- (1.) Even though I respectfully agree with brother Venkatachala, J., that the order of the Madras High Court allowing the appeal of the insurance guarantor and dismissing the suit of the appellant corporation for recovery of the money is not liable to be maintained yet considering the importance of the legal issue involved in this appeal arising in day-to-day commercial dealings and absence of any authoritative pronouncement of this Court specially when the High Court has traversed wide field it appears appropriate to add a few words of my own.
(2.) Shortly the issue of law that arises for consideration in these appeals directed against judgment of Madras High Court is, if the suit filed after six months by the appellant, a public sector corporation, against Insurance Company was barred by time in view of the following recital in the Fidelity Insurance Guarantee. "however, that the corporation shall have no rights under this bond after the expiry of (period) six months from the date of the termination of the contract." What does it mean Does it restrict the right of the appellant precluding it from filing suit for recovery of money from the insurance company within six months from the date of termination of the contract or it is the outer limit for exercising the right of making the demand What is the impact of Section 28 of the Contract Act on such clause Since no factual dispute survives, and even if there was any it has been ironed out by the two courts below, the skeleton facts and meanings as are necessary shall be referred as and where necessary for appreciating the legal issue. The appellant, as principal, appointed millers for procuring, hulling and supplying rice on certain conditions. To ensure its compliance the insurance company on behalf of the millers, executed Fidelity Insurance Guarantee in favour of the appellant guaranteeing honest accounting and refund of money' received by the millers for supplying rice to the appellant. The appellant was given right under the Guarantee to indemnify for any loss, directly, from the company. The exact words were, "We the Anand Insurance Company Limited do hereby undertake to indemnify and keep indemnified the corporation to the extent of Rs. 1,50,000/-(Rupees One Lakh and Fifty Thousand only) against any loss, claim suit proceeding and expenses caused to or Suffered by the corporation by reason of any breach by the said miller of any term or condition of the said agreement and authorise the corporation to recover the same directly from us." Since there was breach of agreement the appellant filed suits for recovery of money against the millers and the company. The findings on agreement between the appellant and the miller and the company, the terms of agreement, its breach, shortfall in supply of rice, amount due etc. are all agreed to by both the courts below and were in fact more or less conceded. For instance on the relevant issues about the quantum of short delivery, and the amount due to the appellant the trial Court in Appeal No. 1799 which is treated as leading found that it was admitted that the firm defendant entered into agreement with the appellant to procure paddy, transport the same deliver to other millers as directed by the appellant for hulling converting it into rice and for supply. It further found that there was no dispute about the quantity of supply of paddy and the balance which ought to have been supplied. It, therefore, held that as regards insurance company the default occurred within the stipulated period of agreement. It observed that in reply notice sent by the company demanding the amount it was never claimed that the company was liable only if there was misappropriation or that the claim was barred by time. It was found that even in the Written Statement the plea of limitation was not raised. The trial Court held that even though it was mentioned in the guarantee agreement that the appellant would loose all the claims as against the Insurance Company if it was not claimed within six months from the date of expiry of the contract of fidelity and the agreement terminated on 15-2-1971 and calculating six months from that date the claim was barred but non-filing of the suit within six months did not mean that the suit was barred by limitation. It held when the law of limitation allows a person to recover the amount within three years the parties could not agree to reduce the period of limitation and say that the amount should be claimed within the agreed time. Since by agreement time for recovery cannot be circumscribed against the provisions of the Limitation Act the suit could not be held to be barred by limitation. The suit was thus decreed both against the miller and the Insurance Company. In the High Court the appeal of miller was dismissed. And that order has become final. But the appeal of the company was allowed. It was held that as the policy has no force after expiry of six months from the date of termination of the contract no liability could be fastened on the insurance company. The Court observed that the enforceability of the contract ceased after six months from the date of termination of contract which admittedly was 15th March 1971. The High Court found that a mere demand made by the appellant by notice sent on 7th June 1971 did not amount to enforceability. The High Court construed the Fidelity Insurance Guarantee offered by the Insurance Company to be, effective only, between 15th February 1970 to 15th February 1971. The High Court did not agree that once the notice was issued the relationship between the appellant and the Insurance Company was that of a creditor and debtor. It relied on a number of decisions both Indian and English and held that a clause in the Fidelity Insurance Guarantee to the effect that no claim shall be entertained after six months was not contrary to Section 28 of the Contract Act nor it was against public policy under Section 23 of the Contract Act.
(3.) Both the courts below thus found as a fact that an agreement was entered between the appellant and the company on 24th March 1970 stipulating period of guarantee from 15th February 1970 to 15th February 1971, that the default occurred on 1st July 1970, that the demand was made on 17th June 1971 and the suit was filed on 20th January 1973 but they differed as a matter of law on the effect of Section 28 of the Contract Act on such agreement. Section 28 is extracted below: "Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent." The section is a departure from English Law as there is no such statutory bar restricting parties from entering into such agreement. In Rehmatunnisa Begum v. Price, AIR 1917 PC 116, it was observed as a general principle that, 'no man can exclude himself from the protection of the courts'. The rationale obviously is to ensure protection against fair dealing even between unequal bargaining parties. The intention and objective being clear the courts' primary responsibility is to construe and interpret it in a manner so as to advance the objective and protect the interest of the party who might be frustrated by too technical and expensive approach in such matters. Further it is trite saying that the courts should lean in favour of construction which keeps the remedy alive, that is if two constructions are possible then the one favouring continuance of the suit is to be preferred than the one barring the remedy. Even though the phraseology of Section 28 is explicit and strikes at the very root by declaring any agreement curtailing the normal statutory period of limitation to be void the courts have been influenced by the distinction drawn by English courts in extinction of right by agreement and curtailment of limitation. For instance in The Baroda Spinning and Weaving Company Limited v. The Satyanarayan Marine and Fire Insurance Company Limited, ILR 38 Bom 344: (AIR 1914 Bom 225 (2)), the Agreement providing, 'if the claim to be made and rejected, an action or suit be not commenced within three months after such rejection... all benefits under the 'policy shall be forfeited' was construed as extinguishing right and not the remedy. Reliance for this was placed on numerous English decisions and the Court was of opinion that, 'what the plaintiff was forbidden to do under the Agreement was to limit the time within which he was to enforce the right but what he had actually done was to limit the time within which he was to have any rights to enforce and that appears to be very different thing'. In Vulcan Insurance Co. v. Maharaj Singh, AIR 1976 SC 287 this court, incidentally, in a different context referred to the decision in Baroda Spinning (supra) and observed that a clause like the one which provided that, 'In no case whatever shall the company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration' was not hit by Section 28 of the Contract Act. Similar clause was considered in Pearl Insurance Co. v. Atma Ram, AIR 1960 Punj 236 (FB) on which reliance was placed by the High Court. Since the Bombay decision in Baroda Spinning (supra) has been referred, even though incidentally in Vulcan Insurance (supra) and it has been observed that clause like the one which came up for consideration in that case was not hit by Section 28 of the Contract Act the distinction drawn by the Bombay High Court on strength of English decisions between agreements giving up the right to enforce and the one curtailing limitation may be assumed to be valid. The occasion to draw such distinction flows from the anxiety of the courts to interfere as less as possible in agreements unless it is unconscionable or against public policy etc. Where statutory prohibition is placed on agreements and they are declared to be void the provision has to be construed strictly and applied restrictively confining to only those situations which are squarely covered in it. It is for this reason that any agreement which was not specifically covered in Section 28 was not held to be invalid. When this Court observed in Vulcan Insurance (supra) that clause like 19, in that, case was not violative of Section 28 it, obviously, meant that where filing of suit within specified time agreed between parties is made dependent on any condition precedent then such agreement would not be void. And probably, rightly, as then it is not an agreement curtailing limitation but providing for doing one or other thing and filing the suit only after condition precedent was complied. Some of such decisions which were relied by the High Court were Kasi Ali Bulbul v. New India Assurance Co., AIR 1968 J and K 39; Girdharilal Hanuman Bux v. Eagle Star and British Dominions Insurance Co. Ltd., AIR 1924 Cal 186; G. Rainey v. The Burma Fire and Marine Insurance Co. Ltd., AIR 1926 Rangoon 3; Pt. Prithvi Nath Malla v. Union of India, AIR 1962 J and K 15; and Ramji Karamsi v. The Unique Motor and General Insurance Co. Ltd., AIR 1951 Bom 347. In all these the filing of the suit within stipulated period was dependent on rejection of claim. It could be validly said that it was not violative of Section 28 of the Contract Act as the agreement did not curtail limitation but provided for that if the suit was not filed within the stipulated period after rejection of clause the plaintiff shall loose all rights or benefits. No further is necessary to be said as it shall be explained later that it was not necessary for the High Court to enter into this aspect at all. As regards the decision in South British Fire and Marine Insurance Co. v. Brojo Nath Shaba, (1909) ILR 36 Cal 516, on which reliance was placed by the High Court, it itself observed that it was not very relevant as the effect of Section 28 of the Contract Act on such Agreement was not expressly considered. Yet it placed reliance on observations to the effect it was conceded in argument that in England the agreement in clause (18) would be perfectly valid; and it cannot, I think, be contended that insurance companies in India have less need than such companies in England of the protection afforded by an Agreement for the acceleration of legal proceedings to be brought against them. That being so, there is no less reason to suppose that the legislature intended Section 28 to have far-reaching effect for which the plaintiff contended. But what the High Court lost sight of that there was no provision like Section 28 of the Contract Act in English Law and, therefore, any Agreement curtailing the period of limitation than that what was provided under the ordinary law was not void. The various English decisions, adverted to by the High Court, namely, Bank of England v. Vagliano Brothers, 1891 AC 107, Ford v. Baron, 1848 (11) QB 871, Thimbley v. Barron, 1838 (3) M and W 210, Walker v. Nevill, (1864) 3 H and C 403, therefore, do not appear to be appropriate for deciding either the effect of Section 28 or for the construction of the Fidelity Insurance Guarantee clause. The High Court further placed reliance on the following passage from Porter's Law of Insurance: "In Porter's Law of Insurance (6th Edn.) page 195 it is stated that insurance may lawfully limit the time within which an action may be brought to a period less than that allowed by the statute of limitation and that the true ground, on which the clause limiting the time of claim rests and is maintainable is that, by the contract of the parties the right to indemnity in case of loss and the liability of the Company therefor do not become absolute, unless the remedy is sought within the time fixed by the condition in the policy." It is indeed doubtful if the time limit for bringing an action can be lawfully limited and brought to a period less than that allowed by the Statute. By lawful limit the author appeared to mean by a valid and legal agreement. But no agreement could be entered against statute. The statement was made in context of English law and not Section 28 of the Contract Act. The only extent to which it could be helpful could be in the sense explained in various decisions. That is if curtailment of limitation is dependent on happening or otherwise of some other agreement it may not be strictly in the mischief of Section 28.;