Professional Documents
Culture Documents
Contract Project Final Siddhant
Contract Project Final Siddhant
SUBJECT:-Law Of Contracts
PROJECT ON:- An agreement which provides that suit should be brought for
the breach of any terms of agreement within a shorter time than the period of
limitation prescribed by law, is void to that extent.
Section B
1
Acknowledgement
First of all, I would like to extend our sincere thanks to Dr. VISALAKSHI VEGESNA Ma’am for giving
us the opportunity to make the project on such an immense topic and all the support and guidance that I
have received from her, without which this project could not have turned into a reality. I would also like to
thank all our colleagues and seniors for providing us support and material facts and figures related to this
topic. Last but not the least; I would like to further extend our thanks to Dean (Academics), Prof. C.M.
JARIWALA for his encouragement and enthusiasm. All the above mentioned people have very whole
SIDDHANT GUPTA
2
Declaration
I, hereby declare that the work reported in this project report entitled An agreement which provides that
suit should be brought for the breach of any terms of agreement within a shorter time than the period
of limitation prescribed by law, is void to that extent submitted at DR RAM MANOHAR LOHIYA
NATIONAL LAW UNIVERSITY, LUCKNOW is an outcome of our work carried out under the
supervision of Dr. VISALAKSHI VEGESNA. I have duly acknowledged all the sources from which the
ideas and extracts have been taken, to the best of our understanding; the project is free from any plagiarism
issue.
SIDDHANT GUPTA.
3
LIST OF CONTENTS
INTRODUCTION
LIMITATION OF TIME
AMENDMENT ACT
EFFECTS OF AMENDMENT
CASES
1. Harsud Co-operative Marketing Society Ltd. V United India Fire and General Insurance Co
Ltd.
2. National Insurance Co. Ltd vs Sujir Ganesh Nayak & Co. & Anr
4. The Baroda Spinning And Weaving Cooperative vs The Satyanarayan Marine And Fire
CONCLUSION
BIBLIOGRAPHY
4
INTRODUCTION
As per section 28 of the Indian Contract Act 1872, agreements in restraint of legal proceedings are void.
Since our project topic is based on sec 28 (b) of the Indian Contract Act which is against restraint on legal
Any agreement which extinguishes the rights of any party thereto, or discharges any party thereto, from any
liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party
In other words an agreement is rendered void where an attempt is made by the parties to restrict the time
period within which an action may be brought so as to make it shorter than the time prescribed by the law
of limitation.2
Since there is an exception to this general rule (exception 3 under section 28) stated as:
not render illegal a contract in writing by which any bank or financial institution stipulate a term in a
guarantee or any agreement making a provision for guarantee for extinguishment of the rights or discharge
of any party thereto from any liability under or in respect of such guarantee or agreement on the expiry of
a specified period which is not less than one year from the date of occurring or non-occurring of a specified
event for extinguishment or discharge of such party from the said liability3.
1
Sec. 28 (b), THE INDIAN CONTRACT ACT, 1872.
2
AVTAR SINGH, CONTRACT AND SPECIFIC ACT 340 (2015).
3
Sec. 28 (b), THE INDIAN CONTRACT ACT, 1872.
5
LIMITATION OF TIME
According to the Limitation Act, 1963, there is a time limit for various actions. If an agreement between
the parties stipulates a smaller time limit than the prescribed under the Indian Limitation Act, the agreement
For Example, according to the Limitation Act, 1963, an action for breach of contract may be brought within
three years from the date of breach. If a clause in an agreement provides that no action should be brought
within three years from the date of breach, but if a clause in an agreement provides that no action should
In Ma Ywest v Chin Mutual Life Insurance Co Ltd, “a clause in a policy of life insurance declaring that””“
no suit to recover under this policy of life insurance shall be brought after one year from the death of the
assured” “was held void. The same stand was taken by the judges in the case of Oriental Insurance Co Ltd
v Karur Vysya Bank Ltd. And also in Mahajan silk Mills Pvt. Ltd. V MV MSC Elena.5”
Similarly, clauses in the standard fire insurance policy of the insurer curtailing limitation to 12 months of
the occurrence of the event or 3 months of rejection of the claim by the insurer were not permitted to be
In Harsud Co-operative Marketing Society Ltd. V United India Fire and General Insurance Co Ltd, an
action was brought for recovery of compensation of insurance against the risk of damage by fire. This suit
was initiated by the lodging of the plaint on 17-02-1975. The fire which is proved but not admitted by
defendant is alleged to have occurred on 19-02-1972, Article 44(b) of the Limitation Act, 1963, which deals
with suits based on a policy of insurance enforceable for recovery of sums insured prescribes a period of
three years. Time begins to run from the date (i) of the occurrence causing the loss or (ii) the date of denial
of a claim by the insurer. Considered either way, the plaintiffs' claim is within 3 years of the occurrence
4
R.K. BANGIA, CONTRACT-1 240 (2015)
5
'Section 28 of the indian contract' (Lawteacher.net, April 2018) <https://www.lawteacher.net?vref=1> accessed 3 April
2018.
6
Art 44 (b), LIMITATION ACT, 1963.
6
which took place on 19-02-1972 or 2-04-1972 when the society was intimated of Vulcan's repudiation of
However, in a similar case before “Bombay High Court, a clause providing that” “no suit shall be brought
against the company in connection with the said policy later than one year after the time when the cause of
action accrues was held valid, the court saying that the effect of the agreement was not to limit the time but
to provide for the surrender of rights if no action was brought within that time.”8
Similarly In Baroda Spinning and Weaving Co. Ltd. V Satyanarayan Marine & Fire Ins. Co.Ltd., a clause
in a policy of fire insurance provided that if a claim was made and rejected and an action or suit is not
commenced within three months after such rejection, all benefits under the policy should be forfeited .
“This view taken by the Bombay High Court was affirmed by the Supreme Court in Vulcan Insurance Co.
v Maharaj” Singh9, “where the court observed that” “it has been repeatedly held that such a clause in not
hit by s.28 and is valid.” In National Insurance Co. v Sujir Ganesh Nayak10, “the court held that” “the
curtailment of the period of limitation is not permissible in view of S. 28 but extinction of the right itself
unless exercised within a specified time is permissible and can be enforced. If the policy of insurance
provides that if a claim is made and rejected and no action is commenced within the time stated in the
policy, the benefits flowing from the policy shall stand extinguished and any subsequent action would be
time barred. Such a clause would fall outside the scope of S. 28 of the Contract Act.”
“Rights to be enforced under the contract should continue to exist even beyond the shorter period agreed
for enforcing those rights, to make such an agreement void under S.28. If, for example, beyond the shorter
period agreed upon the rights under the contract cannot be kept alive, no limiting of the time to enforce the
rights under the contract arises and hence the agreement putting a time limit to sue will not be hit by S.28.
So, a condition in a contract that the rights” there under “accruing to a party will be forfeited or released if
he does not sue within a time limit specified therein will not offend S.28. This is because, as per the contract
7
AIR 1992 BOM 341
8
Hirabhai v Manufacturers Life Insurance, (1912) 14 BOMLR 741.
9
(1976) 1 SCC 943
10
(1997) 4 SCC 366
7
itself, the rights accrued to the party cease to exist by the expiry of the limited period provided for in the
contract. In such a case, in effect, there is no limiting of the time to sue. So, an agreement which provides
for a simultaneous relinquishment of rights accrued and the remedy to sue for them will not be hit by S.28.
But, at the same time, an agreement relinquishing the remedy only, by providing that if a suit is to be filed
that should be filed within a time limit, the time limit being shorter than the period of limitation under the
Limitation Act - will be hit by S.28. This is because the rights accrued continue even beyond the time limit
as the same is not extinguished. In such a case, there is really a limiting of the time to sue prescribed by the
Limitation Act. In Kerala Electrical & Allied Engineering Co. Ltd. v Canara Bank & Others, it is clear from
Clause.6 of” Electrical & Allied Engineering Co. Ltd. “guarantee that the liability of the bank will be alive
only for a period of six months after the expiry of the period of duration of the guarantee. It is also specified
in Clause.6 that the plaintiff's rights under the guarantee will also be forfeited by the end of that six months.
There is an extinction of the right of the plaintiff under the contract and a discharge of the defendants from
liability. So, the time limit imposed in Clause.6 cannot be hit by S.28 of the Contract Act.
Clauses found in insurance policies providing that the insurer should not be liable for loss or damage after
expiration of twelve months from the happening of loss or damage unless a claim was subject to pending
action or arbitration or clauses in bills of lading excluding liability for loss or damage unless the plaintiff
brought a suit within one year from date of delivery did not violate s.28. In short, an agreement providing
for the relinquishment of rights and remedies was valid, and an agreement for the relinquishment of
11
'Section 28 of the indian contract' (Lawteacher.net, April 2018) <https://www.lawteacher.net?vref=1> accessed 3 April
2018
8
AMENDMENT ACT, 1997
Section 28 of the Contract Act has been amended by the Indian Contract (Amendment) Act, 1997. The new
provision contained in section 28 (b) states that every agreement which extinguishes the rights of any party
thereto, or discharges any party thereto, from any liability period so as to restrict any party thereto from
“Tracing back to the history of the amendment, it is interesting that the Law Commission of India, in its
13th Report, had deliberated upon this section and had observed that such clauses hinged not on the
interpretation of the section, but on the construction of the contract, and that ‘the principle itself is well
recognised that an agreement providing for the relinquishment of rights and remedies is valid but an
agreement for relinquishment of remedies only falls within the mischief of s.28', and had concluded that no
“But later the Commission took up the matter suo motu and submitted its 97th Report in 1984. The proposal
to disallow prescriptive clauses which extinguished rights or provided for forfeiture of rights or discharge
of liability on failure of to sue within a certain time rested on the basis of economic justice, avoidance of
hardship to consumers and certainty and symmetry of law. The Commission pointed out that by giving a
clause in an agreement that shape and character of a provision extinguishing the right and not merely
affecting the remedy, a party standing in a superior bargaining position can achieve something which could
not have been achieved by merely barring the remedy. The amendment was also justified on the ground
that it was necessary to make the law simpler. The Commission found the existing provision illogical, based
on ‘a distinction too subtle.' The Commission considered that no provision like s.28 existed in the English
law. However, clauses now prohibited by the amendment are not void under the English” law14.
12
< http://lawcommissionofindia.nic.in/51-100/Report97.pdf>, accessed on 01-04-2019.
13
VINOD JOSEPH, Live Law, http://www.livelaw.in/should-section-28-of-the-indian-contract-act-be-amended-yet-
again/, accessed on 01-04-2018.
14
Supra at note 13.
9
EFFECTS OF AMENDMENT
The amendment of the section in 1997 has brought about this change that all clauses which reduced the
normal period of limitation would be void to that extent. Thus, the artificial distinction between a clause
cutting short the period of limitation and a clause providing for extinction of rights after a specified period
“The clauses hit by the amendment have been held to have a purpose, especially in contracts of insurance.
They ensure that the claims under the policy are made early, investigated promptly, thereby avoiding the
likelihood of loss of important evidence. If claims were not made early, the insurers might be unable to
meet a fraudulent claim as seen in Baroda Spg & Wvg Co. v Satyanarayanan Marine and Fire Insurance
Co Ltd.”
“In response to the 1997 amendment, the Indian Banks Association came up with a clause, popularly called
the IBA’s standard Notwithstanding Clause, which was to be inserted in all bank guarantees in order to get
around the nuisance caused by the 1997 amendment. The IBA’s standard Notwithstanding Clause read as
follows: Notwithstanding anything contained herein our liability under this Bank guarantee shall not exceed
valid upto ………………………. and we are liable to pay the guaranteed amount or any part thereof under
this Bank Guarantee only and only if you serve upon us a written claim or demand ...................... on or
before ……………………….. Please note that the above clause neither extinguishes rights nor prescribes
a period within which any suit has to be filed. Rather, it takes a cue from the Supreme Court decision in
The Food Corporation of India vs.The New India Assurance Co. Ltd. and others and indirectly provides
that a right to make a claim on the bank would arise only if the claim is served within a certain period.
Banks started to use the above mentioned clause and took the position that unless a claim was received
15
Supra at note 2.
10
within the prescribed period, the bank had no further liability under the guarantee. By a simple play of
CASES:
CASE 1: Harsud Co-operative Marketing Society Ltd. V United India Fire and General Insurance Co Ltd
This is an action for recovery of compensation on the basis of a contract of insurance against the risk of
damage by fire.
Plaintiff No. 1 is a co-operative society based at Harsud and Plaintiff No. 2 a co-operative bank with its
head quarters at Khandwa. Plaintiff No. 1 was in the cotton business and plaintiff No. 2 was advancing
Plaintiff No. 1 had in 1970-1971 purchased raw cotton worth Rs. 10,00,000/-. The residue of the ginning
operation left it with cotton seeds worth about Rs. 3,50,000/-. The said seeds were stored in a godown of
the society near the Harsud Railway Station which the society had taken on rent from Ratilal Gujarathi.
These goods were pledged with plaintiff No. 2 (bank) against certain credit facilities granted to it.
The same day seeds lying in the compound of the society's factory were insured through the same agent.
The day after taking out the insurance i.e. on 19-2-1972, a fire broke out in the godown and the goods stored
there were considerably damaged. Vulcan's Jalgaon office was telegraphically informed of the mishap. As
directed by the then Jalgaon Branch Manager, Bhandari, the damaged seeds were placed in separate heaps
on 23-1-1972. The gradation was according to quality in preparation for further steps. Vulcan was called
upon by letter dated 19-3-1972 to pay the sum of Rs. 3,00,000/- for the loss occasioned by the fire.
11
Defendant denies the correctness of any part of the factual narration of the claim summarised above.
Question arises
The first question is whether plaintiffs' claim is within limitation. This suit was initiated by the lodging of
the plaint on 17-2-1975. The fire which is proved but not admitted by defendant is alleged to have occurred
on 19-2-1972. Article 44(b) of the Limitation Act, 1963, which deals with suits based on a policy of
insurance enforceable for recovery of sums insured prescribes a period of three years. Time begins to run
from the date (i) of the occurrence causing the loss or (ii) the date of denial of a claim by the insurer.
Considered either way, the plaintiffs' claim is within 3 years of the occurrence which took place on 19-2-
1972 or 2-4-1972 when the society was intimated of Vulcan's repudiation of the claim. Defendant however
relies upon clauses appearing in Vulcan's standard fire policies. This clause is said to stipulate the raising
of a claim by the assured within 12 months of the occurrence of the event leading to loss. Another clause
requires the institution of a claim within 3 months of its rejection by the insurer. Plaintiffs were hit by both
the clauses. No insurance policy incorporating terms and conditions was issued.
Judgement
Decreed that defendant do pay to plaintiff No. 1 society a sum of Rupees 1,96,910.00 together with interest
at 6% per annum from date of suit till realisation. Plaintiffs shall get their costs from defendant who shall
CASE 2: National Insurance Co. Ltd vs Sujir Ganesh Nayak & Co. & Anr
“The respondent No.1 Sujir Ganesh Nayak & Company is a registered partnership with its head office at
Quilon carrying on business in import and export of Cashew. It has four factories at Kunnikode, Mulavana,
12
perumpuzha and Ayathil for processing cashew. The respondent No.1 obtained two fire policies from the
appellant Insurance Company dated 5.1.1976 and 2.5.1977 both for a period of twelve months, and for the
amount of Rs. 6,00,000/- and Rs. 1,20,000/- respectively. Both the policies had a Riot and strike
Endorsement.
1. The act of any person taking art together with others on any disturbance of the public peace (whether in
connection with a strike or lock-out or not) not being an occurrence mentioned in condition 6 of the special
condition thereof.
2. The action of any lawfully constituted authority in suppressing or attempting to suppress any such
3. The willful act of any striker or locked out worker done in furtherance of a strike or in resistance to a
lock-out.
4. The action of any lawfully constituted authority in preventing or attempting to prevent any such act or in
The Special condition No.5 (i) (b) which is relevant for the determination of the appellant's case is as under:
"SPECIAL CONDITIONS For the purposes of this endorsement but not otherwise there shall be substituted
Clause 5(i)(b) : Loss or damage resulting from total or partial cessation of work or the retarding or
The workers of the respondent No.1 raised a demand for hike in wages during the period there was no work
and this demand led to a strike. The striking workers physically obstructed the movement of goods . By a
letter dated 28.4.1977, the respondent No.1 informed the appellant that the staff members and labour in its
factories have gone on strike from 26.3.1977 and that the striking workers have restricted the movement of
13
the goods lying in the baskets are exposed to the risk of deterioration and damage. By a letter dated
10.5.1977, the appellant communicated to the respondent No.1 that the loss sustained by the respondent
No.1 was not covered by the policy. The respondent No.1 by a letter dated 17.8.1977 asked the appellant
for an advance Payment of Rs. 4,00,000/- and by another letter dated 25.8.1977 asked for payment of Rs.
4,28,827.01p. By the letter dated 22.9.1977, appellant reiterated that in view of condition 5(i)(b) of the Riot
and strike Endorsement, the Insurance Company had no liability for the loss incurred by the respondent
No.1. On 25.10.1978, the respondent No.1 served a legal notice. The suit for recovery of the claim was
filed on 2.6.1980.
The appellants contested the suit inter alia on the ground that the suit was barred by limitation as well as by
condition No. 19 of the policy and on the ground that the claim made by the respondent No.1 was not
covered by the policy. Condition 19 of the policy which was set up by way of defence runs as under:
"Condition No. 19 - In no case whatever shall the company be liable for any loss or damage after the
expiration of 12 months from the happening of loss or the damage unless the claim is the subject of pending
action or arbitration."
On behalf of the respondent No.1, it was contended that Condition No. 19 was hit by section 28 of the
contract act Inasmuch as it seeks to shorten the time within which legal action can be commenced from that
Judgement
Trial court
“The Trial Court also found that the damage was not covered by the Insurance Policy in view of the special
HIGH COURT
14
“In appeal, the High Court allowed the claim holding that the condition No. 19 could not limit the period
during which the suit was to be filed and that it simply required the respondent No.1 to make its claim
known within the period of 12 months from the happening of the loss or damage. It also reversed the finding
of the Trial Court that the claim was not covered by the two policies. so far as limitation is concerned, the
High Court further observed that the letter dated 10.5.1977 could not be read as a letter of repudiation of
claim as by then no claim whatsoever was preferred by the respondent No.1 and further that in any case the
last date of three years from 10.5.1977 fell within the summer vacation and the suit filed on 2.6.1980 on
CASE ANALYSIS
From “the case law referred to above the legal position that emerges is that an agreement which in effect
seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by law would
be void as offending section 28 of the Contract Act. That is because such a an agreement would seek to
restrict the party from enforcing his right in Court after the period prescribed under the agreement expires
even though the period prescribed by law for the enforcement of his right has yet not expired.”
The clause, which is to be construed in this case and on the strength of which the lower Court has dismissed
the suit, is as follows : " No suit shall be brought against the Company in connection with the said policy
later than one year after the time when the cause of action accrues." This clause is to be found in the
declaration made by the applicant for an insurance policy which is Ext. n. That is the contract between the
parties.
15
It is argued for the appellant that the deceased who had insured his life could not contract himself out of
his right to resort to a Court of justice and agree to lessen the period prescribed for a suit by the Legislature
in the Limitation Act. In support of that argument the learned Counsel for the appellant has invoked the aid
“If the words in the clause be interpreted literally there might be considerable force in the argument
addressed to us. But the terms used in an insurance contract must be interpreted with reference to the object
and exigencies of insurance. It is true that where there is a right the party cannot enter into a contract and
agree that he shall resort to a Court of justice within a period other than that provided by the Limitation
Act.”
“But here the parties agreed in substance that if no suit were brought within a year then neither party should
be regarded as having any rights as against the other; in other words, the condition contained in the clause
meant that there was to be a waiver of the rights of the respective parties if no suit was brought within a
year. That was the intention of the parties and the conclusion, therefore, arrived at by the lower Court must
CASE 4: The Baroda Spinning And Weaving Cooperative vs The Satyanarayan Marine And Fire
One of the conditions in the policy of fire Insurance sued on by the plaintiffs is that " if the claim be made
and rejected and an action or suit be not commenced within three months after such rejection all benefit
The claim on the defendants was rejected on the 20th of April 1911, but the suit was not commenced till
the 14th of August 1911. Upon this ground the suit was dismissed in the lower Court. “That such a condition
is not unreasonable or opposed to public policy is conceded by the appellants' counsel and can hardly be
disputed in view of the remarks of the Judicial Committee in Home Insurance Company of New York v.
Victoria-Montreal Fire Insurance Company [1907] A.C. 59.” But it is argued that the condition is void as
16
an agreement of the nature described in Section 28 of the Contract Act since it limits the time within which
a party to the contract may enforce his rights under the contract by the usual legal proceedings. “The section
contemplates the suspension permanently or temporarily of the usual remedies for the enforcement of legal
rights. It aims at the prohibition of agreements which could only operate so long as rights were in existence.
The argument of the appellants' counsel was that the forfeiture clause was equivalent to an agreement that
no Court should entertain any suit on the policy unless commenced within three months of the rejection of
the claim. The steps in his argument were : Section 3 of the Limitation Act indicates that the law of
Limitation cannot be modified by agreement of parties as it can in England ; that there is no distinction
under that Act between rights and remedies ; and that a conditional agreement to forfeit rights within the
period within which the remedy is not barred by the Limitation Law is a void agreement.”
CONCLUSION
It is proved by the research that agreements restraining legal proceedings are against public policy as it acts
as a hindrance to the dispensation of justice. . It places one of the parties to a contract in a more
advantageous position than the other. Section 28 of the Indian Contract Act 1872 has corrected this
imbalance to some extent and has been successful in ensuring that justice is served in the society. In 2012,
the Banking Laws (Amendment) Act, 2012 introduced a third exception to Section 28, Even after
introduction of the Third Exception, Banks continue to use the IBA’s standard Notwithstanding Clause
since even the provision of one year for making a claim is usually commercially unacceptable. In our
opinion, the rationale behind the IBA’s standard Notwithstanding Clause is legally sound since it makes a
distinction between creation of an enforceable right and the extinguishment of such right. “Usage of this
standard Notwithstanding Clause even after the introduction of the Third Exception would, in our opinion,
entitle a guarantor to claim that no right subsists after expiry of the prescribed claim period, if no claim is
made within such period. In some cases, bank guarantees provide that any claim has to be made the same
day. I doubt if any court would uphold such an unreasonable clause. I also think that it is high time we
asked ourselves if it is proper to prevent parties to a contract from agreeing on a period of limitation which
17
is shorter than the statutory minimum. In most developed Common Law countries, contracting parties have
the freedom to mutually decide on a period within which any suit under such contract must be filed. In our
view if it is against public policy to permit the contractual reduction of the statutory period of limitation for
filing a suit, the extinguishment of rights before the expiry of the remedy should also be void. Ideally, the
Law Commission should have taken the view that since it was permitted to extinguish rights before expiry
of the relevant period of limitation, contracting parties should also be given the freedom to prescribe an
BIBLIOGRAPHY
amended-yet-again.
18
19