Section 28 of the Indian Contract Act, 1872, concerns with the agreements which restrain taking of legal recourse or further prescribing period of the jurisdiction. As a result, this takes care of the fundamental right of parties to claim the legal remedies while not allowing them to waive their right through private agreement. It disclaims any contractual clauses that would void them from asserted rights via judicial intervention and for limitation of period for claim in Court.
The section embodies a critical principle that the right to seek justice cannot be prejudged, the private agreements must not prevail over public policy, nor undermine the right of access to the judiciary. But it allows certain exceptions such as arbitration clauses, where causes of actions are resolved in other means. Section 28 of Indian Contract Act, 1872 is an important pillar that keeps the judicial values of fairness and sanctity of legal right intact in contractual relationships with free play of freedom of contract.
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Section 28 of Indian Contract Act, 1872
Therefore as per section 28 of Indian contract Act, 1872 the following types of agreements are void
Absolute restriction on enforcing rights: deals that totally bar a party from asserting their rights under or in relation to a contract by litigations in the conventional courts.
Limiting the time for enforcement: treaties which provide limitation period for assertion of rights less than that provided in limitation Act, 1963
Extinguishing rights or discharging liability: joint venture partnerships that exclude the rights of one party or relieve another party of responsibility after a certain number of years, limiting legal action.
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Section 28(a) of Indian Contract Act, 1872: Absolute restriction on legal remedies
According to Section 28(a) of Indian Contract Act, 1872, every individual has the right to write a letter to the quotes to enforce their contractual rights. Any clause which keeps one party from seeking justice through the courts is invalid.
Example: the following clause as “Dispute and embarrassment arising out of this contract cannot be filed in court but resolved through private arbitration without the possibility of coming back to the courts” is void according to section 28.
Case: Garth CJ of the Calcutta High Court explaining this section in Koegler v Coringa Oil Co. Ltd., (1876) said that this provision relates to those agreements that either wholly or in part exclude the rights of the parties to seek redress in the Courts of law.
For instance, a contract had a clause stating that no legal suits could be filed under that contract/also if a contract provides that such and such a kind of lawsuit can be filed then the provision would be regarded as invalid, as everyone wants his/her rights protected and enforced legally as provided by the contract.
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Meaning of the term “absolutely” in Section 28 of Indian Contract Act
Section 28 of Indian contract act 1872 applies when a restriction oust common law remedies in express terms by the use of ordinary quotes. However, a restriction, that is, a restriction applying only to certain types of action, is regarded as being valid.
One classic example of this principle is Continental Drug & Company Limited v. Chemoids and Industries Limited 1955.It applies where a restriction completely bars a party from seeking legal remedies through ordinary quotes. However, a restriction that is only partial is considered valid.
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Limitation of Time for Enforcement
Another type of agreement which is approved by this section is efforts made by the parties to restrict the time period in which the legal action can be taken within a limited time that is less than the period stated in the limitation act of 1963.
For instance in the Limitation act, 1963 the claim for breach of contract has to be done within three years of the breach of the contract, if an agreement contains a clause to the effect that no action shall be brought after two years, any such clause will be considered as illegitimate.
Similarly, a provision in a life insurance policy stating that “no suit to recover under this policy shall be brought after one year from the death of the insured” was ruled void in the case of MaYwest v Chin Mutual Fund Life Insurance Co. Ltd. These restrictions are considered contrary to the law as they undermine the statutory rights of individuals to seek legal remedies within the prescribed time frame.
Section 28(b)of Indian Contract Act, 18972: Extinguishing or discharging rights/liabilities
Section 28(b) of Indian Contract Act, 1872 invalidates agreements that extinguishes the rights of a party or releases another party from liability after a specified period, by restricting legal recourse. This bars one party from imposing arbitrary deadlines that run contrary to the provisions of statute and protects the rights of the other parties.This means that one party could not set arbitrary deadlines of its choice, conflicting with the provisions of the statute, thus protecting the other party’s right
For example, a breach of contract clause stating that an act must be done within 30 days to be enforceable when a longer period is permitted in law would not be viable. Section 28 of Indian contract act 1872 plays a very significant role in maintaining fairness and equity in contractual dealings by safeguarding access and aligning contractual terms with statutory limitations so that no party is unjustly deprived of their rights.
However, where clause states that rights will be lost, a legal action isn’t taken within a certain time. In A.N. Ghose v Reliance Insurance Company, the court said that an insurance policy includes a rule saying if a claim is denied and no legal case is filed within three months of denial. All rights under the policy will be lost. This rule was considered valid. Similarly, rules like one that free a company from responsibility, if no cases are filed within 12 months of a loss, or a condition in a shipping contract that removes the carrier's liability for loss or damage. If no cases filed within a year of delivering the goods, have also been accepted by the chords as fair.
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Exception of Section 28 of Indian Contract Act, 1872
The exception to Section 28 of the Indian Contract Act, 1872 does permit those agreements that prescribe the limitations on the time within which the rights can be enforced by an action and also those agreements that refer the disputes to arbitration and exclude the operation of Section 28.
Exception 1: A shield for arbitration agreements
Exception 1 to Section 28 of Indian Contract Act, 1872, states that agreements requiring disputes to be referred to arbitration are valid, even if they restrict parties from pursuing legal remedies directly in court.
This exception creates an allowance for arbitration clauses in contracts, acknowledging arbitration as a legitimate and enforceable mode of dispute resolution.
Illustration:
Rohan and Suresh had had a contract for raw materials between them. According to the contract the two parties agreed that any dispute arising out of this contract should be taken to arbitration and the decision of the arbitrator shall in effect be final and binding. After some time, a dispute emerged over the quality of material supplied. Instead of approaching the court, both referred the matter to arbitration. He awarded damages in favour of Suresh, directing it to recover the same from Rohan.
In Jawahar lal Burman v Union of India, 1962, the court came to a decision that an arbitration clause survives the termination of the contract because of breach or for some other reason. It goes to say that the arbitration agreement may continue in existence though the contract comes to an end. This can, in turn, mean that the arbitration clause is valid while the entire contract has become invalid.
The arbitration agreement and binding nature of arbitrators' award are upheld under section 28 exception 1 of the Indian Contract Act 1872.
Exception 2: Referral to existing questions to arbitration
Exception to allow parties to agree to refer disputes that have already a rise in between them to arbitration for resolution. Unlike exception, one, which applies to future disputes, this exception, specifically validates agreement agreements that address pre-existing agreements
The essential element of exception to include:
1. Applicability to pre-existing disputes:
This exception applies only when disputes are questions that have already arisen between the parties. For example, if a disagreement regarding payment, performance, or delivery occurs during the execution of a contract, the party can agree to resolve the dispute through arbitration.
2. Preservation of arbitration agreement:
Similar to exception, one, exception to ensures that such arbitration agreements are enforceable and do not violate the general prohibition in section 28 against agreements restraining legal proceedings
3. Binding nature of arbitration:
Once a party agrees to refer their pre-existing dispute to arbitration, the arbitrators, decision or award becomes minding and unable, subject to Limited grounds for challenge under the arbitration and conciliation act, 1996.
This exception enables contracts to refer to arbitration questions that I have already arrived at. Since the parties have agreed to refer their disputes to arbitration they were held to be bound to do so. At the same time, opponents of the above stated opinion also had certain facts in its favor, so the fact that the arbitrators were situated in a foreign country could not by itself be enough to notify the arbitration when the party accepted the agreement with their eyes wide open and willingly. Especially if arbitrators , appointed by the party involved in the case, were involved, this can be seen in Atlas Export Industries v Kotak and Co., 1999.
Exception 3: Protection of Guarantee Agreements for Banks and Financial Institution
Exception 3 of Section 28, Indian Contract Act, 1872 permits banks and other banking institutions to incorporate a provision in the guarantee contract that creates liability for a definite period of time.
The guarantee agreement provides that the obligation under guarantee shall terminate upon the expiration of a certain period that is not less than one year. Exception 3 of Section 28 of Indian Contract Act, 1872 is connected to whether the event occurred or failed to, such as loan default or failure to perform obligation under a contract.
This exception allows these clauses to remain enforceable despite the fact that they negate legal remedies; something, which under Section 28 of the Indian Contract Act, 1872 is prohibited.
Illustration:
Shreya borrows a loan from bank ABC, with Shankar acting as a guarantor. A clause in the guarantee agreement states that Shankar‘s liability will seize one year after Shreya’s default on loan repayment. This clause ensures that Shankar‘s liability is limited to a reasonable time while giving the bank ABC sufficient time to enforce the guarantee. Such an agreement is valid under exception, three of section 28, Indian contract act 1872.
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Conclusion
Section 28 of the Indian Contract Act, 1872 means to protect an agreement from frustrating the parties from enforcing their legal rights through judicial procedures. The section declares void any agreement that extinguishes a parties right to enforce their claims after a specified period or imposes unreasonable restrictions on initiating legal proceedings. However, the provision recognises certain exceptions, such as arbitration agreement, agreements, or terms that limit the time for enforcing rights, but do not extinguish them entirely.
The principle behind section 28 of Indian Contract Act, 1872 is to safeguard the accessibility of justice and prevent parties from being induced into forfeiting their rights prematurely. It reflects a balance between allowing parties to agree on procedural terms while ensuring such agreements do not undermine the foundational right to seek judicial redress. In other words, the section upholds public policy to prevent parties from being bound to clauses which may result in predatory contractual freedom.
FAQs on Section 28 of Indian Contract Act, 1872
Q1. Which type of agreement agreements are declared void under section 28 of Indian Contract Act 1872?
Section 28 of Indian contract act 1872 declares agreements in restraint of legal proceedings to be void along with the contracts limiting the time to enforce rights below the statutory rights.
Q2. Does Section 28 of Indian contract act act 1872 apply to arbitration agreements?
No, it doesn’t apply to arbitration, it rather makes it an exception since arbitration clauses are considered to be valid alternative dispute resolution and do not bar justice.
Q3. What is the extent of limiting time under Section 28 of Indian Contract Act, 1872?
The parties can agree to limit time for enforcing their claims if that does not extinguish the right to enforce claims.
Q4. What is the impact of Section 28 of Indian Contract Act, 1872 on Commercial Contracts?
Section 28 of Indian Contract Act, 1872 prevents clauses that could restrict the party's ability to seek legal recourse and hence it promotes fairness in commercial contracts.
Q5. Are there exceptions under Section 28 of Indian Contract Act, 1872?
There are 3 exceptions under section 28 of Indian Contract Act, 1872, where first one shields arbitration agreements, second one allows reference to existing questions to arbitration and third one protects guarantee agreements for banks and financial institutions.
