Absolute restriction | "Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is, void to that extent.” Examine this statement in light of Section 28 of the Indian Contract Act, 1872.

Question: Absolute restriction | “Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is, void to that extent.”

Examine this statement in light of Section 28 of the Indian Contract Act, 1872. Illustrate your answer with the help of case law. [BJS 1991]

Find the answer to the mains question only on Legal Bites. [Absolute restriction | “Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is, void to that extent.” Examine this statement in light of Section 28 of the Indian Contract Act, 1872.]

Answer

It is a well-known rule of English law that “an agreement purporting to oust the jurisdiction of the courts is illegal and void on grounds of public policy”. Thus, any clause in an agreement providing that neither party shall have the right to enforce the agreement by legal proceedings is void.

Section 28 of The Indian Contract Act, 1872 states that any contract which either absolutely restricts any party from enforcing his right to a legal proceeding or which restricts the person’s right to a legal proceeding after the expiry of a certain time period shall be considered as a void agreement. Right to appeal doesn’t come under the purview of this section.

Section 28 of the Indian Contract Act renders void two kinds of agreement, namely

(1) An agreement by which a party is restricted absolutely from enforcing his legal rights arising under a contract, by the usual legal proceedings in the ordinary tribunals.

(2) An agreement that limits the time within which the contract rights may be enforced.

Garth C.J. of The Calcutta High Court observed in Koegler v. Coringa Oil Co Ltd [ILR (1876) 1 Cal 466, 468-69]

“This section applies to agreements which wholly or partially prohibit the parties from having recourse to a court of law. If, for instance, a contract were to contain a stipulation that no action should be brought upon it that stipulation would… be void because it would restrict both parties from enforcing their rights under the contract in the ordinary legal tribunals.”

It’s also impertinent to note that any compromise which parties entered into outside the court regarding the withdrawal of suit was not hit by Section 28 of the Act as no restraint was being placed upon the institution of the proceeding.

Similarly, any agreement which restricts the time period within which a claim can be filed in the court so as to shorten the period than what has been prescribed by The Limitation Act 1963 shall be deemed as a void agreement.

As per the Limitation Act, any action for the breach of contract should be filed within 3 years from the date on which the breach has occurred.

So if the clause of any contract states that no suit can be filed after the expiry of 2 years then it shall be declared as void agreement. Now with the amendment to the Section in 1997, it now states that any clause which reduces the normal period of limitation would be declared void to that extent.

This section will be applicable only when restriction imposed upon the party for the right to sue is an “absolute” one, which means if an agreement wholly precludes a party from pursuing their legal remedies then only it shall be hit by section 28, but if an agreement has partial restriction then it shall be considered as a valid agreement. Continental Drug & Co v. Chemoids & Industries Ltd [AIR 1955 Cal 161].

In National Insurance Co Ltd v. Sujir Ganesh Nayak & Co [AIR 1997 SC 2049] the clause in question provided that “in no case whatsoever shall the company be liable for any loss or damage after the expiration of 12 months from the happening of loss or damage unless the claim is the subject of pending action or arbitration”. Such a clause is not hit by Section 28 and is held to be valid.

The right to appeal does not come within the purview of the section. A party to a suit may agree not to appeal against the decision.

This section also has certain exceptions

1. Future disputes to arbitrations- This section won’t render any agreement as void if it has a clause by which both the parties come to the conclusion that any future disputes shall be resolved by referring the case to the arbitration and any amount awarded shall be recovered from the contesting party.

2. Existing questions to the arbitration- If an agreement has any clause which says that any existing question shall be decided by arbitration then such clauses have been held valid under this section.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X