Every agreements , by which any party there to 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 is void to that extent (Sec 28).
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.
(1) The section shall not render illegal a contract by which two or more persons agree that my 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.
(2) This section shall not render illegal any contract in writing by which two or more persons agree to refer to arbitration by question between them which has already arisen.
(3) An agreement will be valid if it restricts the right of either party to sue in a particular Court or refer the dispute to arbitration. It should be, however, noted that in Hakam Singh v Gammon (India) Ltd(AIR-1971-S.C. 740) the Supreme Court observed that it is not open to the parties by agreement to confer jurisdiction on a Court which it does not possess under the Civil Procedure Code.
(a) A, in Bombay, enters into a contract with B in Madras with a condition that all disputes will be subject to Bombay jurisdiction. This limits the right of B to sue only in Bombay Court in case of dispute. Such an agreement is valid.
(b) Where two courts have jurisdiction to try a suit and parties agree that the suit shall be filed only in one of these Courts, such a stipulation is valid.
(c) Agreements which do not limit the time for enforcing any rights, but only provide that failure to enforce them within the stipulated time shall operate as a release or forfeiture of such rights are binding between the parties.
According to the Indian Limitation Act, the time limit for bringing an action for breach of contract is 3 years from the date of breach. A clause restricting this right below the stipulated period is void. Therefore, if the clause states that no suit to recover under the life insurance policy shall be brought after one year from the death of the assured, such clause shall be void.
However, if a clause in the policy provides that if s suit is not commenced within one year of the rejection of claim, all benefits under the policy shall be forfeited, is valid. This is because the effect of the agreement is not to limit the time but to provide for the surrender of right of no action was brought within that time. A condition in the contract that the right there under accruing to a party will be forfeited or released if he does not sue within a time limit will not offend section 28. Curtailment of the period of limitation is not permissible but extinction of the right itself unless exercised within specified time is permissible and can be enforced. But an agreement relinquishing the remedy only by providing that if a suit is to be filed that should be filed within the time limit, being shorter than the period of limitation provided by Limitation Act, will be hit by section 28. Similarly in a Government contract where a clause provided that the President of India shall be discharged from all liability under the contract unless arbitration or a suit is commenced within 6 months from the expiration of the period is valid. Where jurisdiction vests in more than one Court having jurisdiction, contract to vest jurisdiction in one of them is not against public policy. The court explained the distinction between extinction of rights and limitations of time in the following words: the distinction may be fine but it is nevertheless a fundamental distinction. The arrangement in one case takes it for granted that the right as well as the liability exists but the time for enforcing it is to be limited. While in the other case the parties agree that the right as well as liability shall stand extinguished if a particular event occurs.