In der Rechtssache Food Corporation of India v. New India Assurance Co.Ltd. [2] The Supreme Court, which also considered a clause in the loyalty insurance guarantee, held that it was clear from the agreement that it did not contain a clause found to be contrary to section 28 of the Contracts Act, since it did not impose any restrictions on the filing of an action within six months of the date of termination of the contract claimed by the insurance company. However, it was agreed that after six months from the date of termination of the contract, Food Corporation would have no rights under this bond and this clause could not be interpreted as a limitation of the normal limitation period for filing the action. Section 27 of the Indian Contracts Act cancels all pro tanto trade restriction agreements, with the sole exception of the sale of goodwill. However, it is important to understand that these agreements are null and void and not illegal. That is, these agreements are not illegal, they are simply not enforceable in court if one of the parties does not perform its part of the agreement. Unlike the common law, even partial agreements restricting trade or reasonable restrictions under the Contracts Act are not valid. One of the essential conditions for concluding a contract is that it is not void.
Section 10 of the Indian Contracts Act states: “All agreements are contracts. which are not expressly declared null and void”. A contract can be void for several reasons, for example: any agreement between the two parties that prevents one or both of them from going to court in case of non-compliance with the contract is a null agreement. Section 28 of the Indian Contracts Act states that any agreement that prevents or limits the period within which it may do so is an aggrieved party from asserting its right to apply to a court or tribunal of competent jurisdiction in the event of a breach of contract. He goes on to say that any agreement that extinguishes the rights of a party or releases one of the parties from liability is a void agreement. In this case, Thorsten Nordenfelt was a weapons manufacturer in Sweden and England. Thorsten sold his business to a company, which then transferred it to Maxim Nordenfelt. At that time, Thorsten entered into an agreement with Maxim that he would not be involved in the production of weapons for 25 years, except for what he produced on behalf of the company. Later, Thorsten broke his vow and claimed that the agreement was unenforceable because it was a trade-inhibiting measure. The court`s decision was in Thorsten`s favor. However, an agreement that extends the limitation period for the enforcement of rights, although not covered by this section, is void under section 23 of the Act because it seeks to circumvent the provisions of the Limitation Act 1963.
Section 27 of the Act mentions only one exception that confirms the restriction of trade, namely the sale of goodwill. Another exception is in the Partnerships Act. In this case, two similar business owners agreed in a partnership that only one of their plants would operate at a time and that the profits would be shared between them. This restriction was found to be valid. Another exception to the restriction rule for trade restriction agreements is provided for in the Partnership Act 1932. The law provides for three exceptions. Some agreements are simply harmful to society. They are contrary to public order. Some of these agreements are agreements restricting marriage, trade or legal proceedings. These agreements are expressly set aside in sections 26, 27 and 28 of the Indian Contracts Act.
In both cases, an agreement would be null and void as an agreement restricting legal proceedings. This section applies to agreements that prohibit the parties, in whole or in part, from bringing an action in court. Under section 26 of the Indian Contracts Act, all agreements restricting marriage, with the exception of a minor, are void. The Romans were the first to delegitimize agreements that restricted marriage. The basis for the annulment of agreements restricting marriage is that marriage is a sacrament and nothing should interfere with the institution of marriage, not even contracts. The idea behind this provision is not to wrest from each individual the personal right to marry someone of his or her choice. It is important to note here that, according to the section, agreements restricting the marriage of a minor are void. In this case, the Supreme Court concluded that article 27 expressly annuls all agreements (with the exception of one exception) and that two meanings cannot be attributed to the article. The criterion of reason in England cannot be applied in India.
Exception 1: Storage of the Agreement to refer to any arbitration dispute that may arise: This section does not constitute an unlawful contract by which two or more persons agree that any dispute that may arise between them in connection with a subject or class of subjects will be submitted to arbitration and that only the amount awarded in such arbitration will be recovered in relation to the so-called dispute. power. 12[* * *] On the contrary, a contract which does not limit the period within which the insured may assert his rights and limits only the period during which the contract remains alive does not infringe Article 28 – Pearl Insurance Co v. Atmaram [8]. It is clear that an agreement that provides for the waiver of rights and remedies is not valid, but an agreement to waive the agreement is valid under section 28. Therefore, a clause in an insurance policy that provides for the decision of an arbitrator as a condition precedent of the insurer`s right to sue does not imply Section 28 – National Insurance Co. Ltd v Calcutta Dock Labour Board[9]. Exception,2: Storage of the contract to ask questions that have already arisen: This section also does not prohibit a written contract by which two or more persons agree to refer to arbitration, to refer a question already raised between them or to affect a provision of a provisionally applicable law on references to arbitration. a) A, in Bombay, enters into a contract with B in Madras on the condition that all disputes are submitted to the jurisdiction of Bombay. This restricts B`s right to sue only in the Bombay court in the event of a dispute. Such an agreement is valid.
(b) Where two courts have jurisdiction to hear an action and the parties agree that the action shall be brought in only one of those courts, that provision shall apply. (c) agreements which do not limit the period of enforcement of rights, but only provide that non-performance within the specified period shall be considered as the release or forfeiture of those rights between the parties. However, if a clause in the policy provides that if the claim is not initiated within one year of the claim being rejected, all benefits of the policy will expire, it will be valid. The agreement does not have the effect of limiting the time limit, but of providing for the assignment of the right that no action has been brought within that period. A condition of the contract that the right to which a party is entitled expires or becomes free if it does not bring proceedings within a time limit does not violate article 28. A shortening of the limitation period is not allowed, but the expiration of the right itself, unless the exercise within a certain period is authorized and can be executed. But an agreement that waives the remedy by providing that if a legal action is to be brought, which must be brought within the limitation period less than the limitation period provided for by the limitation period, is made by Article 28. Similarly, a government contract in which a clause provides that the President of India will be released from any liability under the contract, unless arbitration or action is brought within 6 months of the deadline. Where jurisdiction lies with more than one competent court, the contract conferring jurisdiction on one of them is not contrary to public policy. The court explained the difference between the extinguishment of rights and the limitation period in these terms: The distinction may be good, but it remains a fundamental distinction. In one case, the regulation assumes that the law and liability exist, but the time frame for application should be limited.
In the other case, the parties agree that the law and liability expire when a particular event occurs. — At common law, a test of reason is followed. An agreement restricting trade is valid if: There are two exceptions to § 28, as mentioned in the law. Agreements restricting legal proceedings are valid if: No one can contractually exclude themselves from the protection of the court. The citizen has the right to have his legal situation determined by the ordinary courts, except subject to a contract, if there is a valid and binding arbitration clause under the law; if the parties to the contract agree on the jurisdiction in which the dispute relating to the contract is to be resolved. With regard to article 28 of the Contracts Act, there is no doubt that that article does not contain any implementing agreement to extend the limitation period. Such agreements, for which the limitation period is extended contrary to that provided for by the limitation period, would be void under Article 23 of the Contracts Act, as they would annul the provisions of the limitation period – Jawaharlal v Mathura Prasad. [9] In § 3 of the statute of limitations, it is clearly stated that any action brought after a statutory limitation period will be dismissed, although the limitation period is not intended to serve as a defence. .