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C.NAGAPPAN, ROHINTON FALI NARIMAN
Union of India – Appellant
Versus
Indusind Bank Ltd. – Respondent
The Court clarified that the 1997 amendment to Section 28 of the Indian Contract Act is substantive in nature and not declaratory or clarificatory. As a result, it is not retrospective and applies prospectively only from the date it came into force. The Court held that a clause in a bank guarantee (BG) which states that the bank's liability will be extinguished if no claim is made within a specified period (claim period) is valid, provided that such clause does not restrict the period within which rights can be enforced by legal proceedings.
The key principle established is that clauses in bank guarantees or similar contracts that explicitly set a time limit for making claims, which do not curtail the overall limitation period for enforcement of rights, are valid under the amended law. This means that if the clause merely specifies a claim period that is less than the statutory limitation period but does not prevent initiating legal proceedings after that period, it will be upheld as valid.
JUDGMENT :
R.F. Nariman, J.
1. Leave granted.
2. The present appeals by the Union of India raise an interesting question as to the applicability of the 1997 Amendment to Section 28 of the Contract Act, 1872. The facts of the three appeals are similar inasmuch as they concern four exporters who belong to what is known as the GPB Group of Companies.
3. By a Memorandum dated 6.11.1995, issued by the Textile Commissioner under the Imports and Exports (Control) Act, 1947, terms and conditions for export of raw cotton and cotton waste for September, 1995 -August, 1996 were laid down. The shipment was permitted only against an irrevocable letter of credit. The exporters were required to furnish a bank guarantee in the prescribed form at the rate of 10% of the contract price. The bank guarantee was required to be kept valid up to 6 months with a provision for claims for an additional three months, after the last date of shipment. The allocation of quota was on the basis of the highest unit value realization.
4. The Textile Commissioner invited applications vide Press Note and Memorandum, both dated 9.1.1996, for export of 10,000 bales of extra long staple cotton. It was mentioned in the Press N
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