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[Every contract] which extinguishes the right of any party thereto under or

in respect of any contract on the expiry of a specified period or on failure to


make a claim or to institute a legal proceeding within a specified period[is
void to that extent]
Clearly, the law makers in 1997 did not wish to strike down contracts which
provided extinguishment of right upon failure to raise a claim in accordance
with the contract. It also sought to only regulate those contracts where the
right of enforcement (or in other words, right to move a court of law) was
extinguished after a specified period a narrower position than what the law
commission sought to adopt.
Illustratively, limitation of warranty claims is an important feature of a share
purchase contract. Similarly, in many construction contracts, limitation
clauses are built requiring the owner of a project to bring a claim within
stipulated time. The move to amend Section 28 would indicate that so far as
the law makers are concerned, such limitation provisions are to fall because
they do not enjoy protection of the recent amendment.
There is undoubtedly a marked distinction between a condition which so limits
the time within which a suit may be brought to enforce rights and one which
provides that there shall no longer be any rights to enforce. Such a condition is
not illegal in itself. This position was given legal sanctity by the Supreme Court in the case
of National Insurance Co. ltd., which held that an agreement which in effect seeks to curtail
the period of limitation and prescribes a shorter period than that prescribed by the law would be
void as offending Section 28 of the Contract Act. This is because such an agreement would seek to
restrict the party from enforcing his rights in Court after the period prescribed under the
agreement has expired even though the period prescribed by law for the enforcement of his rights
would have not yet expired. There could, however, be agreements which do not seek to curtail
the time for enforcement of rights but which provide for the forfeiture or waiver of rights if no
action is commenced within the period stipulated by such agreement. Such a clause in the
agreement would not fall within the mischief of Section 28 of the Contract Act[2].
The settled position of law before the Amendment was that Section 28 would invalidate only a
clause in an agreement which restricts a party from enforcing his right absolutely or which limits
the time within which he may enforce his right. Section 28 before the Amendment, did not come
into operation when contractual terms spelt out the extension of right of a party to sue or spelt
out the discharge of a party from any liabilities
In the case of Explore Computers, [12] the Delhi High Court held, it is not open to contend
that if any suit or claim is not filed within one month of the expiry of the bank guarantee, the
right of the plaintiff to institute any legal proceedings itself is extinguished. Such a plea would
fly in the face of the amended Section 28 and cannot be discharged from the liability nor can
the rights of the plaintiThis 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 of a right and what is meant by extinction of a remedy. This anomaly is
sought to be cleared by virtue of this Section 28[25].ff be extinguished by inclusion of the clause
providing so.

Section 28, being substantive law, operates prospectively as retrospectively is not


clearly made out by its language, the Bench observed.

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