1 APP258/08 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.258 OF 2008 IN SUMMARY SUIT NO.2996 OF 1999 WITH APPEAL NO.259 OF 2008 IN SUMMARY SUIT NO.2963 OF 1999 WITH APPEAL NO.260 OF 2008 IN SUMMARY SUIT NO.2959 OF 1999 M/s Indusind Bank Ltd. ...Appellants v/s Union of India and others ...Respondents Mr Aspy Chinoy, Sr. Counsel with Mr Venkatesh Dhond, Mr Ashish Kamat, Mr Nishit Dhruve, Mr Prakash Shinde, Ms Swati Deshpande, Mr Avinash Singh 2 APP258/08 Gautama, Mr D. Mehta i/b M/s M. Dhruva and Partners for Appellants. Mr A.J. Rana, Sr. Counsel with Mr S.R. Rajguru for Respondents. Mr Sandip Mahadik with Mr Sushil Vyas i/b Ms Chhaya Shah for Interveners  Indian Banks Association. CORAM : D.K. DESHMUKH AND ANOOP V. MOHTA JJ. DATE : 20TH APRIL 2011. ORAL JUDGMENT (PER D.K. DESHMUKH J.) :- 1] The issue involved in all t he three appeals is the same, therefore they can be conveniently disposed off by a common order. Three summary suits bearing Nos.2996 of 1999, 2963 of 1999 and 2959 of 1999 were filed by the Government of India. In all the suits, plaintiffs were Union of India, Textile Commissioner, Union of India, and defendant No.2 was the present appellant Bank. The defendant No.1 in suit No.2996 of 1999 was U.L. Trading Corporation, in suit No.2963 of 1999 was Punjab Cotton Co. (Ex-Imp) Ltd. And in suit No.2959 of 1999 was M/s Bhagwati Cotton Ltd. All the three 3 APP258/08 suits were filed claiming money decree in different amounts against both the defendants. The Government of India had entered into an agreement with the defendant No.1 in all the three suits. Under that agreement, the defendant No.1 agreed and undertook to fulfill the export obligation and realise foreign exchange. The defendant No.1 agreed that in case of its failure, it agrees unconditionally and unequivocally to pay to the Government of India the sum which was mentioned in that agreement. The defendant No.2 Bank i.e. the present appellant executed bank guarantee in favour of President of India in diverse sums to cover the liability of the defendant No.1. It appears that there was default committed by the defendant No.1, therefore the defendant No.1 was called upon to pay the amounts by the Government of India, they could not pay the amounts, therefore the Government of India by letter dated 15 th May 1997 called upon the appellant Bank to pay the amounts for which bank guarantee was given by the appellant Bank. By letter dated 22 nd July 1997, the appellant Bank informed the 4 APP258/08 plaintiffs that the bank guarantee was valid upto 31 st January 1997 and therefore the claim could have been made within the extended claim period of three months i.e. Upto 30 th April 1997. It was stated that since the claim was not made before 30 th April 1997, the Bank is relieved and discharged from its liabilities under the bank guarantee and therefore nothing was payable by the Bank to the plaintiffs. In this situation, the plaintiffs filed above referred three suits claiming money decree against both the defendants. It appears that though the defendant No.1 was served in all these suits, the defendant No.1 did not appear and therefore, ex- parte decree was passed against the defendant No.1 in all the suits. The suits so far as liability is concerned, are contested by the present appellant and they were decided by three different judgments by the learned Single Judge. The learned Single Judge held that the clause in the bank guarantee which obliges the plaintiffs to lodge their claim under the bank guarantee on or before 30 th April 1997 is void because of the provisions of section 28 5 APP258/08 of the Indian Contract Act. The learned Single Judge has held that the appellant Bank was not justified in declining to pay money under the bank guarantee on the ground that the claim was not made before 30 th April 1997. The leaned Single Judge therefore passed money decree in diverse sums in favour of the plaintiffs and against the defendant No.2 Bank. Hence the Bank is in appeal against those decrees. 2] The only question that has been decided by the learned Single Judge is  whether the term in the bank guarantee that the claim has to be lodged in any case on or before 30 th April 1997 is void in view of provisions of section 28 of the Contract Act? . The learned counsel appearing for appellants submits that the finding recorded by the learned Single Judge that the aforesaid term in the contract is hit by section 28(b) of the Contract Act is incorrect. The learned counsel submits that the term in the bank guarantee for lodging claim or making claim by the plaintiffs before a particular 6 APP258/08 date in order to make the Bank liable under the bank guarantee is in no way affected by section 28. The learned counsel submits that there is no clause in the bank guarantee which imposes any restriction on filing a suit within any period which is shorter than the period provided by the Limitation Act. The learned counsel submits that the term in the bank guarantee is in relation to the assertion of right and not in relation to enforcement of right. The learned counsel relies on the judgment of the Supreme Court in the case of Food Corporation of India v/s New India Assurance Co.Ltd. and others, reported in (1994) 3 SCC 324 in support of his submission. 3] The learned counsel appearing for respondents  plaintiffs, on the other hand, submits that perusal of the bank guarantee shows that the bank guarantee is valid for a period of six months from the date of last shipment. The date of last shipment is 28 th February 1997 and therefore the claim made in May 1997 is in terms of the bank 7 APP258/08 guarantee. The learned counsel submits that thus the Bank could not have declined to make payment under the bank guarantee for the reason that the claim was not made on or before 30 th April 1997. Now, if in the light of these rival submissions the record of the case is perused, it is clear that the plaintiffs clearly understood that the bank guarantee was valid upto 31 st January 1997 and claim under that bank guarantee could be made on or before 30 th April 1997. It was not the case of the plaintiffs in the plaint that in terms of the bank guarantee they could have made their claim any time within a period of six months from 28 th February 1997. The case of the plaintiffs as seen from the averments in paragraph 8 of the plaint was that the term of the contract which obliges them to make the claim on or before 30 th April 1997 is invalid or void because of the provisions of section 28. The judgment of the learned Single Judge also shows that this was the only point considered by the learned Single Judge. Paragraph 8 of the plaint reads as follows :- 8 APP258/08 8.The plaintiffs state that thereafter, by a letter dated 7.8.97 the plaintiffs called upon the defendant No.1 to make the payment of Rs.72,53,700/- as the defendant No.1 has failed and neglected to submit any proof of shipment against the export quota granted to them on 6.2.96. By a letter dated 27/28 th August 97 the plaintiffs informed the defendant No.2 that in the light of the amendment to section 28 of the India Contract Act 1872, which came into force w.e.f. 8.1.1997, the Bank is not absolved of its obligation to make the payment under the Bank Guarantee and that the Bank was bound and liable to make the payment. By the said letter the defendant No.2 was called upon to forward demand draft for the amount of Rs.72,53,700/- in favour of the Textile Commissioner, Mumbai immediately. ..... 9 APP258/08 Perusal of the above quoted paragraph makes it clear that the plaintiffs had come to Court with a clear case that the bank guarantee obliges them to make claim with the Bank on or before 30 th April 1997 but that term in the bank guarantee is void because of section 28. The only question therefore to be examined was whether because of provisions of section 28 of the Contract Act, the term in the bank guarantee that the claim should be made with the Bank on or before 30 th April 1997 is void ?. The term in the bank guarantee, which according to the plaintiffs is invalid because of the provisions of section 28 of the Indian Contract Act reads as under :- Notwithstanding anything hereinabove contained our liability under this guarantee is restricted to Rs.72,53,700/- (Rupees Seventy Two Lakhs Fifty Three Thousand Seven Hundred only) and shall remain in force until 31/01/97. Unless a demand or claim under this guarantee is 10 APP258/08 made against us within three months from the above date (i.e. On or before 30/04/97), all your rights under the said guarantee shall be forfeited and we shall be relieved and discharged from all liabilities hereunder. Thus, as per this term, the bank guarantee was to remain in force till 31 st January 1997 and if the respondents, for whose benefit the bank guarantee was given, wanted to make any demand or claim under the bank guarantee, that claim or demand had to be made within a period of three months from 31 st January 1997 i.e. On or before 30 th April 1997. If no demand or claim under the bank guarantee was made with the Bank on or before 30 th April 1997, then the respondents were not entitled to make any claim or demand under the bank guarantee against the Bank. In other words, the respondents right to make claim or demand against the Bank under the said bank guarantee was to be perfected only in case that claim or demand is lodged with the Bank on or before 11 APP258/08 30 th April 1997. Once such a claim o demand is lodged with the Bank on or before 30 th April 1997 and if the Bank did not respond positively or rejected the claim or demand, a suit for enforcement of the right against the Bank in relation to bank guarantee could be filed within the period of limitation provided by the Limitation Act. To put it differently, the above quoted term in the bank guarantee did not curtail the period of limitation for instituting a suit in a Court of law against the Bank for enforcement of any right under the bank guarantee nor did it extinguish the right of the respondents for the enforcement of which a suit could be instituted. It only provided that in order to get the right to make claim under the bank guarantee, that claim must be lodged with the Bank on or before 30 th April 1997. 4] Section 28 of the Contract Act before its amendment with effect from 8 th January 1997 read as under :- 12 APP258/08 28.Every agreement, 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, is void to that extent. Provisions of unamended section 28 were interpreted by this Court in its judgment in the case of Baroda Spinning and Weaving Co.Ltd. v/s Satyanarayan Marine and Fire Ins. Co.Ltd., reported in 15 Bom.L.R. 948. That judgment of this Court was considered by the Supreme Court in its judgment in the case of Vulcan insurance Co. v/s Maharaj Singh, reported in AIR 1976 SC 287 as also in the judgment in the case of Food Corporation of India v/s New India Assurance Co.Ltd. & others, reported in (1994) 3 SCC 324. The Supreme Court in its judgment in the case of National Insurance Co.Ltd. v/s Sujir Ganesh Nayak and Co. & others., reported in AIR 1997 SC 13 APP258/08 2049, after referring to all the above referred cases, in paragraph 17 has observed thus :- 17.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 14 APP258/08 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 within 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. Thus, the law in relation to section 28 before its amendment in the year 1997 was that the curtailment of the period of limitation is not 15 APP258/08 permissible in view of section 28 but extinction of the right itself unless exercised within a specified time is permissible. In order to remedy the situation and to declare that even a term in the contract which extinguishes the right if not exercised within specified time to be void by Amendment Act No.1 of 1997 which came into force on 8 th January 1997 section 28 was amended. The original section 28 became section 28(a) and clause (b) was added. The amended section 28 reads as under :- 28. Agreements in restraint of legal proceedings, void (every agreement - (a) ...... (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). 16 APP258/08 In the present case, we are considering whether the above quoted term in the bank guarantee is void or invalid because of section 28(b). The effect of enactment of section 28(b) was that not only the curtailment of limitation period is impermissible but also the extinction of right if sought to be brought by the agreement within a specified period which period is less than the period of limitation prescribed for the suit under the contract is also rendered void. Thus, as a result of amendment of section 28 in 1997, now not only a term in the contract which restricts right to adopt remedy under law by curtailing the period of limitation is void but a term in the contract which restricts enforcement of the accrued right under the contract is also declared to be void. However, a distinction has to be made between the term in contract restraining a party to the contract from enforcing its right and the term in the contract requiring it to make a claim or assert his right within a specified time or prescribe a period for operation 17 APP258/08 of the contract. A term in the contract which requires a party to the contract to assert its right or requires a party to make a claim within certain time will not be affected by section 28(b). We find that this distinction has been noted and recognised by the Supreme Court in its judgment in the case of Food Corporation of India referred to above. The Supreme Court in paragraph 7 of its judgment has quoted the term in the contract which fell for its consideration. It reads as under :- We The Anand Insurance Co.Ltd. Further agree that the guarantee herein contained shall remain in full force and effective upto and inclusive of February 15, 1971 the date referred to above or the expiry of the extended period from time if any and that it shall continue to be enforceable till all the dues of the Corporation under or by virtue of the said agreement has / have been fully paid and its claim satisfied or discharged or till the Regional Manager of 18 APP258/08 the Food Corporation of India certified that the terms and conditions of the said agreement have been fully and properly carried out by the said miller and accordingly discharges the guarantee subject, however, that the Corporation shall have no rights under this bond after the expiry of (period) six months from the date of the termination of the contract . The Supreme Court then observed thus :- A right under an agreement or a statute may be enforced in the manner provided. The right of the appellant under the agreement was to recover all dues against the miller, directly, from the company. That was never in dispute. How to recover it ? First by making a demand and on delay or refusal by moving the machinery provided in the agreement or by approaching the court. Enforceability thus commences from 19 APP258/08 making a demand and extends to ultimate vindication of the claim. When the appellant gave notice to the company informing it of the default and made demand of the amount due it was an exercise of right under the bond for satisfaction of its claim arising out of negligence of the miller. When the appellants gave notice to the Company informing it of the default and made demand of the amount due, it was an exercise of right under the bond for satisfaction of claim arising out of negligence of the miller. The Supreme Court in relation to the above quoted clause, in paragraph 8 has observed thus :- 8.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 20 APP258/08 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. 21 APP258/08 The term that fell for consideration of the Supreme Court in its judgment in Food Corporation of India s case is similarly to the term which we are considering in the present case. The Supreme Court in paragraph 8 of that judgment in relation to the term in the contract further observes thus :- Since the period is provided under the agreement the appellant had to move within this period asserting its right and apprising the company of the breach or violation by the miller to enable it either to pay or to persuade the miller to pay itself. It does not directly or indirectly curtail the period of limitation nor does it anywhere provide that the Corporation shall be precluded from filing suit after expiry of six months. It can utmost be construed as a condition precedent for filing of the suit that the appellant should have exercised the right within the period agreed to between the parties. 22 APP258/08 The Supreme Court then observes thus :- Assertion of right is one thing than enforcing it in a court of law. The agreement does not anywhere deal with enforcement of right in a court of law. It only deals with assertion of right. The assertion of right, therefore, was governed by the agreement and it is imperative as well that the party concerned must put the other side on notice by asserting the right within a particular time as provided in the agreement to enable the other side not only to comply with the demand but also to put on guard that in case it is not complied, it may have to face proceedings in the court of law. (emphasis supplied) Thus, the Supreme Court has held that the term in the contract which deals with assertion of right is in no way connected with what is 23 APP258/08 contemplated by section 28 of the Act. The term in the bank guarantee requiring the respondents to make their claim or demand with the Bank on or before 30 th April 1997 does not affect the right of the respondents to enforce their rights by approaching the court of law within the normal period of limitation if the respondents assert their right or make a demand or claim with the Bank within the period mentioned in the bank guarantee. In our opinion, really speaking, in view of the law laid down by the Supreme Court in its judgment in the case of Food Corporation of India, there does not remain any possibility of any debate whether a term in the bank guarantee requiring beneficiaries of the bank guarantee to make claim under the bank guarantee within the stipulated period would be void because of the provisions of section 28 of the Act because such a term in the agreement is relatable to the assertion of right so as to perfect that right and not in relation to enforcement of that right in the court of laws. In our opinion, therefore, the learned Single Judge was not justified in holding 24 APP258/08 that the above quoted term in the bank guarantee is void in view of provisions of section 28 (b) of the Contract Act. In the result therefore, appeals succeed and are allowed, the orders of the learned Single Judge decreeing the suits as against the present appellants are set aside. However, the bank guarantee that has been furnished by the appellants shall stand discharged only after a period of eight weeks from today. Parties to act on the copy of this order duly authenticated by the Associate / Private Secretary of this Court. Certified copy expedited. ( JUSTICE D.K. DESHMUKH ) ( JUSTICE ANOOP V. MOHTA )