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SUPREME COURT OF INDIA
A.M. Ahmadi CJI; K.S. Paripoornan &
Mrs. Sujata V. Manohar, JJ.
NATIONAL INSURANCE CO. LTD.—Appellant
versus
SUJIR GANESH NAYAK & CO. & ANR.—Respondents
Civil Appeal No. 2136 of 1997—Decided on 21.3.1997
Held 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 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. (Para 8)
Here the claim was not subject to any action or arbitration proceedings. The clause says that if the claim is not pressed within twelve months from the happening of any loss or damage, the insurance company shall cease to be liable. There is no dispute that no claim was made nor was any arbitration proceeding pending during the said period of twelve months. The clause therefore has the effect of extinguishing the right itself and consequently the liability also. Notice the facts of the present case. The insurance company was informed about the strike by the letter of 28.4.1977 and by letter dated 10.5.1977. The insured was informed that under the policy it had no liability. This was reiterated by letter dated 22.9.1977. Even so more than twelve months after on 25.10.1978 the notice of demand was issued and the suit was filed on 2.6.1980.
It is precisely to avoid such delays and to discourage such belated claims that such insurance policies contain a clause like clause 19. That is for the reason that if the claims are preferred with promptitude they can be easily verified and settled but if it is the other way round, we do not think it would be possible for the insurer to verify the same since evidence may not be fully and completely available and memories may have faded. The forfeiture clause 12 also provides that if the claim is made but rejected, an action or suit must be commenced within three months after such rejection; failing which all benefits under the policy would stand forfeited. So, looked at from any point of view, the suit appears to be filed after the right stood extinguished. (Para 12)
Result : Appeal allowed.
IMPORTANT POINT
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 but agreements which only provide for forfeiture or waiver of the right itself if no action is commenced within the period stipulated by the agreement would not fall within the mischief of Section 28 of the Act.
A.M. Ahmadi, CJI. — Special Leave granted.
The respondent No. 1 Sujir Ganesh Nayak & Company is a registered partnership with its head office at Quilon carrying on business in import and export of cashew. It has four factories at Kunnikode, Mulavana, Perumpuzha and Ayathil for processing cashew. The respondent No. 1 obtained two fire policies from the appellant. Insurance Company dated 5.11.1976 and 2.5.1977, both for a period of twelve months, and for the amounts of Rs. 6,00,000/- and Rs. 1,20,000/- respectively. Both the policies had a Riot and Strike Endorsement to the following effect:
"Riot & Strike Endorsement.—In consideration of the payment of the sum of Rs....... additional premium, it is hereby agreed and declared that not withstanding anything in the written policy contained to the contrary the insurance under the policy shall extend to cover Riot and Strike damage which for the purpose of this endorsement shall mean (subject always to the special conditions hereinafter contained),
Loss of or damage to the property insured directly caused by:
1. The act of any person taking part together with others in any disturbance of the public peace (whether in connection with a strike or lockout or not) not being an occurrence mentioned in Condition 6 of the Special Condition thereof.
2. The action of any lawfully constituted authority in suppressing or attempting to suppress any such disturbance or in minimising the consequences of any such disturbances.
3. The wilful act of any striker or locked out worker done in furtherance of a strike or in resistance to a lock-out.
4. The action of any lawfully constituted authority in preventing or attempting to prevent any such act or in minimising the consequences of any such act."
2. The Special Condition No. 5(i)(b) which is relevant for the determination of the appellant's case is as under:
"SPECIAL CONDITIONS
For the purposes of this endorsement but not otherwise there shall be substituted for the respectively numbered Condition of the policy the following:
CONDITION 5.
(I) This insurance does not cover:
(a) …. .... ....
(b) Loss or damage resulting from total or partial cessation of work or the retarding or interruption or or operation.
(c) …. .... ....
(d) …. .... ....
(e) …. .... ....
3. The workers of the respondent No. 1 raised a demand for hike in wages during the period there was no work and this demand led to a strike. The matter was taken up by the District Labour Officer for conciliation and was thereafter dealt with by the Labour Commissioner as well as by the Minister for Labour. The striking workers physically obstructed the movement of goods. By a letter dated 28.4.1977, the respondent No. 1 informed the appellant that the staff members and labour in its factories have gone on strike from 26.3.1977 and that the striking workers have restricted the movement of the finished products from its factories and that the goods lying in the baskets are exposed to the risk of deterioration and damage. By a letter dated 10.5.1977, the appellant communicated to the respondent No. 1 that the loss sustained by the respondent No. 1 was not covered by the policy. The respondent No. 1 by a letter dated 17.8.1977 asked the appellant for an advance payment of Rs. 4,00,000/- and by another letter dated 25.8.1977 asked for payment of Rs. 4,28,827.01. By the letter dated 22.9.1977, the appellant reiterated that in view of Condition 5(i)(b) of the Riot and Strike Endorsement, the Insurance Company had no liability for the loss incurred by the respondent No. 1. On 25.10.1978, the respondent No. 1 served a legal notice. The suit for recovery of the claim was filed on 2.6.1980.
4. The appellants contested the suit inter alia on the ground that the suit was barred by limitation as well as by Condition No. 19 of the p
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