Agreement in Restraint of Judicial Proceedings

1) Introduction:

Agreement in Restraint of Judicial Proceedings is given under section 28 of the Indian Contract Act, 1872 which states that an agreement absolutely restraining a party from enforcing his rights through a court of law, or an agreement which places a limit as to the time within which a right can be enforced, is void.

Section 28 makes two kinds of agreements void:

a. Agreement which one party is absolutely debarred from enforcing his rights through usual legal proceedings.

b. agreement which places a time limit for enforcing a right through legal proceedings.

1. Agreement absolutely restraining legal proceedings:

If an agreement restricts a party thereto absolutely from enforcing his contractual rights by bringing usual legal proceedings, the same is void. An agreement to oust the jurisdiction of a court is opposed to public policy and the same is void both in England and India. The agreement is void if restraints is an absolute one.

In case the parties agree to a partial restriction on the right to go to the court of law, such a contract is enforceable. Therefore, if two competent courts can possibly deal with the subject-matter of litigation, it is open to the parties to a contract to agree that dispute in respect thereof should be adjudicated upon by one of the two competent courts, and not by the other. Such an agreement which restricts jurisdiction to only one of several competent courts is not against public policy and therefore not void.

  • Case Law: Hakam Singh v. Gammon (India) Ltd:[1]

 A clause in the agreement between the parties provided that the “court of law in the city of Bombay alone shall have jurisdiction to adjudicate thereon”. The plaintiff filed a suit at Varanasi, but the same was dismissed in view of the above stated agreement. The Supreme Court held that the agreement was not opposed to public policy and it did not contravene section 28 and the suit filed at Varanasi was rightly dismissed. The position would be different if the Bombay Court alone can entertain the suit. Such an agreement is void, because the parties by an agreement cannot confer jurisdiction on a court which does not in fact exist. In order that the agreement stipulating that a particular court alone has jurisdiction is enforceable it is further necessary that the agreement should have been properly entered into.

  • Case Law: United India Ins. Co. Ltd. v. Associated Transport Corpn. Ltd.:[2]

In this case, the consignment note contained printed words “subject to Bombay jurisdiction alone”. The note was signed only by the employee of carrier. Apart from what was printed on the note, there was nothing else to suggest that there was meeting of minds between the consignor and the carrier or an agreement between the parties to confer exclusive jurisdiction on the Bombay Court. It was held that the printed words by themselves and without anything more were not sufficient to constitute an agreement to oust jurisdiction of all courts other than the court specified.

  • Case Law: C. Satyanarayana v. K.L. Narasimham:[3]

In this case, the defendant wrote a letter to the plaintiff on the top of which was printed: “Subject to Madras Jurisdiction”. It was held that such words could not become a part of the contract unless it was expressly agreed to by the plaintiff, and these words did not bind the parties to the contract as to the jurisdiction of the court. Similarly, if an invoice contained the words “Subject to Shimoga jurisdiction” in a contract entered into through brokers, and the knowledge of the purchasers to this clause could not be proved, the clause was not compulsory. Similar will also be the position if at the time of delivery of goods to a carrier, the consignment note excluding the jurisdiction of one of the two courts having concurrent jurisdiction in the matter is not got signed from the sender. In such a case, the suit may be filed in any of the courts having the jurisdiction. If the contract has been properly entered into the same is binding. Thus, when the agreement contains a clause that the litigation will be subject to Bombay Courts only, it simply curtails the choice which  a party has under the ordinary law by confining the right to a particular court only and same is not vitiated by section 28.

2. Agreement limiting time for a legal action:

According to the Indian Limitation Act, 1963 there is a time limit for various actions. If an agreement between the parties stipulates a smaller time limit than prescribed under the Indian Limitation Act, the agreement is void. Thus, if an agreement prohibits an action if brought after one year of the breach of contract then it is void because it takes away the right to bring an action after one year though the period of limitation for such an action is 3 years given in Limitation Act.

  • Case Law: National Ins. Co. Ltd. v. S.G. Nayak & Co.:[4]

In this case, it has been held that an agreement which in effect seeks to curtail the period of limitation offending section 28 of the contract Act. If there is a clause in an agreement which provides the forfeiture or waiver of the right itself, the agreement will be void as it would not fall within the mischief of section 28. In this case, there was a clause in the insurance agreement that if the claim for loss or damage is not pressed within 12 months, then the insurance company shall cease to be responsible. The right of the claimant had been held to be extinguished so the insurance company was not liable as the case was brought after the expiry of 12 months of the loss or damage caused by strike.

2) Amendment Act, 1977:

Section 28 of the Indian Contact Act has been amended by the Indian Contract (Amendment) Act, 1997. The new provision in section 28 (b) states that every agreement which extinguishes the rights of any party or release any party from any liability under or in respect of any contract on the expiry of a specified period so as to restrict any party thereto from enforcing the rights is invalid.

In view of the above stated provision any agreement whereby the right of any party thereto is extinguished by not bringing an action within a specified period will be void under section 28. Thus, even in contracts of insurance etc. as stated above, any agreement which in effect curtails the period of limitation will be void.

  • Exceptions:

1. Contract to refer further dispute to arbitration:

It states that an agreement to be made between two or more persons by which they are to refer any dispute which may arise between them in future to arbitration, and only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. In such a case there is no absolute restraint on the party to go to the court of law. It may only stay the right of the plaintiff to go to the court until the compensation to be awarded has been ascertained by arbitration. An agreement to refer dispute to an arbitration “does not close the final door to a court of law. If it does so, it would be void but it does not do so. The approach to the court may not be by the straight path but by the by-lanes or the approach may be a staggered one and that would be a contravention of section 28. If the parties agree under a contract to refer their disputes for adjudication to the arbitration the mere fact that the arbitrators are situated in foreign countries, will not sufficient to nullify the arbitration agreement.

2. Contract to refer existing questions to arbitration:

It states that questions which have already arisen between the parties may be referred by them to arbitration by a contract in writing. Such an agreement is void.

3) References:










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