Section 28 of the Indian Contract Act, 1872: Agreements in Restraint of Legal Proceedings

Section 28 protects a contracting party's access to lawful remedies. In general, a contractual term is void to the extent that it absolutely prevents a party from enforcing contractual rights through ordinary legal proceedings, improperly shortens the legally available enforcement period, or extinguishes rights or liabilities after a specified period in a manner that restricts enforcement.

Meaning and scope of Section 28

Section 28 of the Indian Contract Act, 1872 deals with agreements that restrain legal proceedings. The provision does not make the entire contract void in every case. The offending restriction is void to that extent.

Clause (a) addresses terms that absolutely restrict enforcement through the usual legal proceedings in ordinary tribunals, as well as contractual terms that limit the time within which contractual rights may be enforced. Clause (b) addresses terms that extinguish contractual rights or discharge contractual liability on expiry of a specified period so as to restrict enforcement.

Section 28: statutory rule

For the authoritative and current statutory text, use the official India Code portal. The summary above is explanatory and should be read with the official text and applicable amendments.

Exceptions for arbitration agreements

Exception 1 preserves an agreement under which parties refer future disputes concerning a subject or class of subjects to arbitration and agree that only the amount awarded in arbitration will be recoverable in respect of the referred dispute.

Exception 2 preserves a written agreement to refer an already arisen question between the parties to arbitration and preserves the operation of other laws governing references to arbitration.

These exceptions reflect the distinction between unlawfully shutting out legal remedies and choosing arbitration as the agreed dispute-resolution mechanism. Arbitration in India is principally governed by the Arbitration and Conciliation Act, 1996.

Exception 3: guarantees by banks and financial institutions

Exception 3 permits a written contract involving a bank or financial institution to contain, in a guarantee or an agreement providing for a guarantee, a term extinguishing rights or discharging liability after a specified period, provided that the specified period is not less than one year from the occurrence or non-occurrence of the specified event for extinguishment or discharge.

The Explanation to Section 28 defines the expressions used for this exception. The source page's older statutory wording referred, among other things, to the State Bank of India (Subsidiary Banks) Act, 1959 and Section 4A of the Companies Act, 1956. Because connected banking and company legislation has since changed, the current official statutory text should be checked before relying on those cross-references.

Exclusive jurisdiction clauses are not automatically void

A clause selecting one court from among courts that otherwise have jurisdiction is materially different from an agreement that absolutely prevents recourse to ordinary tribunals. The Supreme Court has repeatedly considered exclusive-jurisdiction clauses with Section 28 and Section 20 of the Code of Civil Procedure, 1908. The validity of a particular clause depends on its language and whether the selected court otherwise possesses jurisdiction.

Official judgments and orders can be searched through the Supreme Court of India judgment search and Supreme Court Reports search.

Contractual time bars and statutory limitation

Section 28 prevents parties from using a contract to impose an impermissible shorter enforcement period or an impermissible extinguishment mechanism. This does not abolish limitation periods imposed by law. Statutory limitation continues to govern suits, applications and other proceedings according to the applicable legislation.

In arbitration matters, the Supreme Court has also distinguished an invalid contractual restriction from the statutory limitation period governing the remedy. Parties should therefore examine both Section 28 and the applicable limitation provisions before deciding whether a claim is time-barred.

Practical effect

When reviewing a dispute-resolution, claim-notification, limitation, forfeiture or guarantee clause, the important questions are whether the term completely excludes ordinary legal enforcement, shortens the legally available enforcement period, extinguishes rights or liabilities in a manner prohibited by Section 28, falls within an arbitration exception, or qualifies for the specific bank and financial institution guarantee exception.

Legal information only. The effect of Section 28 depends on the wording of the contract, the applicable limitation law and the facts of the dispute.