# l 1 S.C.R. 700 UNION OF INDIA & ANR v. MIS INDUSIND BANK LTD. & ANR

- **Citation:** [2016] 11 S.C.R. 700
- **Court:** Supreme Court of India
- **Decided:** 2016-09-15
- **Case number:** Civil Appeal Nos.9087-9089of2016
- **Bench:** C. Nagappan, R. F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/l-1-s-c-r-700-union-of-india-anr-v-mis-indusind-bank-ltd-anr-31178
- **Pages:** 23

## Headnote

Contract Act, 1872:
c
s.28 (unamended and as amended w.e.f 08.01.1997) -
Applicability of - Applications invited by Textile Commissioner for
export of extra-long staple cotton - Contracts executed with
exporters by appellant in January,1996 - The exporters furnished
bank guarantee on 31.01.1996 - Exporters failed to furnish certain
D docu111ents regarding export within stipulated period~ Consequently,
Textile Commissioner invoked the bank guarantees - Respondentbank refused to pay the guarantees stating that the guarantees could
be invoked only within extended period of three months i.e up to
30.04.1997 as per contract and not later - Appellant pleaded that
E
bank was not absolved of its obligation to make payment under
bank guarantee u/s.28 in the light of the Amendment to s.28 w.ej
08.01.1997 - Held: Bank guarantees themselves being dated
31.01.1996 would not be affected by an amendment made one year
later i.e. on 08.01.1997 -Subject matter of s.28 being ''agreements'',
F
the unamended s.28 would be the law applicable as on 31.1.1996,
which is the date of the agreement of bank guarantee - Amended
s.28 being substantive law, operates prospectively, as retrospectivity
is not clearly made out by its language - Being remedial in nature,
and not clarificatory or declaratory of the law, the amended s.28
G would not apply.
H
Statutes - Remedial statutes - Prospective application -
Discussed.
Dismissing the appeals, the Court
700
UNION OF INDIA & ANR. v. MIS lNDUSIND BANK LTD.
701
HELD: 1. On a reading of the Law Commission Report
A
together with the Statement of Objects and Reasons for the 1997
Amendment to section 28 of the Contract Act,1872, it emerges
that the Amendment does not purport to be either declaratory or
clarificatory. It seeks to bring about a substantive change in the
law by stating, for the first time, that even where an agreement
B
extinguishes the rights or discharges the liability of any party to
an agreement, so as to restrict such party from enforcing his
rights on the expiry of a specified period, such agreement would
become void to that extent • .The Amendment therefore seeks to
set aside the distinction made in t_he case law up to date between
agreements which limit the time within which remedies can be
availed and agreements which do away with the right altogether
in so limiting the time. These are obviously substantive changes
in the law which are remedial in nature and cannot have
retrospective effect.
[Para 19] [711-G-H; H, 712-A-B]
1.2. In the instant case, considering that the subject matter
of s.28 of the Contract Act is "agreements", the unamended s.28
would be the law applicable as on 31.1.1996, which is the date of
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the agreement of bank guarantee. Further, on conspectus of
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Supreme Court decisions it becomes clear that s.28 being
substantive law, operates prospectively as retrospectivity is not
clearly made out by its language. Being remedial in nature, and
not clarificatory or declaratory of the law, by making certain
agreements covered by s.28(b) void for the first time, it is clear
F
that rights and liabilities that have already accrued as a result of
agreements entered into between parties are sought to be taken
away. This being the case, the amended s.28 would not apply.
[Paras 21, 25] (713-A; 717-F-G]
Food Corpn.of India 1~ New India Assurance Co. Ltd.
(1994} 3 SCC 324; National Insurance Co. Ltd. v. Sujir
Ganesh Nayak & Co. (1997) 4 SCC 366 : 1997 (3)
SCR 202; HP. State Forest Co. Ltd. v. United India
Insurance Co. Ltd. (2009) 2 SCC 252 : 2008 (17) SCR
G
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702
A
B
c
D
E
F
SUPREME COURT REPORTS
r2o 16111 S.C.R.
1013 - relied on.
Sukhram v. Harbheji [1969) 3 S.C.R. 752; R. Rajagopal
!;?.eddy v. PadminiChandrasekharan (1995) 2 SCC 630
: 1995 (1) SCR 715; MithileshKwnari v. Prem Behari
Khare (1989) 2 SCC 95 : 1989 (1) SCR 621;
Purbanchal Cables & Conductors (P) Ltd. v. Assam SEB
(2012) 7 sec 462 : 2012 (6) SCR 905; CIT v. Vatika
Township (P) Ltd. (2015) 1 SCC 1 : 2014 (12) SCR
1037 - refer

## Text

_Characters 0–39,879 of 45,460. This is a partial read: ask again with offset=39879 for what follows._

A
B
[2016] l 1 S.C.R. 700
UNION OF INDIA & ANR.
v.
MIS INDUSIND BANK LTD. & ANR.
(Civil Appeal Nos.9087-9089of2016)
SEPTEMBER 15, 2016
[C. NAGAPPAN AND R. F. NARIMAN, JJ.]
Contract Act, 1872:
c
s.28 (unamended and as amended w.e.f 08.01.1997) -
Applicability of - Applications invited by Textile Commissioner for
export of extra-long staple cotton - Contracts executed with
exporters by appellant in January,1996 - The exporters furnished
bank guarantee on 31.01.1996 - Exporters failed to furnish certain
D docu111ents regarding export within stipulated period~ Consequently,
Textile Commissioner invoked the bank guarantees - Respondentbank refused to pay the guarantees stating that the guarantees could
be invoked only within extended period of three months i.e up to
30.04.1997 as per contract and not later - Appellant pleaded that
E
bank was not absolved of its obligation to make payment under
bank guarantee u/s.28 in the light of the Amendment to s.28 w.ej
08.01.1997 - Held: Bank guarantees themselves being dated
31.01.1996 would not be affected by an amendment made one year
later i.e. on 08.01.1997 -Subject matter of s.28 being ''agreements'',
F
the unamended s.28 would be the law applicable as on 31.1.1996,
which is the date of the agreement of bank guarantee - Amended
s.28 being substantive law, operates prospectively, as retrospectivity
is not clearly made out by its language - Being remedial in nature,
and not clarificatory or declaratory of the law, the amended s.28
G would not apply.
H
Statutes - Remedial statutes - Prospective application -
Discussed.
Dismissing the appeals, the Court
700
UNION OF INDIA & ANR. v. MIS lNDUSIND BANK LTD.
701
HELD: 1. On a reading of the Law Commission Report
A
together with the Statement of Objects and Reasons for the 1997
Amendment to section 28 of the Contract Act,1872, it emerges
that the Amendment does not purport to be either declaratory or
clarificatory. It seeks to bring about a substantive change in the
law by stating, for the first time, that even where an agreement
B
extinguishes the rights or discharges the liability of any party to
an agreement, so as to restrict such party from enforcing his
rights on the expiry of a specified period, such agreement would
become void to that extent • .The Amendment therefore seeks to
set aside the distinction made in t_he case law up to date between
agreements which limit the time within which remedies can be
availed and agreements which do away with the right altogether
in so limiting the time. These are obviously substantive changes
in the law which are remedial in nature and cannot have
retrospective effect.
[Para 19] [711-G-H; H, 712-A-B]
1.2. In the instant case, considering that the subject matter
of s.28 of the Contract Act is "agreements", the unamended s.28
would be the law applicable as on 31.1.1996, which is the date of
c
D
the agreement of bank guarantee. Further, on conspectus of
E
Supreme Court decisions it becomes clear that s.28 being
substantive law, operates prospectively as retrospectivity is not
clearly made out by its language. Being remedial in nature, and
not clarificatory or declaratory of the law, by making certain
agreements covered by s.28(b) void for the first time, it is clear
F
that rights and liabilities that have already accrued as a result of
agreements entered into between parties are sought to be taken
away. This being the case, the amended s.28 would not apply.
[Paras 21, 25] (713-A; 717-F-G]
Food Corpn.of India 1~ New India Assurance Co. Ltd.
(1994} 3 SCC 324; National Insurance Co. Ltd. v. Sujir
Ganesh Nayak & Co. (1997) 4 SCC 366 : 1997 (3)
SCR 202; HP. State Forest Co. Ltd. v. United India
Insurance Co. Ltd. (2009) 2 SCC 252 : 2008 (17) SCR
G
H
702
A
B
c
D
E
F
SUPREME COURT REPORTS
r2o 16111 S.C.R.
1013 - relied on.
Sukhram v. Harbheji [1969) 3 S.C.R. 752; R. Rajagopal
!;?.eddy v. PadminiChandrasekharan (1995) 2 SCC 630
: 1995 (1) SCR 715; MithileshKwnari v. Prem Behari
Khare (1989) 2 SCC 95 : 1989 (1) SCR 621;
Purbanchal Cables & Conductors (P) Ltd. v. Assam SEB
(2012) 7 sec 462 : 2012 (6) SCR 905; CIT v. Vatika
Township (P) Ltd. (2015) 1 SCC 1 : 2014 (12) SCR
1037 - referred to.
JJ'h Report of the Law Commisston of India, 1958; 97th
Report of the Law Commission of India, 1984 - referred
to.
Case I.aw Reference
r1969] 3 S.C.R. 752
referred to
Para 20
1995 (1.) SCR 715
referred to
Para22
1989 (1.) SCR 621
referred to
Para 22
~912 (6) SCR 905
referred to
Para 23
2014 (12) SCR 1037
referred to
Para 24
(1994) 3 sec 324
relied on
Para 29
1997 (3) SCR 202
relied on
Para33
2008 (17) SCR 1013
relied on
Para 35
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9087G 9089of2016.
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From the Judgment and Order dated 20.04.2011 in Appeals No.
258 of2008, 259 of2008 and 260 of2008 passed by the High Court of
Judicature at Bombay.
UNION OF INDIA & ANR. v. MIS INDUSIND BANK LTD.
703
A . K. Panda, Sr. Adv., R. K. Rathore, Vibhu Sha.nkar Mishra,
A
Ms. Manita Verma, Ms. Arunima Dwivedi, Ms. Shruti Srivastav, Raj
Bahadur Yadav, M. K. Maroria (for ShreekantN. Terdal) Advs. for the
Appellants. ·
Dr. A. M. Singhvi, Krishnan Venugopal, Sr. Adv., Pranab Kumar
Mullick, Ms. Soma Mullick, Sebat Kumar Devria, Amit Bhandar, Lalit
· Bhasin, Ms. Nina Gupta, Mudit Sharma, P. V. Yogeswaran, Ms. Rann
Puruhit, Ms. Shase Ad vs. for Respondents.
The Judgment of the Court was deliv.ered by
R.F. NARIMAN, J. 1. Leave granted.
2.'fhe present appeals bythe Union oflndia raise an interesting
question as to the applicability of the 1997 Amendment to Section 28 of
the Contract Act, 1872. The facts of the three appeals are similar
inasmuch as they concern four exporters who belong to what is known
as the GPB Group of Companies.
3. By a Memorandum dated 6.1L1995, issued by the Textile
Commissioner under the Imports and Exports (Control) Act, 194 7, terms
and conditions for export ofraw cotton and cotton waste for September,
1995 -August, 1996 were laid down. The shipment was permitted only
against an irrevocable letter of credit. The exporters were required to
furnish a bank guarantee in the prescribed form at the rate of I 0% of
the contract price. The bank guarantee was required to be kept valid up
to 6 months with a provision for claims for an additional three months,
after the last date of shipment The allocation of quota was on the basis
of the highest unit value realization.
4. The Textile Commissioner invited applications vide Press Note
and Memorandum, both dated 9.1.1996, for export of I 0,000 bales of
extra long staple cotton. It was mentioned in the Press Note and the
Memorandum thatthe shipment period will be 180 days from the date of
registration Of quota or up to 31.8.1996, whichever is earlier.
5. Pursuant to this Press Note and Memorandum, four sale
contracts were executed between M/s Indocomex Fibres Pvt. Ltd.,
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704
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B
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SUPREME COURT REPORTS
r20l61 l l S.C.R.
Singapore and the four exporters, all in January, 1996. On 31.1.1996,
the four exporters made an application together with a bank guarantee
of even date. In February, the exporters were permitted to export the
total quantity of 9175 bales vide an Allocation-cum-Registration
Certificate dated 6.2.1996 within a validity period of shipment up to
31. 7 .1996. It may be mentioned in passing that this date was extended
as many as three times, the third extension being notified as upto
28.2.1997.
6. As the four exporters failed and neglected to furnish supporting
documents regarding export of goods allocated to them within the
s.tipulated period, the Textile Commissioner, by a letter dated 3 .1.1997,
called upon the exporters to submit the necessary documents within 15
days from the date of issue of this letter but not later than 20.1.1997,
failing which the bank guaran~ees would be enforced. As the exporters
failed and neglected to furnish these documents, the Textile Commissioner,
vide letters dated 15 .5 .1997, invoked the bank guarantees. Vide letters
of even date, the Respondent Bank refused to pay under the said
guarantees, stating that the same could be invoked only within the
extended period of three months i.e. up to 30.4.1997, and not later. By a
letter dated 27/28.8.1997, the Textile Commissioner informed the
Respondent Bank that in light of the amendment to Section 28 of the
Indian Contract Act, which came into force on 8.1.1997, the Bank was
not absolved of its obligation to make payment under the bank guarantee.
To this, the Bank vide letter dated 19.9.1997, reiterated its earlier stand
and stated that it was not liable to make payment under the bank guarantee
after 30.4.1997. It may be mentioned in passing that two of the aforesaid
group companies, namely GPB Fibres Ltd. and M/s Bhagwati Cotton
Ltd. were amalgamated on 12.9 .1997.
7. On 23. 7 .1998, the Textile Commissioner called upon both the
0
exporters and the Respondent Bank to pay the sums covered by the
bank guarantee. As this letter evoked no response, three summary
suits- being 2959/1999, 2963/1999 and 2996/1999-were filed on 8.4.1999
by the Union oflndia and the Textile Commissioner against the exporters
and the Bank in the High Court of Bombay. By order dated 4.12.2001,
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UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.
705
[R. F. NARIMAN, J.]
as amended on 22.1.2002, unconditional leave to defend the suits was
A
granted to the Bank, and conditional leave to so defend the suits to the
exporters upon depositing the amount of Rs.3,82,59,450/- in the Court
within 12 weeks from the date of the said order. On 20.1.2003/27.2.2003,
the Division Bench dismissed the appeal filed by the Union oflndia on
the ground that it was not maintainable under Clause 15 of the Letters
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Patent of the High Court. On 14.8.2003, an SLP filed by the Union of
India met with the same fate.
8. All four exporters remained ex parte, as a result of which the
suits came to be decreed ex parte against the said exporters on
29. I 1.2004.
9. On contest with the Bc;nk, a learned Single Judge of the Bombay
High Court on 22.2.2008, was of the view that as the bank guarantees in
question were in force on 8. 1.1997, when the amendment to Section 28
of the Contract Act took place, the amended Section 28 would apply·to
the facts of these cases. This being the case, the clause in the bank ·
guarantees extinguishing rights and discharging the liability of the Bank
if a claim were not to be made within three months of the date of expiry
of the bank guarantee; was held to be void. Consequently, it was held
that the invocation of the aforesaid bank guarantees, being without the
aforesaid time constraint, "".as valid, and the said suits were, therefore,
decreed in favour of the Union of India and against the bank.
I 0. In an appeal against th is judgment, by the impugned judgment
dated 20.4.2011, a Division Bench of the Bombay High Court, while
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holding that the amended Section 28 would apply to the· facts of these
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cases, came to the opposite conclusion by following certain judgments
of this Court, and therefore, reversed the learned Single Judge, holding
that since the bank guarantees were not invoked within the time
prescribed, the suits would have to be dismissed. The Union oflndia
has filed the present appeals before us.
G
11. Shri A.K. Panda, learned senior advocate appearing on behalf
of the Union of India, has stated that the Single Judge was correct in
applying Section 28(b} as amended in I 997, and that the condition
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SUPREME COURT REPORTS
(2016] 11 S.C.R.
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contained in the bank guarantee which restricted the period within which
it could be invoked is, therefore, void. To buttress his submission, he
cited ( 1995) 2 SCC 630, R. Rajagopal Reddy v. Pad mini
Chandrasekharan. According to learned coun5eJ, the Division Bench,
having reiterated that the amended Section 28(b) would apply, was not
B
correct in its conclusion that such clause in the bank guarantees would
not be void. According to learned counsel, the Supreme Court judgments
relied upon were all pre-amendment, and could not therefore be relied
upon to arrive at the opposite result from the learned Single Judge.
c
12. On the other hand, Dr. A.M. Singhvi, learned senior advocate,
and Shri Krishnan Venugopal learned senior advocate, contended that
both the Single Judge and the Division Bench were not correct in applying
the amendment to Section 28. According to both the learned counsel,
the bank guarantees themselves being dated 31.1.1996, would not be
affected by an amendment made one year later i.e. on 8.1.1997. The
D
relevant date and the relevant law applicable would be as on 31.1.1996,
which would be the unamended Section 28.
This being the case,
according to them, a catena of judgments has held that if a clause in a
contract does not restrict the limitation period within which one can
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approach a Court, then it is perfectly valid and not hit by Section 28
(unamended). For this purpose, they cited several judgments before
us_. An alternative plea was also raised by them that, on the assumption
that the amended Section 28 would apply, even then, regard being had to
the limited object sought to be achieved by the amendment, which followed
a Law Commission Report, it would be clear that even on application of
Section 28(b ), the aforesaid clause in the bank guarantees would not be
hit. hi particular, they argued that the revised Section 28 suggested by
the Law Commis~ion was not in fact enacted verbatim in Section 28(b ),
and that the crucial words "or on failure to make a claim" are missing in
the amended Section 28. They also referred to a subsequent amendment
G of Section 28 in 2012, specifically dealing with bank guarantees, in the
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course of their arguments.
13. The primary contention with which we are faced is whether
Section 28 applies in its original form or whether it applies after
UNION OF INDIA & ANR. v. MIS lNDUSlND BANK LTD.
707
[R. F. NARIMAN, J.]
amendment in 1997. In order to answer this question, it is first necessary
A
to set out Section 28 in its original form and Section 28 after amendment.
The Section reads as under:-
Original Section
28. Every agreement, by which any party thereto is
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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.
Amendment w.e.f. 08.01.1997
C
28. Agreements in restraint of legal proceeding, void.
J<:very Al?reement,
(a) by which any party thereto is restricted absolutely from
enforcing his rights un.der 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;
(b) which extinguishes the rights ofany 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 pa1ty from enforcing his rights by usual legal proceedings,
is void to that extent."
14. In order to answer this primary question, we have first to see
whether the change made in Section 28 could be said to be clarificatory
or declaratory oftlie law, and hence retrospective. It is common ground
that the statute has not made the aforesaid amendment retrospective as
it is to come into force only with effect from 8.1.1997.
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15. The original Section is of 1872 vintage. It remained in this
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incarnation for over 100 years and was the subject matter of two Law
Commission Reports. The 13th Report of the Law Commission oflndia,
September, 1958 examined the Section and ultimately decided that it
was not necessary to amend it, given the fact that there is a well-known
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[2016] 11 S.C.R.
distinction between agreements providing for relinquishment of rights as
well as remedies as against agreements for relinquishing remedies only.
This was reflected in para 57 of the Report as follows:-
"57.
Decided cases reveal a divergence of opinion in
relation to certain clauses of insurance policies with
reference to the applicability of this Section. On examination,
it would appear that these cases do not really turn on the
interpretation of the Section, but hinge on the construction
of the insurance policies in question. The principle itself is
well recognized that an agreement providing for the
relinquishment of rights and remedies is valid, but an
agreement for relinquishment of remedies only falls within
the mischief of Section 28. Thus, in ouropinion, no change
is called for by reason of the aforesaid conflict of judicial
authority."
16. Several decades passed, until the Law Commission in its 97th
Report of March, 1984 suo 1110111 decided that the Section required
amendment.
An introduction to the Report stated the point for
consideration thus:-
"1.2 Under Section 28 of the Indian Contract Act, 1872 -
to state the point in brief- an agreement which limits the
._
time within which a party to an agreement may enforce his
rights under any contract by proceedings in a court of law
is void to that extent. But the Section does not invalidate
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an agreement in the nature of prescription, that is to say, an
agreement which provides that, at the end of a specified
period. If the rights thereunder are not enforced, the rights
shall cease to exist. As will be explained in greater detail in
later Chapters of this Report, this position creates serious
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anomalies and hardship, apart from leading to unnecessary
litigation. Primafacie, it appeared to the Commission that
the Section stood in need of reform on this point. The
arguments for and against amendment of the section will
be set out later. For the present, it is sufficient to state that
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UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.
709
[R. F. NARIMAN, J.]
the problem is one of considerable practical importance as
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such stipulations are frequently found in agreements entered
into in the course of business."
17. After going through the existing case law and finding that the
existing case law resulted in economic injustice because of unequal
bargaining power, the Law Commission decided to recommend a change
in the Section. This was done as follows:-
"5.1 We now come to the changes that are needed in the
present law. In ouropinion, the present legal position as to
prescriptive clauses in contracts cannot be defended as a
matter of justice, logic, commonsense or convenience. When
accepting such clauses, consumers either do not realize the
possible adverse impact of such clauses, or are forced to
agree because big corporations are not prepared to enter
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into contracts except on these onerous terms. "Take it or
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leave it all", is their general attitude, and because of their
superior bargaining power, they naturally have the upper
hand. We are not, at present, dealing with the much wider
field of "standard form contracts" or "standard" terms.
But confining ourselves to the narrow issue under discussion,
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it would appear that the present legal position is open to
serious objection from the common man's point of view.
Further, such clauses introduce an element ofunce11ainty
in transactions which are entered into daily by hundreds of
persons.
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5 .2 It is hardly necessary to repeat all that we have said in
the preceding Chapters about the demerits of the present
law. Briefly, one can say that the present law, which regards
prescriptive clauses as valid while invalidating time limit
clauses which merely bar the remedy, suffers from the
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following principal defects:
(a) It causes serious hardship to those who are economically
disadvantaged and is violative of economic justice.
(b) In particular, it harms the interests of the consumer, dealing
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(2016] 11 S.C.R.
with big corporations.
(c) It is illogical, being based on a distinction which treats the
more severe flaw as valid, while invalidating a lesser one.
( d) It rests on a distinction too subtle and refined to admit of easy
application in practice. It thus, throws a cloud on the rights of
parties, who do not know with certainty where they stand,
ultimately leading to avoidable litigation.
S.JOn a consideration of all aspects of the matter, we
recommend thatSection 28 of the Indian Contract Act, 1872
should be suitably amended so as to amend to render invalid
contractual clauses which purport to extinguish, on the expil)'
of a specified term, right accruing from the contract. Here
is a suggestion for re-drafting the main paragraph of Section
28.
Revised Section 28, main paragrnph, Contract Act as
recommended
28. Evel)' 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 ordinal)' tribunals, or
(b)which limits the time within which he may thus enforce his
rights, or
(c)which extinguishes the rights of any party thereto under or in
respect of any contract on the exp ii)' of a specified period (or
on failure to make a claim) or to institute a suit or other legal
proceeding within a specified period, or
( d)which discharges any party thereto from any liability under or
in respect of any contract in the circumstances specified in
clause (c), is void to that extent."
18. A period of 13 years passed after which this Repo11 was
implemented. The Statement of Objects and Reasons of the Amendment
UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.
711
[R. F. NARIMAN, J.]
reads as follows:-
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"The Law Commission oflndia has recommended in
its 97th report that Section 28 of the Indian Contract Act,
1872 may be amended so that the anomalous situation
created by the existing Section may be rectified.
It has
been held by the courts that the said Section 28 shall
invalidate only a clause in any agreement which restricts
any party thereto from enforcing his rights absolutely or
which limits the time within which he may enforce his rights.
The courts have, however, held that this Section shall not
come into operation when the contractual term spells out
an extinction of the right of a party to sue or spells out the
discharge ofa party from all liability in respect of the claim.
What is thus hit by Section 28 is an agreement relinquishing
the remedy only i.e. where the time-limit specified in the
agreement is sho11er than the period of limitation provided
by law. A distinction is assumed to exist between remedy
and right and this distinction is the basis of the present position
under which a clause barring a remedy is void, but a clause
extinguishing the rights is valid. This approach may be
sound in theory but, in practice, it causes serious hardship
and might even be abused.
2. It is felt that Section 28 of the Indian Contract Act, 1872
should be amended as it harms the interests of the consumer
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dealing with big corporations and causes serious hardship
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to those who are economically disadvantaged.
3. The Bill seeks to achieve the above objects.
19. What emerges on a reading of the Law Commission Rep011
together with the Statement of Objects and Reasons for theAmendment
is that the Amendment does not purport to be either declaratory or
clarificatory. It seeks to bring about a substantive change in the law by
stating, forthe first time, that even where an agreement extinguishes the
rights or discharges the liability of any party to an agreement, so as to
restrict such party from enforcing his rights on the expiry of a specified
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period, such agreement would become void to that extent. The
Amendment therefore seeks to set aside the distinction made in the
case law up to date between agreements which limit the time within
which remedies can be availed and agreements which do away with the
right altogether in so limiting the time. These are obviously substantive
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changes in the law which are remedial in nature and cannot have
retrospective effect.
20. In Sukhram v. Harbheji, [1969] 3 S.C.R. 752, this Court
held:-
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"Now a law is undoubtedly retrospective ifthe law says so
expressly but it is not always necessary to say so expressly
to make the law retrospective. There are occasions when
a law may be held to be retrospective in operation.
Retrospection is not to be presumed for the presumption is
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the other way but many statutes have been regarded as
retrospective without a declaration. Thus it is that remedial
statutes are always regarded as prospective but declaratory
statutes are considered retrospective. Similarly sometimes
statutes have a retrospective effect when the declared
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intention is clearly and unequivocally manifest from the
language employed in the particular law or in the context of
connected provisions. It is always a question whether
the legislature has sufficiently expressed itself. To find
this one must look at the general scope and purview of the
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Act and the remedy the legislature intends to apply in the
former state of the law and then det~rmine what the
legislature intended to do. This line of investigation is, of
course, only open if it is necessary. In the words of Lord
Se I borne in Main v. Stark [1890] I 5 A.C. 384 at 388, there
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might be something in the context of an Act or collected
from its language, which might give to words prima facie
prospective a large operation. More retrospectivity is not
to be given than what can be gathered from expressed or
clearly implied intention of the legislature." (pp. 758-759)
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UNION OF INDIA & ANR. v. MIS INDUSIND BANK LTD.
713
[R. F. NARIMAN, J.]
21. Considering that the subject matter of Section 28 is
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"agreements", the unamended Section 28 would be the law applicable
as on 31.1.1996, which is the date of the agreement of bank guarantee.
It now remains for us to deal with the case law cited by both sides.
22. In R. Rajagopal Reddy v. Padmini Chandrasekharan,
(1995) 2 SCC 630, this Court was called upon to interpret the Benami
Transactions (Prohibition) Act, 1988. A 3-Judge Bench of this Court
overruled Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC
95, in arriving at the conclusion that the 1988 Act was prospective and
not retrospective. In so overruling the Division Bench judgment, this
Court held that the Act is not expressly retrospective, so that an enquiry
would lie as to whether it could be said to be clarificatory or declaratory.
The language of Section 4( I) of the statute made it clear that it would
apply to suits filed only after the 1988 Act came into force Further, the
Bench went on to quote Maxwell on Interpretation as follows:
"Perhaps no rule of construction is more firmly established
than this -
that a retrospective operation is not to be given
to a statute so as to impair an existing right or obligation,
otherwise than as regards matters of procedure, unless that
effect cannot be avoided without doing violence to the
language of the enactment. If the enactment is expressed
in language which is fairly capable of either interpretation,
it ought to be construed as prospective only.' The rule has,
in fact, two aspects, for it, 'involves another and subordinate
rule, to the effect that a statute is not to be construed so as
to have a greater retrospective operation than its lai1guage
renders necessary." [para 14]
It then went on to hold as follows:
"As regards, reason 3, we are of the considered view that
the Act cannot be treated to be declaratory in nature.
Declaratory enactment declares and clarifies the real
intention of the legislature in connection with an earlier
existing transaction or enactment, it does not create new ·
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rights or obligations. On the express language of Section 3,
the Act cannot be said to be declaratory but in substance it
is prohibitory in nature and seeks to destroy the rights of
the real owner qua properties held benami and in this
connection it has taken away the right of the real owner
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both for filing a suit or for taking such a defence in a suit by
benamidar. Such an Act which prohibits benaini transactions
and destroys rights flowing from such transactions as
existing earlier is really not a declaratory enactment. With
respect, we disagree with the line of reasoning which
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commanded to the Division Bench. Jn this connection, we
may refer to the following observations in Principles of
$tatuton· Interpretation, 5th Edn., 1992, by Shri G.P. Singh,
at page 3 15 under the caption 'Declaratory statutes':
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"The presumption against retrospective operation is not
applicable to declaratory statutes. As stated in Craies and
approved by the Supreme Court:
'For modem purposes a declaratory Act may be defined
as an Act to remove doubts existing as to the common law,
or the meaning or effect of any statute. Such Acts are
usually held to be retrospective. The usual reason for passing
a declaratory Act is to set aside what Parliament deems to
have been a judicial error whether in the statement of the
common law or in the interpretation of statutes. Usually, if
not invariably, such an Act contains a preamble, and also
the word "declared" as well as the word enacted.'
But the use of the words 'it is declared' is not conclusive
that the Act is declaratory for these words may, at times be
used to introduce new rules oflaw and the Act in the latter
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case will only be amending the law and will not necessarily
be retrospective. In determining, therefore, the nature of
the Act, regard must be had to the substance rather than to
the form. If a new Act is to explain an earlier Act, it would
be without object unless construed retrospective. An
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UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.
715
[R. F. NARIMAN, J.]
explanatory Act is generally passed to supply an obvious
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omission or to clear up doubts as to the meaning of the
previous Act. It is well settled that if a statute is curative or
merely declarato_ry of the previous law retrospective
operation is generally intended. The language 'shall be
deemed always to have meant' is declaratory, and is in plain
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terms retrospective. In the absence of clear words indicating
that the amending Act is declaratory, it would not be so
construed when the pre-amended provision was clear and
unambiguous. An amending Act may be purely clarificatory
to clear a meaning of a provision of the principal Act which
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was already implicit. A clarificatory amendment of this
nature will have retrospective effect and, therefore, if the
principal Act was existing law when the Constitution came
into force the amending Act also will be part of the existing
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In Mithilesh Kumari v. Prem Behari Khare [(I 989) 2
SCC 95 : (I 989) I SCR 621] Section 4 of the Benami
Transactions (Prohibition) Act, I 988 was, it is submitted,
wrongly held to be an Act declaratory in nature for it was
not passed to clear any doubt existing as to the common
law or the meaning or effect of any statute. The conclusion
however, that Section 4 applied also to past benami
transactions may be supportable on the language used in
the section." [para I 7]
23. Similarly, in Purbanchal Cables & Conductors (P) Ltd.
v. Assam SEB, (2012) 7 SCC 462, this Court had to decide whether the
Interest on Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 could be said to be retrospective. After a review
of various judgments of this Court, this Court held:-
"There is no doubt about the fact that the Act is a substantive
law as vested rights of entitlement to a higher rate ofinterest
in case of delayed payment accrues in favour of the supplier
and a corresponding liability is imposed on the buyer. This
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Court, time and again, has observed that any substantive
law shall operate prospectively unless retrospective
operation is clearly made out in the language of the statute.
Only a procedural or declaratory law operates
retrospectively as there is no vested right in procedure.
[n the absence of any express legislative intendment of the
retrospective application of the Act, and by virtue of the
fact that the Act creates a new liability of a high rate of
interest against the buyer, the Act cannot be construed to
have retrospective effect. Since the Act envisages that the
supplier has an accrued right to claim ah igher rate of interest
in terms of the Act, the same can only be said to accrue for
sale agreements after the date of commencement of the
Act i.e. 23-9-1992 and not any time prior." (paras 5 I and
52]
24. Similarly, in CIT v. Vatika Township (P) Ltd., (2015) I SCC
1, this Court held that the proviso to Section 1I3 of the Indian Income
Tax Act, 1961 was prospective and not retrospective. In so holding, the
Constitution Bench adverted to certain general principles as under:-
"Of the various rules guiding how a legislation has to be
interpreted, one established rule is that unless a contrary
intention appears, a legislation is presumed not to be intended
to have a retrospective operation. The idea behind the rule
is that a current law should govern current activities. Law
passed today cannot apply to the events of the past. rf we
do something today, we do it keeping in view the law of
today and in force and nottomorrow's backward adjustment
ofit. Our belief in the nature of the law is founded on the
bedrock that every human being is entitled to arrange his
affairs by relying on the existing law and should not find
that his plans have been retrospectively upset. This principle
of law is known as lex prospicit 11011 respicit: law looks
forward not backward. As was observed in Phillips v.
Eyre [( 1870) LR 6 QB I], a retrospective legislation is
UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.
[R. F. NARIMAN, J.]
contrary to the general principle that legislation by which
the conduct of mankind is to be regulated when introduced
for the first time to deal with future acts ought not to change
the character of past transactions carried on upon the faith
of the then existing law.
The obvious basis of the principle against retrospectivity is
the principle of"fairness", which must be the basis of every
legal rule as was observed in L 'Office Cherifien des
Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd.
[(1994) IAC 486: (1994)2 WLR39: (1994) I All ER20
(HL)] Thus, legislations which modified accrued rights or
which impose obligations or impose new duties or attach a
new disability have to be treated as prospective unless the
legislative intent is clearly to give the enactment a
retrospective effect; unless the legislation is for purpose of
supplying an obvious omission in a former legislation or to
explain a former legislation. We need not note the
cornucopia of case law available on the subject because
aforesaid legal position clearly emerges from the various
decisions and this legal position was conceded by the counsel
for the parties. In any case, we shall refer to few judgments
containing this dicta, a little later." [paras 28 and 29]
25. On a conspectus of the aforesaid decisions, it becomes clear
that Section 28, being substantive law, operates prospectively as
retrospectivity is not clearly made out by its language. Being remedial
in nature, and not clarificatory or declaratory of the law, by making certain
agreements covered by Section 28(b) void for the first time, it is clear
that rights and liabilities that have already accrued as a result of
agreements entered into between parties are sought to be taken away.
This being the case, we are of the view that both the Single Judge and
Division Bench were in error in holding that the amended Section 28
would apply.
26. Considering that the un-amended Section 28 is to apply, it is
important to advert to the said Section and see what are its essential
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ingredients. First, a party should be restricted absolutely from enforcing
his rights under or in respect of any contract. Secondly, such absolute
restriction should be to approach, by way of a usual legal proceeding,
the ordinary Tribunals set up by the State. Thirdly, such absolute
restriction may also relate to the limiting oftime within which the party
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tilay thus enforce its rights.
27. At this point, it is necessary to set out the exact clause in the
bank guarantees in the facts of the present cases.
One such clause
reads as under:
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" .... Unless a demand or claim under this guarantee is made
against us within three months from the above date (i.e.
On or before 30.4.97), all your rights under the said
guarantee shall be forfeited and we shall be relieved and
discharged from all liabilities hereunder."
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28. A similar clause contained in another bank guarantee reads
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thus:-
" .... Provided however, unless a demand or claim under this
guarantee is made on us in writing within 3 months from
the date of expiry of this guarantee in respect of export of
416.500 M.T. 2450 Bales OF Raw Cotton,.we shall be
discharged from all liability under this guarantee thereafter."
29. A reading of the aforesaid clauses makes it clear that neither
clause purports to limit the time within which rights are to be enforced.
In other words, neither clause purports to curtail the period oflimitation
within which a suit may be brought to enforce the bank guarantee. This
beingthe case, it is clear that this Court's judgment in Food Corpn. of
India v. New India Assurance Co. Ltd., (1994) 3 SCC 324, would
apply on all fours to the facts of the present case.
30. The judgment ofVenkatachala,J. and Bharucha,J. set out the
relevant clause in a fidelity insurance guarantee as follows:-
" ... however, that the Corporation shall have no rights
under this bond after the expiry of (period) six months
fi"om the date of termination of the contract."
UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.
[R. F. NARIMAN, J.]
31. On the facts in that case, the High Court had allowed the
appeals of the Insurance Companies stating that the said clause did not
entitle the Corporation to file suits against Insurance companies after
the expiry of the six months period from the date of termination of the
respective contracts entered into. In setting aside the High Court
judgment, this Court held that none of the clauses in the bond required
that a suit should be instituted by the Corporation for enforcing its rights
under the bond within a period of six months from the date of termination
of the contract. The restriction adverted to in the clauses of the bond
envisaged the need for the Corporation to lodge a claim based on the
bond, and that if this was done, a suit to invoke rights under the bond
could be filed within the limitation period set out in the Limitation Act.
32: In a separate concurringjudgment R.M. Sahai, J. after going
into the case law in paragraph 3 of his judgment, made an extremely
perceptive observation. He stated that where the tiling of the suit within
limitation is made dependent on any condition precedent, then such
condition precedent not curtailing the limitation period within which a
suit could be filed, would be valid and not hit by Section 28. In paragraph
8 of the judgment, the learned Judge put it thus:-
"Jt does not directly or indirectly curtail the period of
limitation nor does it anywhere provide that the Corporation
shall be precluded from filing suit after expiry of six months.
It can utmost be construed as a condition precedent for
filing of the suit that the appellant should have exercised
the right within the period agreed to between the parties.
The right was enforced under the agreement when notice
was issued and the company was required to pay the
amount. Assertion ofright is one thing than enforcing it in a
court of law. The agreement does not anywhere deal with
enforcement of right in a court of law. It only deals with
assertion of right.