CONTRACTS CURTAILING THE PERIOD OF LIMITATION
H.P. State Forest Co. v. M/s United India Insurance Co., the Limitation Act provided three years period but parties provided in an agreement, a period of 12 months. The Supreme Court said that argument valid since the agreement did not seek to curtail the time for enforcement of right but provided for forfeiture of right itself if no action is commenced within the stipulated period as stipulated in agreement. Supreme Court held that such a clause in the agreement would not fall within the mischief of S. 28 of Contract Act.
But, it needs to be noted that these observations were made by Hon’ble Supreme Court in regard to unamended S. 28 ICA. But law commission is its 97th report of 1984 stated that section required amendment. Law Commission said, According to S. 28, an agreement which limits the time within which a party to an agreement may enforce his rights is void to that extent. But the Section does not invalidate an agreement in the nature of prescription, i.e. to say an agreement which provides that at the end of a specified period, if the rights there under are not enforced, the right shall cease to exist. Law commission said such stipulations are generally found in agreements entered into in the course of business. Consumers are not aware & sometimes are forced to agree because big corporations are not prepared to alter the terms.
Thereafter S. 28 ICA came up to be amended. Now even an agreement which extinguishes the rights of any party thereto, on the expiry of a specific period, so as to restrict party from enforcing rights by usual legal proceedings is void to that extent.
In UOI Vs. M/S Indusind Bank AIR 2016 SC, Justice R.F. Nariman noted the background & held that amendment of S. 28 was not mere declaratory or clarificatory but it brought about a substantive change in the law. The amendment therefore seeks to set aside the distinction made in case law between agreements which limit the time within which remedies can be availed and arguments which do away with rights altogether in so limiting the time. The amendment therefore cannot have retrospective effect. S. 28(b) ICA shall not apply to agreement entered into prior to amendment.
Note- If a remedy has become barred by law of limitation in force at the time, a subsequent change in the law of limitation giving a longer period of limitation will not by itself, in the absence of a provision for the purpose, revive the remedy. The remedial right already stands extinguished & can be re-created only by a law for the purpose.
