circumstances brought on the record to lead to the
conclusion that the cheque was accepted in discharge of the whole
debt, I am unable to come to the conclusion that the acceptance of
the cheque amounted to satisfaction of the whole claim."
H
984 SUPREME COURT REPORTS [2006] SUPP. 2 S.CK

A The decision of th ts Court in AIR I963 SC 250 : Lala Kapurchand
Godha and Others v. Nawab Himayatalikhan Azamjah, may not be of much
assistance as in that case apart from the fact that the appeal was decided with
reference to Section 63 of the Contract Act, there was clear evidence on
record that the plaintiffs therein had received the sum of Rs. 20 lakhs in full
satisfaction of their claim and duly discharged the promissory notes by
B endorsement of "full satisfaction" and received payment in full.

Section 8 of the Contract Act provides for acceptance by performing
conditions of a proposal. In the instant case, the Railways made an offer to 1

the appellant laying down the condition that if the offer was not acceptable
c the cheque should be returned forthwith, failing which it would be deemed
that the appellant accepted the offer in full and final satisfaction of its claim.
This was further clarified by providing that the retention of the cheque and/
or encashment thereof will automatically amount to satisfaction in full and
final settlement of the claim. Thus, if the appellant accepted the cheques and
encashed them without anything more, it would amount to an acceptance of
D the offer made in the letters of the Railways dated April 7,. 1993. The offer
prescribed the mode of acceptance, and by conduct the appellant must be
held to have accepted the offer and therefore, could not make a claim later.
However, if the appellant had not encashed the cheques and protested to the
Railways calling upon them to pay the balance amount, and expressed its
E inability to accept the cheques remitted to it, the controversy would have
acquired a different complexion. In that event, in view of the express non
acceptance of the offer, the appellant could not be presumed to have accepted
the offer. What, however, is significant is that the protest and non acceptance
must be conveyed before the cheques are encashed. If the cheques are
encashed without protest, then it must be held that the offer stood unequivocally
F accepted. An 'offeree' cannot be permitted to change his mind after the
unequivocal acceptance of the offer.

It is well settled that an offer may be accepted by conduct. But conduct
would only amount to acceptance if it is clear that the offeree did the act
with the intention (actual or apparent) of accepting the offer. The decisions
G which we have noticed above also proceed on this principle. Each case must
rest on its own facts. The courts must examine the evidence to find out
whether in the facts and circumstances of the case the conduct of the
"offeree" was ~uch as amounted to an unequivocal acceptance of the offer
made. If lhe facts of the case· disclose that there was no reservation in
H signifying acceptance by conduct, it must follow that the offer has been
BHAGWATI PRASAD PAWAN KUMAR v. U.0.1. [B.P. SINGH, J.] 985

accepted by conduct. On the other hand if the evidence disclose that the A
"offeree" had reservation in accepting the offer, his conduct may not amount
to acceptance of the offer in terms of Section 8 of the Contract Act.

Coming to the facts of this case if the appellant, before encashing the
cheques, had sent the communication dated August 20, 1993, it could
perhaps be argued that by retaining but not encashing the cheques, it did not B
intend to accept the offer made in the letter of the Railways dated April 7,
1993. At the same time ifthe evidence disclosed that it encashed the cheques
and later sent a protest, it must be held that it had accepted the offer
unconditionally by conveying its acceptance by the mode prescribed, namely
by retaining and encashing the cheques, without reservation. Its subsequent
change of mind and consequent protest did not matter.
c
In the instant case there is neither pleadings nor evidence on record as
to the date on which the cheques were received and the date on which the
same were sent for encashment. It is, therefore, not possible to record a
categoric finding as to whether the letters of protest were written after D
encashing the cheques or before encashing the cheques. It was for the
appellant to plead and prove that it had not accepted the offer and had called
upon the Railways to pay the balance amount. This it must have done before
encashing the cheques. If the appellant encashed the cheques and then wrote
letters of protest to the Railways, it cannot be held that it .had not accepted
the offer by conduct, because at the time when it sent the cheques for
E
encashment, it had not conveyed its protest to the offerer. In the absence of
any pleading or evidence to establish that the encashment of the cheques was
subsequent to the protest letters by the appellant, it is not possible to hold
that by encashing the cheques the appellant had not adopted the mode of
acceptance prescribed in the letters of the Railways dated April 7, 1993. In F
the absence of such evidence it must be held that by encashing the cheques
received from the· Railways, the appellant accepted the offer by adopting the
mode of acceptance prescribed in the offer of the Railways.

In this view of the matter these appeals must fail. Accordingly these
appeals are dismissed, but without any order as to costs. G

K.K.T. Appeals dismissed.