NEW INDIA ASSURANCE CO. LTD. vs K.A.ABDUL HAMEED

QUESTION involved in these Revision Petitions is with regard to the effect of addition of subsection (b) to Section 28 of the Indian Contract Act, 1972, in the year 1997. The question arises in view of the following condition of the insurance policy. "It is also hereby further expressly agreed and declared that if the Company shall disclaim liability to the insured for any claim hereunder and such claim shall not, within twelve calendar months from the date of such disclaimer have been made the subject matter of a suit in a court of law, then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder".

Learned counsel for the Insurance Company, contended that as the complaint was not filed within the period of 12 months of the repudiation of the claim, the complaint was not maintainable. In R.P.No.338 of 1998 the Insurance Company repudiated the claim of the insured on 31st March, 1993 and the complaint was filed before the District Forum, Gurgaon, on 12th January, 1995, i.e. beyond the period of 12 months. Prima facie, it appears that the aforesaid condition in the insurance policy would be void in view of Section 28(b). Section 28 is as under: "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".

However, it is contended that: (a) this condition was part of the contract which had taken place in 1992, the claim was repudiated in 1993 and the complaint was filed in 1995 when Clause (b) of Section 28(b) of the Act was not in existence. (b) Similar condition came up for interpretation before the Apex Court in the case of Petitioner and the Court has upheld such condition. Learned Counsel for the Petitioner has referred to the three Judge Bench decision of the Supreme Court in National Insurance Co. Ltd. Vs. Sujir Ganesh Nayak and Co. and Anr., (1997) 4 SCC 366. In this decision the Supreme Court upheld the contention of the Insurance Company and observed: "14. Sahai, J. [(in Food Corporation of India Vs. New India Assurance Co. Ltd., (1994) 3 SCC 324)] who wrote a separate but concurring judgment extracted the clause of the Fidelity Insurance Guarantee (which we have extracted earlier) and then posed the question: What does it mean? What is the impact of Section 28 of the Contract Act on such a clause? Pointing out that the said Section 28 was a departure from the English law (there is no such statutory bar in English law) the learned Judge observes that: (SCC p.330, para 3) "... Even though the phraseology of Section 28 is explicit and strikes at the very root by declaring any agreement curtailing the normal statutory period of limitation to be void the courts have been influenced by the distinction drawn by English Courts in extinction of right by agreement and curtailment of limitation."

Referring to the language of the various terms of the agreement, the learned Judge holds in paragraph 8 thus: (SCC p.335) "From the agreement it is clear that it does not contain any clause which could be said to be contrary to Section 28 of the Contract Act nor it imposes any restriction to file a suit within six months from the date of determination of the contract as claimed by the company and held by the High Court. What was agreed was that the appellant would not have any right under this bond after the expiry of six months from the date of the termination of the contract. This cannot be construed as curtailing the normal period of limitation provided for filing of the suit. If it is construed so it may run the risk of being violative of Section 28 of the Contract Act. It only puts embargo on the right of the appellant to make its claim known not later than six months from the date of termination of contract. It is in keeping with the principle which has been explained in English decisions and by our own court that the insurance companies should not be kept in dark for long and they must be apprised of their liabilities immediately both for facility and certainty. The High Court erroneously construed it as giving up the right of enforceability of its claim after six months."

From the case law referred to above the legal position that emerges is that an agreement which in effect seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by law would be void as offending Section 28 of the Contract Act. That is because such an agreement would seek to restrict the party from enforcing his right in Court after the period prescribed under the agreement expires even though the period prescribed by law for the enforcement of his right has yet not expired. But there could be agreements which do not seek to curtail the time for enforcement of the right but which provides for the forfeiture or waiver of the right itself if no action is commenced within the period stipulated by the agreement. Such a clause in the agreement would not fall within the mischief of Section 28 of the Contract Act. To put it differently, curtailment of the period of limitation is not permissible in view of Section 28 but extinction of the right itself unless exercised with a specified time is permissible and can be enforced. If the policy of insurance provides that if a claim is made and rejected and no action is commenced within the time stated in the policy, the benefits flowing from the policy shall stand extinguished and any subsequent action would be time-barred. Such a clause would fall outside the scope of Section 28 of the Contract Act. This, in brief, seems to be the settled legal position. We may now apply it to the facts of this case." In our view, the Supreme Court declared the law as under: "Curtailment of the period of limitation is not permissible in view of Section 28 but, extinction of right itself unless exercised within a specified time is permissible and can be enforced".

Legislature thought the aforesaid approach may be sound in theory but in practice it causes serious hardship and might even be abused, and it harms the interest of a consumer dealing with big corporations and causes serious hardships to those who are economically disadvantaged. Hence, Clause (b) of Section 28 was added. This is made clear by the Statement of Objects and Reasons for substituting Section 28. The same are as under: "The Law Commission of India 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 of a 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 shorter 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.

IT is felt that section 28 of the Indian Contract Act, 1872 should be amended as it harms the interests of the consumer dealing with big corporations and causes serious hardship to those who are economically disadvantaged". In this view of the matter, it is apparent that the aforesaid clause (b) is a declaratory enactment. It declares that such term would be void and that was the intention of the Legislature. The law with regard to declaratory enactment is settled. In Central Bank of India and Ors. Vs. Their Workmen, etc., AIR 1960 SC 12 the Apex Court has approved the following law from Craies: Statute Law, 7th Edition, p.58. The Court observed: "What is a declaratory Act? The following observations (in Craies on Statute Law, 5th Edition, pp.56-57) are apposite: "For modern 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''."

Further, in Shri Chaman Singh & Anr. Vs. Srimathi Jaikaur (1969) 2 SCC 429, the Court has observed that: "It is well settled that if a statute is curative or merely declares the previous law retroactive operation would be more rightly ascribed to it than the legislation which may prejudicially affect past rights and transactions."

In view of the aforesaid law, no further reference is required to various judgments sought to be relied upon by the learned amicus curiae. Considering the law as declared and amended, it is to be held that the condition which extinguishes the right of the Complainant to approach the Court or Forum within a specified time as per the contract is void and cannot be enforced. The law declares such condition to be void and in such a situation it is not necessary for us to discuss the difference between void and voidable. Hence, it would not be possible to uphold the contention raised by the Insurance Company and arrive at the conclusion merely on the condition stated above that as the claim was repudiated before one year of the filing of the complaint, the complainant''s rights are extinguished and therefore the complaint is barred. With this background, we would narrate brief facts chequered facts in Revision Petition No.986 of 1995. The Complainant, owner of a Mahindra Van, which was insured with the New India Assurance Co. Ltd. for the period 31.8.1990 and 30.8.1991. The van met with an accident on 23.10.1990; FIR was lodged; a sum of Rs.37,436/- was claimed from the Insurance Company; that claim was repudiated. Hence the Complainant preferred O.P. No.178 of 1993 before the District Forum, Nagapattinam. By order dated 5.7.1994 the complaint was partly allowed and the Insurance Company was directed to pay a sum of Rs.21,773/- with interest at the rate of 18% p.a. and also to pay Rs.7,500/- towards mental agony and Rs.500/- towards cost of litigation. Against that order, the Insurance Company preferred Appeal No.A.P. No. 693 of 1995 before the State Consumer Disputes Redressal Commission, Tamil Nadu. In that appeal the only contention raised was with regard to the condition of the insurance policy which provides that the complaint filed after one year from the date of repudiation was not maintainable. That contention was negatived and the appeal was dismissed by judgment and order dated 28.9.1995. Against that order the Petitioner preferred Revision Petition No.196 of 1995 before this Commission. That was summarily dismissed. Hence, the Insurance Company preferred Special Leave Petition No.5769 of 1999 before the Apex Court and the Apex Court remitted this matter to his Commission for being decided afresh in accordance with law, by observing that this was not a fit case for summary disposal. Facts of Revision Petition No.338 of 1998: The Complainant was owner of a jeep insured for a sum of Rs.2,22,000/- for the period from 7.4.1992 to 6.4.1993. The vehicle met with an accident on 8.7.1992; FIR was registered on the same day; report to that effect was sent to the Insurance Company; a surveyor was appointed who assessed the loss at Rs.38,000/-; the Complainant claimed Rs.1 lakh; despite the report of the surveyor, the Insurance Company failed to settle the claim; the Complainant visited the office of the Insurance Company on various occasions, ultimately, the claim was repudiated on the ground that the driver of the vehicle was not possessing any valid driving licence. It was the contention of the Complainant that the driver of the vehicle was having valid driving licence. His licence was revalidated by the licensing authority, Gurgaon of the M.A.C.T. claim arising out of the said accident. The licensing clerk proved the validity of the licence. So the claim was repudiated without any basis. The Insurance Company mainly objected the complaint on the ground that it was barred in view of the condition mentioned above. That was negatived by the District Forum after referring to various judgments. Finally, the District Forum by order dated 28.4.1995 awarded Rs.25,526/- as compensation payable by the Insurance Company. Against that order First Appeal No.255 of 1995 was filed before the State Consumer Disputes Redressal Commission, Haryana, Chandigarh. That appeal was dismissed by order dated 5th November, 1997. Thereafter Revision Petition No.338 of 1998 was filed before this Commission which was dismissed. The Insurance Company preferred Civil Appeal 5769 of 1997 before the Supreme Court. That appeal was allowed by the Apex Court and the matter was remitted to this Commission. In these revision petitions no other point is involved except with regard to the condition quoted above. Hence, there is no substance in these revision petitions and are dismissed. The Insurance Company shall pay costs of Rs.5,000/- in each case. The amount shall be deposited with the NCDRC Bar Association Legal Aid Fund. We appreciate the hard work done and assistance rendered by the amicus curiae.