Agreement in restraint of legal proceedings in HINDI
Channel: Gareeb-Akbar
Date: 2022-09-27

An agreement in restraint of legal proceedings is an agreement that prohibits or limits an individual's right to access the court or legal system to seek remedy for a wrong or injury. Such agreements are generally considered to be against public policy and are therefore void and unenforceable under the law. Examples of agreements in restraint of legal proceedings include clauses in contracts that prohibit the parties from suing each other or that require disputes to be resolved through arbitration instead of in court.

It's important to note that the Indian Contract Act, 1872 also contains provisions regarding restraint of legal proceedings (section 28) which states that an agreement which restrains any person from enforcing his legal rights through the court of law is void. 

 Agreements in restraint of legal proceedings
Section 28 of the Contract Act bars agreements that impose fetters on a party from initiating legal proceedings or enforcing its rights or reduce the period within which such party may enforce its rights. This is based on the well-known legal principle that no man can exclude himself from the protection of the courts by contract. This provision follows the general common law rule recognised in English courts, which prohibits all agreements purporting to oust the jurisdiction of the courts.

The provision is practical and not pedantic in that agreements restricting enforcement of rights through arbitration is not considered a violation of this section. Also, agreements restricting parties from enforcing the contract through any other court other than the court to which exclusive jurisdiction has been conferred under the contract are considered valid.

Limitation of time for enforcing rights under a contract
An agreement which provides that a suit should be brought for breach of its terms within a time that is shorter than the period of limitation prescribed by law is void to that extent. The effect of such an agreement is to absolutely restrict parties from enforcing their rights after the expiration of the stipulated period, even though the same may be within the period of limitation. Routinely found examples of such clauses are in contracts for the purchase of shares or business transfer contracts where parties agree to restrict any indemnification claims to a period which is shorter than the usual limitation.

Similarly, clauses stipulating that rights must be enforced must be made within X number of days after the occurrence of the event are hit by Section 28. A clause which provides that parties must proceed to arbitration within X days of the dispute arising would also similarly be void. 

In contrast however, extinguishment of rights, i.e., where the contract itself comes to an end after a particular period expires, is not hit by Section 28. For example: in an insurance contract where the liability of the insurance company is restricted to 1 year from the date on which the damage occurred, this would operate to extinguish the contract with the insurance company within that period and does not, however, limit the rights of the insured to seek redressal through legal fora. The Delhi High Court has held that a clause in a contract requiring a party to refer a claim within 120 days would not offend the provisions of Section 28 of the Contract Act, since instead of curtailing the time for making the claim, it provides for forfeiture or waiver of the claim itself, if not made within 120 days.

What happened in the Oriental Insurance Case
The Permanent Lok Adalat,  vide order dated 4th January 2020, directed the Oriental Insurance Company Limited (“Petitioner”) to pay  5,00,000/- to the Respondent.

Challenging the said order by way of a writ petition, the Petitioner contended that Clause 2 of the Policy stipulated that if an insurance claim was filed within one month from the expiry of the Policy, then the delay could be condoned by the Collector. Accordingly, since the Respondent's claim was filed 3 months after such expiry, the same was time barred. 

Rejecting this contention, the Hon'ble Allahabad High Court observed that because the said Clause itself allowed condonation of insurance claims filed within two months from the expiry of the Insurance Policy, the Respondent's claim “..in strict sense..” was belated by just more than a month. 

The Hon'ble High Court also referred to the case of  Gautam Yadav Vs. State of U.P. and others2wherein its division bench deemed the limitation period under the Policy as unreasonable and arbitrary; and ordered substitution of the same by a duration of three years. Noting that the insurance claim had been settled in that case despite the Hon'ble Supreme Court's  stay on the said order, the Hon'ble High Court in the present matter condoned the Respondent's delay on the basis that the Policy was a welfare policy in nature. Ultimately, in light of the same,  vide order dated 22ndSeptember 2021, the Appellant's writ petition was dismissed.