National Insurance Co. Ltd. vs. Sujir Ganesh Nayak and Co. and Another
AIR 1997 SC 2049
Key Words: limitation, absolute restriction
In this case, the plaintiff sought to struck down the covenant in the Insurance policy agreement stating “In no case whatsoever shall the company be liable for any loss or damage after the expiration of 12 months from the happening of loss or the damage unless the claim is the subject of pending action or arbitration” on grounds of such clause being in restraint to trade.
The agreement was held to be valid for it did not restrict absolutely nor did it limit the time frame within which a cause of action could arise. It merely extinguished the liability of the Insurance Company or the right of the plaintiff to claim any benefits under the policy after the period of 12 months was over.
After the amendment of the Indian Contract Act, the second clause (b) was added to S.28 with the effect that any agreement which provides for forfeiture or waiver of any rights of the party under the contract or extinguishment of any liability thereof of the party after the specified period of time, will be void to that extent.
Therefore, in Manohar Singh and Sons Vs. Raksha Karamchari Coop. Gr. H. Soc. and Anr., MANU/DE/3478/2009 the plaintiff, an architecture rendering services to defendant cooperative society, claimed arbitration after three months of defendants’ withholding of the consideration amount against alleged defects in the work; however, the contract provided for the period of 28 days after the Architect’s notice within which the notice for arbitration could be served upon. Plaintiff sought to struck down the covenant on the basis of S.30 of Indian Contract Act alleging that it was in restraint of legal proceedings.
The Court observed that the aforesaid clause limits the time within which the arbitration proceedings could be invoked and therefore, must be void to that extent as u/s 30(a). However, if the clause, as in Ganesh Nayak case (supra), would have provided that “the liability of Cooperative society shall cease to exist after the period of 28 days from the Architect’s notice are over”, then, it would have been struck down u/s 30(b).