[Every contract] which extinguishes the right of any party thereto under or
in respect of any contract on the expiry of a specified period or on failure to
make a claim or to institute a legal proceeding within a specified period[is void to that extent] Clearly, the law makers in 1997 did not wish to strike down contracts which provided extinguishment of right upon failure to raise a claim in accordance with the contract. It also sought to only regulate those contracts where the right of enforcement (or in other words, right to move a court of law) was extinguished after a specified period a narrower position than what the law commission sought to adopt. Illustratively, limitation of warranty claims is an important feature of a share purchase contract. Similarly, in many construction contracts, limitation clauses are built requiring the owner of a project to bring a claim within stipulated time. The move to amend Section 28 would indicate that so far as the law makers are concerned, such limitation provisions are to fall because they do not enjoy protection of the recent amendment. There is undoubtedly a marked distinction between a condition which so limits the time within which a suit may be brought to enforce rights and one which provides that there shall no longer be any rights to enforce. Such a condition is not illegal in itself. This position was given legal sanctity by the Supreme Court in the case of National Insurance Co. ltd., which held that an agreement which in effect seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by the law would be void as offending Section 28 of the Contract Act. This is because such an agreement would seek to restrict the party from enforcing his rights in Court after the period prescribed under the agreement has expired even though the period prescribed by law for the enforcement of his rights would have not yet expired. There could, however, be agreements which do not seek to curtail the time for enforcement of rights but which provide for the forfeiture or waiver of rights if no action is commenced within the period stipulated by such agreement. Such a clause in the agreement would not fall within the mischief of Section 28 of the Contract Act[2]. The settled position of law before the Amendment was that Section 28 would invalidate only a clause in an agreement which restricts a party from enforcing his right absolutely or which limits the time within which he may enforce his right. Section 28 before the Amendment, did not come into operation when contractual terms spelt out the extension of right of a party to sue or spelt out the discharge of a party from any liabilities In the case of Explore Computers, [12] the Delhi High Court held, it is not open to contend that if any suit or claim is not filed within one month of the expiry of the bank guarantee, the right of the plaintiff to institute any legal proceedings itself is extinguished. Such a plea would fly in the face of the amended Section 28 and cannot be discharged from the liability nor can the rights of the plaintiThis distinction is very fine and a number of litigating contracting parties have found it difficult in practice to ascertain this very fine difference between what is meant by extinguishing of a right and what is meant by extinction of a remedy. This anomaly is sought to be cleared by virtue of this Section 28[25].ff be extinguished by inclusion of the clause providing so.
Section 28, being substantive law, operates prospectively as retrospectively is not
clearly made out by its language, the Bench observed.