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M.S. College of Law

M.H. Mohani Road, Near City Convent School Kausa,
Mumbra, Thane – 400612

PROJECT TITLE
“AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS, VOID”
(SECTION 28 OF INDIAN CONTRACT LAWS 1872)

UNDER THE GUIDANCE OF

DR. QAMAR MEMON

SUBMITTED BY
MOMIN TAHSEEN ROZ ALI
FY LLB

UNIVERSITY OF MUMBAI
DEPARTMENT OF LAW
[2019-20]
 INDEX

Sr. No. Description Page no.

1 INTRODUCTION

2 SUCH AGREEMENTS QUALIFY RESTRICTIONS

OF TWO TYPES
3 IMPACT OF INDIAN CONTRACT ACT OF 1996

4 AMENDMENT OF SECTION 28 OF ACT 1872.

5 RESTRAINT OF LEGAL PROCEEDING

6 ENDNOTES

7 CONCLUSION

8 REFERENCE
 INTRODUCTION

Section 28 of the Indian Contract Act, 1872

“28 Agreements in restraint of legal proceedings void. - Every agreement-

(a) 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; or
(b) 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 from enforcing his rights, is void to that extent.

Exception 1.-Saving of contract to refer to arbitration dispute that may arise: This section
shall not render illegal a contract, by which two or more persons agree that any dispute
which may arise between them in respect of any subject or class of subjects shall be referred
to arbitration and that only the amount awarded in such arbitration shall be recoverable in
respect of the dispute so referred.

Exception 2.- Saving of contract to refer questions that have already arisen: Nor shall this
section render, illegal any contract in writing, by which two or more persons agree to refer
to arbitration any question between them which has already arisen, or affect any provision
of any law in force for the time being as to references to arbitration”.

Exception 3 : This section shall 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 liability.
 Explanation :-

[i] - In Exception 3, the expression "bank" means-

[a] - a "banking company" as defined in clause [c] of section 5 of the

Banking Regulation Act, 1949 [10 of 1949];

[b] - "a corresponding new bank" as defined in clause [da] of section 5 of

the Banking Regulation Act, 1949 [10 of 1949];

[c] - "State Bank of India" constituted under section 3 of the State Bank
of India Act, 1955 [23 of 1955];

[d] - "a subsidiary bank" as defined in clause [k] of section 2 of the State
Bank of India [Subsidiary Banks] Act, 1959 [38 of 1959];

[e] - "a Regional Rural Bank" established under section 3 of the Regional
Rural Banks Act, 1976 [21 of 1976];

[f] - "a Co-operative Bank" as defined in clause [cci] of section 5 of the

Banking Regulation Act, 1949 [10 of 1949];

[g] - "a multi-State co-operative bank" as defined in clause [cciiia] of

section 5 of the Banking Regulation Act, 1949 [10 of 1949]; and

[ii] - In Exception 3, the expression "a financial institution" means any Public
financial institution within the meaning of section 4A of the Companies Act, 1956 [1 of
1956].]

An agreement is void if it restricts any person from enforcing his contractual rights through
ordinary court proceedings or if it limits the time within which he may enforce his rights. The
agreement is void if it extinguishes the right of any party to it, or releases any party thereof from
liability, in respect to any contract on the expiry of a specified period so as to restrict any party
from enforcing its rights, is void to that extent.

Any undertaking between two individuals or groups of individuals results in a contract. From
morning till evening, day in and day out, we might have entered into innumerable contracts like
purchasing vegetables from a vendor, buying a ticket to watch a movie or getting a piece of work
done. Every human relationship is built upon a contract. Communities and nations coexist on the
basis of a viable contract. Thus, we see contract as an inherent and underlying part of every human
transaction. It is a binding agreement to get something done, sold or bought and there may be a
price or a consideration – implied or explicit.

A contract, in simple words, is a binding legal agreement that is enforceable in a court of law. That
is, a contract is an exchange of promises for the breach of which the law will provide a remedy.
The law relating to contracts is to be found in the Indian Contract Act 1872. The law of contracts
differs from other branches of law in a very important respect. It does not lay down so many precise
rights and duties which the law will protect and enforce; it contains rather a number of limiting
principles, subject to which the parties may create rights and duties for themselves, and the law
will uphold those rights and duties. Thus, we can say that the parties to a contract, in a sense make
the law for themselves. So long as they do not transgress some legal prohibition, they can frame
any rules they like in regard to the subject matter of their contract and the law will give effect to
their contract.

As per s. 2(h) of the Indian Contract Act 1872, a contract is an agreement enforceable by law.
Section 10 of the Indian Contract Act deals with the relation between a contract and an agreement.
As per s. 10, “All agreements are contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful object, and are not hereby
expressly declared to be void.” Every contract is an agreement, but every agreement is not a
contract. An agreement becomes a contract when the following conditions are satisfied:

• There should be some lawful consideration for it.

• The parties must be competent to contract.
• The consent of the parties is free.
• Their object is lawful.
An important requirement for the formation of a valid contract is that the parties must contract for
a lawful object. An agreement the object of which is opposed to the law of the land maybe either
unlawful or simply void, depending upon the provision of the law to which is opposed. Sections
23 of the Indian Contract Act deal with unlawful agreements. Section 2(g) of the Indian contract
deal with void agreements. As per s. 2(g), “An agreement not enforceable by law is void.” The
following agreements are declared to be void:

• Agreement of which consideration and objects are unlawful in part.

• Agreements without consideration.
• Agreements in restraint of marriage.
• Agreements in restraint of trade.
• Agreements in restraint of legal proceedings.
• Unmeaning agreements.
• Wagering agreements.
• Agreements to do impossible acts.

The Contract draws distinction between an agreement which is only void and the one in which the
consideration or object is also unlawful. An illegal agreement is one which is actually forbidden
by the law; but a void agreement may not be forbidden, the law merely say that if it made, the
courts will not enforce it. Thus every illegal contract is also void but a void contract is not
necessarily illegal.

Through this report, I would like to enlighten the readers on agreements in restraint of legal
proceedings which are declared to be void by the law as per s. 28 of the Indian Contract Act 1872.
I will be discussing various aspects of s.28 with the help of various case laws.
 SUCH AGREEMENTS QUALIFY RESTRICTIONS OF TWO TYPES

1. Agreements wholly or partially restricting the enforcing of rights in a Court of Law, for example,
where a contract contains a stipulation that no action shall be brought upon it, would be void as
ousting the jurisdiction of the Court.

2. Agreements limiting the time allowed by the law of limitation.

In both cases, an agreement would be void as an agreement in restraint of legal proceedings. This
article applies to agreements which wholly or partially prohibit the parties from having recourse
to a Court of Law.

Every individual has a right to sue in any Court and enforce his rights within the time allowed by
the limitation Act. Any restriction or restraint limiting the time shorter than the period of limitation
prescribed by law is void to that extent. For example, an action on dishonored promissory note
may be brought within 3 years under the limitation Act. If parties agree that action shall be brought
within 2 years such an agreement limiting the time of enforcement of a right shall be void.

An agreement extending the time of limitation for enforcing the rights, though not covered by this
section with, however, be void under section 23 of the Act as intending to defeat the provisions of
he Limitations Act, 1963.
 EXCEPTION

A contract may be referred to arbitration for any disputes that may arise. When two or more persons
decide to resolve the matter that may arise through arbitration then it shall not render the contract
void.

IMPACT OF INDIAN CONTRACT ACT OF 1996

The first paragraph of Section 28 of the Indian Contract Act has been replaced with a new
paragraph. The new paragraph changes the entire base of the original Section 28. Therefore, it is
clear that the purpose of this new paragraph in Section 28 is to state that if any clause in an
agreement not only bars a remedy but also extinguishes the right, it will be void to that extent. It
will, therefore, make a substantial change in contract law.

In Vulcan Insurance Co. Ltd v. Maharaj Singh[1], the Supreme Court held that a clause in an
insurance policy to the effect that the insurer will not be liable for any loss if the claim is made 12
months after the loss is not void as it only provides for the right accruing under the contract to a
party to be forfeited and does not attract the mischief of Section 28 of the Contract Act. This new
provision which does not provide for any retrospective effect would render this decision not a good
law from the date when this amendment comes into force. In this respect, another decision of the
Supreme Court may be looked into.

In Food Corporation of India v. New India Assurance Co.Ltd.[2], the Supreme Court, also
considering a clause in the fidelity insurance bond, held that it was clear from the agreement that
it did not contain any clause which was found to be contrary to Section 28 of the Contract Act
because it did not impose any restriction on filing a suit within six months of the date of termination
of the contract as claimed by the insurance company, but what was agreed was that after the expiry
of six months from the date of termination of the contract, Food Corporation would have no right
under this bond and this clause could not be construed as curtailing the normal limitation period
for filing the suit.
In National Insurance Corporation Ltd. v. Sujir Ganesh Nayak and CO.[3], it was held that the
condition in an insurance policy relieving the insurer from liability for loss and damage unless the
claim was raised before the expiry of the specified period from the beginning of the loss or damage,
such a condition even if the period specified therein was shorter than that prescribed by the statute
for filing a suit for that purpose is not hit by Section 28 of the Contract Act.

The impact of the above amendment is that, since the amendment has come into force, the principle
laid down in the above decision of the Supreme Court would no longer be treated as good law in
the light of Section 28 of the Indian Contract Act as amended by the Amendment Act of 1997.
Since the date of the amendments coming into force, any condition of the contract, in which a
stipulation is made that the right to the claim would be barred, if the claim was not raised before
the expiry of the specified period from the incurring of the loss or damage would be void under
the amended Section 28 of the Indian Contract Act, because of the first paragraph of the amended
Section 28 of the India Contract Act.

Amended Section 28 not retrospective

Section 28 is not retrospective. A contract specifies that if within the stipulated period the
arbitration is not claimed, the party will lose the right to claim relief under arbitration. In a contract
of Insurance, the policy provides that the claim under the insurance has to be made within the
period stipulated therein. Otherwise, the benefits flowing from the policy would stand
extinguished. The period specified less than the period of limitation provided in the Limitation Act
for a suit under the contract. But such extension of right is impermissible under the amended
Section 28 of the Contract Act. But considering the fact that the amendment was prospective in
nature and the contract was entered prior to the amendment, the condition in the policy was held
to be valid in the light of the provisions of Section 28 prior to its amendment in 1996 as happened
in Oriental Insurance Co. Ltd v. Karur Vysya Bank Ltd[4].
 AMENDMENT OF SECTION 28 OF ACT 1872.

Law Commission report

The Law Commission in its 97th report recommended that Section 28 of the Indian Contract Act,
1872 be amended. This suggestion was made because Section 28 as it is on the statute book
now has created some sort of uncertainty about a party's rights to enforce their rights under
any agreement.

Agreement restricting law of limitation

Prior to amendment, Section 28 says that ‘No one can contract himself out of the statute of
limitation and consequently where the result of a compromise is that the limitation provided by
law is extended it is open to the judgment-debtor to plead that the decree-holder’s application was
barred by time’. It is only when a period of limitation is curtailed that Section 28 of the Contract
Act comes into operation. It does not apply when the term spells out an extinction of the right of
the plaintiff to sue or spells out the discharge of the defendant from all liability in respect of the
claim. A voluntary agreement to curtail the period of limitation for filing a suit is void. A clause
in a contract providing that no claim or dispute of any sort whatever can be recognized if not made
in writing within sixty days of the due date of payment does not take away the statutory right of a
plaintiff to bring his claim within the time prescribed by law.

The clause in the agreement that the appellant would not have any right under the bond after the
expiry of six months from the date of termination of the contract has been held not to be contrary
to section 28 of the Act nor it imposed any restriction to file a suit within six months; [Food
Corporation of India –vs- New India Assurance Co. Ltd., AIR 1994 SC 1896].

Jurisdiction of the proper court

The jurisdiction of the Courts cannot be ousted by an agreement of the parties. The principle
contained in this section is an exception to the rule of the ‘maxim modus et conventio vincunt
legem, the form of agreement and the convention of parties overrule the law. But if the agreement
merely provides that an award, fixing the debt or the damages, shall be a condition precedent to
the recovery thereof by action, it is not only valid, but is a defence to the action if brought before
the award and this is incorporated in Exception 1. It may be noted that in a contract there may be
two separate stipulations one of which is valid and the other void, e.g., a provision to refer to
arbitration and another ousting the jurisdiction of Court. When two or more courts are competent
to entertain a suit parties can contract to vest jurisdiction in one court only. The section has not the
effect of making the whole agreement void, but only the stipulation in the contract which ousts the
jurisdiction of the Court. The validity of an agreement by which the parties prefer one of the two
Courts depends upon the fact that both the Courts must have jurisdiction in deciding the matter. It
has been held that it is not open to the parties by agreement to confer jurisdiction on any court
which it did not otherwise possess under Section 20 of Code of Civil Procedure; [Patel Roadways
–vs- Prasad Trading Company, AIR 1992 SC 1514]. The parties can by mutual consent no more
take away the jurisdiction vested by law in any Court than they can confer on it when it is not so
vested by law. By a private agreement the parties

cannot divest the Court of its inherent jurisdiction to try disputes arising out of the agreement. The
principle that the parties cannot by consent confer jurisdiction on a Court or deprive a Court of
jurisdiction only applies to cases of inherent jurisdiction of a Court over the subject-matter of a
suit, but the question of territorial jurisdiction is not a question of inherent jurisdiction.

Change of procedure

An agreement by a party that a suit may be decided in a manner different from that prescribed by
law is void and does not debar him from subsequently claiming a trial of the suit on merits.
Therefore an agreement that a particular suit should be decided in accordance with the result of
another suit between the parties is not valid.

Party’s agreement not to sue

Forbearance by a creditor from suing a debtor or a promise to forbear absolutely or for a time is
not unlawful. So a compromise of doubtful rights is outside the scope of Section 28 though the
parties thereby agree that they abandon their rights under the original contract which necessarily
includes a right to resort to a Civil Court in regard to the contract.
Exception 1 ‘Saving of contract to refer to arbitration dispute that may arise’ indicates that for
making an agreement conform to Exception 1, the jurisdiction of court must be excluded in all
respects except in matters which are the result of the arbitrator’s award.

Exception 2 ‘Saving of contract to refer question that have already arisen’ indicates that Section
28 shall not render illegal any contract in writing in which two or more persons agree to refer to
arbitration any question between them which has already arisen or affect any provision of law in
force for the time being as to reference to arbitration. In order to invoke this action it is necessary
that the agreement must be in writing; it must be to refer any question which has already arisen it
should also be in conformity with the law relating to arbitration.

The Supreme Court of India/AP High Court has dealt with certain cases under section 28 holding
that some actions of entering into contract are void. They are given below for ready reference.

Unilateral covenant depriving another party to enforce its right under the
contract.

A contract entered into by the parties is stated as an international commercial contract and Clause
13 of the agreement provides a unilateral covenant by which the sellers alone would have the right
to refer any dispute to the arbitration and to institute any suit against the buyers in any court of
competent jurisdiction. Such clause being in the nature of unilateral covenant depriving the
plaintiff buyer to enforce the rights under the contract, either through the arbitration or through
ordinary civil court is barred under Section 28 of the Indian Contract Act as amended by 1996
Amendment – Emmsons International Ltd. v. Metal Distributors (U.K.)[5].

Limitation of time to enforce rights under a contract- Section as stood prior to

the 1997 Amendment

Under Section 28, an agreement which limits the time within which a party to the contract may
enforce its rights is void to that extent. Therefore, under this provision, an agreement which
provides that a suit should be brought for breach of an agreement within a period of time shorter
than that provided in the Limitation Act is void to that extent. This is because the effect of such an
agreement is absolute to restrict the parties from enforcing their rights after the expiry of the period
specified in the agreement, even though it may be within the limitation period prescribed by the
Limitation Act. Such an agreement must, however, be distinguished from those which do not limit
the period within which a party may enforce its right, but which provides for the release or
forfeiture of rights if no suit is brought within the period specified in the agreement.

Agreement invalid under Section 28

Agreements provide that a person in whose favour a provision for maintenance has been made is
not entitled to sue for arrear maintenance for more than one year, is held to be void- Swaraj Bandhu
v. Gyanada Sundari.[6] Framed under Section 35 of the Post Office Act by which the liability in
respect to sums specified by a remittance has been limited unless a claim is preferred within one
year from the date of posting of the article is not only beyond the powers conferred by the Act, but
also violative of Section 28 of the Contract Act- Union of India v. Mohd. Nazim[7].

On the contrary, a contract which does not limit the time within which the insured could enforce
his rights and only limits the time during which the contract shall remain alive doesn’t offend
Section 28- Pearl Insurance Co v. Atmaram[8]. It is clear that an agreement providing for
relinquishment of rights and remedies is not valid, but an agreement for the relinquishment of the
agreement is valid under Section 28. Therefore, a clause in an insurance policy making an award
by an arbitrator as a condition precedent to the right of action against the insurer does not attract
Section 28- National Insurance Co. Ltd v. Calcutta Dock Labour Board[9].

Limiting Jurisdiction of one or more Competent Courts

This section nullifies only that agreement which absolutely restricts a party to a contract from
enforcing the rights under that contract in ordinary tribunals. It does not apply where a party agrees
not to restrict the enforcement of its right in ordinary tribunals but only agrees to a selection of one
of those ordinary tribunals where a lawsuit would normally be tried. The validity of an agreement
whereby the parties prefer one of the two courts depends on the fact that both courts must have
jurisdiction in deciding the matter. Where two or more courts have jurisdiction to try a lawsuit,
there is no opposition to public policy or contravention of Section 28 of the Contract Act to the
agreement between the parties limiting jurisdiction to one court.

Agreements extending the period of limitation

So far as Section 28 of the Contract Act is concerned, there is no doubt that this section has no
application agreements extending the period of limitation. Such type of agreements by which the
limitation period is extended contrary to that provided in the Limitation Act would be void under
Section 23 of the Contract Act as it would have the effect of defeating the provisions of the
Limitation Act- Jawaharlal v. Mathura Prasad.[9] There is a clear mandate in Section 3 of the
Limitation Act that every suit instituted after a period of limitation prescribed by the Act shall be
dismissed although limitation has not been set up as a defence.

RESTRAINT OF LEGAL PROCEEDING

No one can exclude themselves from the protection of the court by contract. The citizen has the
right to have his legal position determined by the ordinary tribunals, except, subject to contract
When there is an arbitration clause that is valid and binding under the law; when the parties to a
contract agree on the jurisdiction to which the dispute relating to the contract shall be discharged.

Absolute Restriction

If the limitation is not absolute, this section will not apply. Where one of two competent
jurisdictions is excluded by agreement, that does not affect the absolute removal of jurisdiction
and a clause does not infringe Section 28.
Agreement Restraining the Enforcement of Right

An agreement to not to sue for wrongful dismissal by a servant is invalid. Under this section, a
special agreement was held void between a barrister-advocate and his clients that the latter would
not be charged for fees. In Hyman v Hyman, a separation act covenant provided that the wife
would not apply for maintenance to the divorce court and it was held that it was null and void as
being contrary to public policy. But in a later case, the covenant of the wife not to invoke the
divorce jurisdiction over maintenance for the child and herself was completely void. The
agreement could be enforced in a case where the spouses agreed to a financial arrangement after
the nisi decree, provided that the marriage houses be given to the wife, and she agreed to waive
and relinquish all maintenance claims. The rule in Hyman v Hyman does not apply where the
arrangement was brought before the court and the court passed an arrangement order.

Agreement not to appeal

An agreement where the parties to the lawsuit bind themselves before a judgment is passed in the
court of the first instance to abide by that court’s decree and forgo their right of appeal is valid and
binding. By the agreement not to appeal, for which the indulgence granted by the respondents was
a good consideration, the appellant did not restrict itself entirely from enforcing a right under or in
respect of any contract.

Agreements Prescribing Jurisdiction

Parties cannot confer jurisdiction on a court that they do not possess through private agreements,
nor can they divest a court of jurisdiction that they have under ordinary law. The principle that
parties cannot, by consent, confer jurisdiction on a court or deprive a court of jurisdiction has been
stated to apply to cases of a court’s inherent jurisdiction over the subject matter of the suit, and the
issue of territorial jurisdiction as not a matter of inherent jurisdiction.
 ENDNOTES

AIR 1976 SC 287: (1976)2 SCR 62

AIR 1994 SC 1889

AIR 1997 SC 2049: (1997)4 SCC 366

AIR 2001 Mad 489 (DB)

AIR 2005 NOC 280 (Del):2005 AIHC 1190

AIR 1932 Cal 720: 36 CWN 555 (1966)64 All LJ 675.

AIR Punj 236 (FB).

AIR 1977 Cal 492.

AIR 1934 All 661: 1934 All LJ 1035.

 CONCLUSION

Section 28 was amended by section 2 of the Amendment Act 10 of 1997 which came into force
with effect from 8-1-1997. The amended Section 28 prohibits clauses in agreements which seek to
extinguish the rights of any party to the contract or discharge any party from any liability under
the contract of the expiry of period specified in the contract with a view to restrict any party from
enforcing his rights. The condition in an insurance policy that the claim must be made within a
period of 12 months has been held to be valid because this decision was given on the basis of un-
amended Section 28 and this position was changed after the 1997 amendment which is prospective
in nature. Presently, Section 28 allows parties to an agreement to substitute their own period of
limitation in place of the period laid down in the general law of limitation. But they are free to
provide that if a party does not sue within a specified period, within the rights accruing under the
contract, it shall be forfeited or extinguished or that party shall be discharged from all liability
under the contract. This distinction is very fine and a number of litigating contracting parties
have found it difficult in practice to ascertain this very fine difference between what is meant
by extinguishing (quenching) of a right and what is meant by extinction (disappearance) of a
remedy. This anomaly is sought to be cleared by virtue of this Section 28.

REFERENCE

• https://blog.ipleaders.in/agreements-restraint-legal-proceedings/
• https://www.citeman.com/4329-agreements-in-restraint-of-legal-proceedings.html
• https://www.youtube.com/watch?v=60DRWS3eDfk
• https://www.lawteacher.net/free-law-essays/contract-law/section-28-of-the-indian-
contract.php
•