Section 28 of the Indian Contract Act, 1872

An agreement is null and void if it prohibits a person from claiming his contractual rights through traditional court proceedings or limits the time for enforcing rights. The contract is also illegal if it extinguishes any party's claim to it or releases any party from obligation in relation to the terms of the agreement after a defined period in order to prevent any party from enforcing its rights, and Section 28 of the Indian Contract Act deals with this.

The legal profession has battled with how to interpret the clause "agreement in restraint of legal proceedings," which was clarified by Parliament by amending Section 28 of the Indian Contract Act, yet the issue appears to be ambiguous.

Agreement in Restraint of Legal Proceedings (Section 28)

Any agreement between the two parties that prohibits one or both of them from taking the contract to court if the other fails to comply is invalid. According to Section 28 of the Indian Contract Act, any agreement that prevents or restricts an aggrieved party from seeking remedy in a relevant court or tribunal in the case of a breach of contract is null and void. According to the law, any agreement that extinguishes a party's rights or releases either party from obligation is null and void.

Agreements that prohibit a party from asserting his legal rights under a contract through the legal procedure in a court of law or through arbitration are specifically deemed unlawful.

Simply put, all agreements are null and void if

• They make it illegal for a party to approach a relevant court or tribunal if the parties' rights are breached.

• Limit the amount of time an aggrieved party has to contact such a court or tribunal.

• By agreement, make a party exempt from responsibility.

The 97th Law Commission examined Section 28 and offered a modification on its own. Section 28(b) of the Indian Contract Act of 1872, as amended by the Indian Contract (Amendment) Act of 1997, states −

• No agreement can eliminate any party's rights upon the expiration of a set period.

• No agreement can release any party from obligation after a stated term expires.

Indian courts take restrictions on a person's right to seek legal remedy extremely seriously. The following are some examples of situations where the courts ruled that the contract was void because it was in restraint of judicial proceedings −

• The landlord's promise to a bank that he would not evict the tenant until the renter returned the whole bank loan was declared null and invalid. (Rajendra Singh vs. Seesh Pal Singh, 2014 SCC OnLine Utt 2644)

• Stock exchange bylaws prohibiting members from commencing arbitration and forcing them to do so within a certain time frame were declared invalid. (A, Chandrasekaran v. Yoha Securities Limited, SCC OnLine Mad 3657).

• An agreement that the amount of liquidated damages would not be contested was deemed ineffective and invalid. (Bharat Sanchar Nigam Ltd. v. Motorola India Pvt. Ltd., (2009) 2 SCC 337).

• An in-house conflict resolution procedure that is not equivalent to arbitration cannot bar civil court jurisdiction. (Dilip Kumar Kar v. Hindustan Steel Works Construction Ltd., 2015 SCC OnLine Tri 1023).

Agreements that typically have the effect of parties waiving the right to appeal prior to the issuing of a decision in a matter, on the other hand, are regarded as lawful.

Kinds of Agreement as Void Under Section 28

Section 28 of the Indian Contract Act states that any agreement between two parties that prevents one or both of them from taking the contract to court if the other does not comply is invalid. Any agreement that negates a party's claims or releases either party from responsibility is void, as is any agreement that prohibits or discourages an aggrieved party from seeking remedy in a judicial court or tribunal in the event of contract infringement. Agreements that specifically forbid a party from asserting its legal rights under the agreement in court or through arbitration are deemed invalid.

As a result, if it is illegal for a party to go to a suitable judicial authority, if one of the parties' privileges has been violated, if the amount of time an injured party has to file a complaint with judicial authority has been limited, or if a party is exempt from liability under any agreement, all contracts are void.

Exceptions

There are three exceptions to this rule.

• The first one states that the provision does not invalidate a contract between two or more parties, stating that any disagreement that may arise between them about any one or more subjects will be resolved by arbitration and that the sole awardable damages in the event of a dispute will be the sum set in the arbitration.

• The second exception in this section is that it does not render any written contract between two or more persons who have already referred a dispute to arbitration with their permission invalid, nor does it affect any provision of legislation in existence at the time respecting references to arbitration.

• The third exception does not render illegal a written contract in which a financial institution prescribes a term in surety or agreement providing for the guarantee for annulment of rights or the release of any party from any obligation under or in regard to such guarantee or agreement upon the expiration of a defined duration of not less than one year from the time of the occurrence or non-occurrence of a specific event for extinguishment of rights.

Agreements that are not Void

This section describes the rights arising from a contract. It does not include torts or civil or criminal wrongdoings. This article has no influence on the legislation regulating arbitration. For example, if both parties agree to submit any disagreement that may occur between them under the contract to arbitration, the contract is valid, and the provision has no bearing on the parties' agreement not to appeal to a higher court.

Thus, the agreement was maintained since Section 28 only placed absolute limitations on legal procedures; however, here the constraint is only temporary, as the parties are able to travel to the judicial hearing, and the only obstacle is that the losing party is not permitted to submit an appeal. Furthermore, this section does not preclude contracting parties from selecting one of two equally competent courts to hear their dispute.

In the case of A. Milton & Co. vs. Ojha Automobile Engineering Company, there was an agreement that specified, among other things, that "any lawsuit arising out of the agreement may be resolved in the High Court of Calcutta, not in any other court whatsoever." The defendants filed in Agra, whereas the petitioner sued in Calcutta. The agreement was deemed binding on both sides, and the defendants were barred from pursuing their case in Agra.

Conclusion

The reform correcting the fault in Section 28 of the Indian Contract Act must be given a factual and reasonable interpretation by appropriately admitting the legislature's intent because of parliamentary discussions, the amendment's aims and reasons, and the Law Commission report, thereby honoring the purpose behind it.

Some agreements are against government policy and interest; for example, any agreement that infringes on a person's fundamental rights is considered unconstitutional, and some agreements that are against government policy are void in court. These agreements, however, can be legally created, but they cannot be carried out in a courtroom.

Taking Section 28 and the various provisions of the Indian Contract Act into consideration, we can conclude that even if a specific section renders certain acts void, we always have the option of obtaining a concrete answer through the Law of Torts, which is solely dedicated to resolving such ambiguities and assisting aggrieved parties.

FAQs

Q1. What is Section 28 in the Indian Contract Act?

Ans. Every agreement that prohibits any party from pursuing his rights under or in relation to any contract through the customary legal actions in ordinary courts or that restricts the period within which he may so exercise his rights is void to that degree.

Q2. What is a Section 28 agreement in restraint of legal proceedings?

Ans. Section 28 of the Contract Act prohibits parties from beginning legal procedures or exercising their rights or shortens the term during which such parties may exercise their rights.

Q3. What is a restraint agreement?

Ans. A restraint of trade agreement is essentially a contract in which one party agrees to limit her freedom of commerce in a certain region and for a specific amount of time for the advantage of the other party. Restraint of trade agreements are not protected by any labor regulations and are thus governed by contract law.