- (1.) IN order to decide the points which have been referred to the Full Bench the facts may be shortly stated.
(2.) ATMA Ram respondent was carrying on the business of a General Merchant in a shop bearing no. 10 situate in Anrkali Bazar Lahore under the name and style of Messrs. Sita Ram Atma ram. He had effected insurance of the goods lying in his shop with the appellant Company against all risks including riots and looting, the amount of insurance at the material time being rs. 30,000/ -. Atma Ram claimed the aforesaid amount but the Company having denied its liability he filed a suit in February, 1949 for its recovery on the allegations that the goods lying in his shop at Lahore had been looted on 7-9-1947 and that the Company was liable to indemnify him for the loss. Apart from the defences the Company pleaded that condition No. 11 of he policies issued by the Company had not been complied with and that under condition No. 19 the company was not liable as the suit had been filed after the expiry of one year from the date of the loss and the claim was not the subject of a pending suit or arbitration. Issue No. 4 out of the issues framed by the trial Court was in the following terms: "whether the plaintiff has complied with the requirements of conditions 11 and 19 of the policy and if not, what is its effect ?" The trial Court after finding the material issues in favour of the plaintiff decreed the suit for Rs. 24,000/- assessing the value of the stock at the time of looting at that figure.
(3.) THE Company preferred an appeal to this Court which came up for hearing before a Division bench consisting of Bishan Narain and S. D. Capoor JJ. The arguments before the Bench were confined to the following points: 1. That the insured goods were not looted at all; 2. That the value of the goods lost is not proved; 3. That the suit was barred by the Pakistani laws; and 4. That the plaintiff's suit was not maintainable in view of condition 19 of the policy. The Bench found that the plaintiff had successfully shown that the entire goods in his shop had been looted by the Muslim rioters on 7th September, 1947 and the finding of the trial Court was confirmed on that point. As regards the assessment of the value of the goods the Bench found no reason to interfere with the trial Court's decision. The third point was not seriously pressed and was rejected. On the last point the Bench was inclined to the view that although clause 19 was not opposed to public policy it would be hit by the provisions contained in Section 28 of the Contract Act. As to the effect of Section 36 of the Displaced Persons (Debts Adjustment) Act 1951 the Bench did not express any definite opinion and all that was observed was that the decision on the effect of section 36 (b) would be intimately connected with he decision on the effect of Section 28 on the clause in question. The following questions were then framed for determination by a larger bench: (1) Whether clause 9 of the policy is rendered void by virtue of Section 28 of the Indian contract Act and (2) Whether limitation of the present suit is extended by virtue of Section 36 (b) of the Debts adjustment Act in spite of clause 19 of the policy. Clause 19 of the policy runs as follows: "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". Clauses similar to clause 9 in policies of other Insurance Companies had been coming up for consideration before various courts. The question raised was whether such a clause would be hit by the first part of Section 28 of the Indian Contract Act which provides that 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 first case referred to in this connection is of the Lower Burma Chief Court in Ma Ywet v. The China Mutual Life assurance Co. Ltd. , 11 Ind Cas 756. The judgment is a very short one and may be represented in its entirety: "the Judge of the Small Causes Court has held that a condition in a life policy saying that no suit shall be brought on the policy after one year from the death of assured, is a reasonable condition and a valid one. Section 28 of the Contract Act clearly makes such a condition void. The decree is set aside and the case is remanded to the Small Causes Court to be tried on its merits". It is significant that the language of the clause was such that it was sought to curtail the ordinary period of limitation as provided by the Indian Limitation Act which immediately attracted section 28 of the Contract Act. In Hirabhai Narotamdas v. Manufacturers Life Insurance Co. , 14 bom LR 741, equivalent to 16 Ind Cas 1001, a contract for insurance contained a clause: "no suit shall be brought against the Company in connection with the said policy later than one year after the time when the cause of action accrues". A suit was brought for after the expiry of that period but within three years as provided by article 86 of the Limitation Act. It was urged that the condition curtailing the period of limitation was void under Section 28 of the Contract Act. Chandavarkar, Acting C. J. observed while considering the argument that the deceased had agreed to lessen the period prescribed which he could not do under Section 28 of the Contract Act, that if the words in the clause be construed literally, there might be considerable force in the argument addressed but the terms used in an insurance contract must be interpreted with reference to the object and the exigencies of insurance. The learned Acting Chief Justice then proceeded to observe that the parties had agreed in substances that if no suit were brought within a year then neither party should be regarded as having any rights as against the other, in other words, the condition contained in the clause meant that there was to be a waiver of the rights of the respective parties if no suit was brought within a year. It is noteworthy that although the clause was so worded that it would have been directly hit by Section 29 of the Contract Act but the learned Judges founded their decision on the assumed intention of the parties having reference to the object and exigencies of insurance. This question again came up for consideration before a Division Bench of the Bombay High court consisting of the Chief Justice and Batchelor J. in The Baroda Spinning and Weaving company, Limited v. Satyanaryan Marine and Fire Insurance Co. Ltd. , ILR 38 Bom 344: (AIR 1914 Bom 225 (2) ). Clause 12 of the policy was that if, after a claim had been made and rejected, the insured should not institute any proceedings within three months from the date of such rejection he was to forfeit all benefits under the policy. Beaman J. by whom the matter was originally heard expressed a doubt regarding the correctness of the earlier decision in Hirabhai's case 14 Bom LR 741. In the Letters Patent Appeal, Scott. C. J. examined the argument that section 3 of the Limitation Act indicated that the law of limitation could not be modified by agreement of parties as it was possible to do in England; that there was no distinction under that act between rights and remedies; and that a conditional agreement to forfeit rights within the period within which the remedy was not barred by the Limitation Act was a void agreement. The following view expressed by him at p. 353 (of ILR Bom): (at p. 228 of AIR) is noteworthy: "i cannot accept the proposition that there is no distinction in India between rights and remedies. Section 28 of the Limitation Act shows the cases in which the loss of the remedy will destroy the right but what does not cover suits for money such as we are now concerned with. On the other hand the loss of the right always involves a very material consideration in the case of an conditional forfeiture of all benefits under a policy". The judgment if Batchelor J. was a little more exhaustive and the statement of law by him has been followed largely in subsequent decisions. It was conceded before him that in England the agreement in question would be perfectly valid and he was of the view that it could not be contended that Insurance Companies in India had less need than such companies in England of the protection afforded by the agreement for acceleration of legal proceedings to be brought against them. That being so, there was less reason to suppose that the legislature intended S. 28 to have the far-reaching effect that had been contended for. After examining certain English decision, Batchelor J. inclined to think that the genesis of section 28 was to be found in the Indian Legislature's desire to sweep away the refinements of the then English law and to enact for India a simpler and more suitable rule. The learned Judge examined the distinction between saying 'i agree that upon the expiry of three months after the rejection of my claim, my rights shall be forfeited' and saying 'as to the time within which I may enforce my rights, I agree to limit it to the period of three months, after the rejection of my claim'. According to him the latter covenant would undoubtedly be void under S. 28. The statement which has almost become classical on this point is to be found at p. 356: (of ILR bom): (at p. 229 of AIR): "in my opinion, however, the distinction, which beyond question exists, is vital in the construction of the section. As I understand the matter, what the plaintiff was forbidden to do was to limit the time within which he was to enforce his rights, what he had done is to limit the time within which he is to have any rights to enforce; and that appears to me to be a very different thing". In subsequent cases the Bombay High Court followed the law laid down in the above case in haji Shakoor Gany v. H. E. Hinde and Co. , Ltd. , AIR 1932 Bom 330 where a similar covenant existed in al Bill of Lading and in Ramji Karamsi v. The Unique Motor and General Insurance co. , Ltd. , AIR 1951 Bom 347, where the point did not directly arise but the language in which bhagwati J. expressed his view is noteworthy. He relied on the passage in Pollock and Mulla's indian Contract Act at page 209 and a passage in Baroda Spinning and Weaving Co. 's case ILR 38 Bom 344: (AIR 1914 Bom 225 (2) ). While observing that it was only when a period of limitation is curtailed that Section 28 of the Contract Act comes into operation, the learned Judge proceeded to state: "it does not come into operation when the term spells out an extinction of the right of the plaintiff to sue or spells out the discharge of the defendants from all liability in respect of the claim". In the Calcutta High Court the Bombay view was followed in Girdharilal Hanuman Bux v. Eagle Star and British Dominions Insurance Co. Ltd. , AIR 1924 Cal 186 and in Dawood Tar mahomed Bros. v. Queensland Insurance Co. Ltd. , AIR 1949 Cal 390. In the first case apart from the Bombay decision a reference was made to an earlier decision of the Calcutta High court in South British Fire and Marine Insurance Co. v. Brojo Nath Shaha, ILR 36 Cal 516 but there this point had not been directly referred. Greaves J. mentioned at p. 187 that in Porter's law of Insurance, 6th Edition, Page 195, it was stated that insurers might lawfully limit the time within which an action might be brought to a period less than that allowed by the statute of limitation the time of claim rested and was maintainable, was that by the contract of the parties the right to indemnity in case of loss and the liability of the Company thereof did not become absolute, unless the remedy was sought within the time fixed by the condition in the policy. In the second Calcutta case Mc. Nair J. did not discuss the matter in any great detail but relied on a decision of the Rangoon High Court in A. N. Ghose v. Reliance Insurance Co. ILR 11 Rang 475: (AIR 1934 Rang 15) where a similar clause had been examined and had been held to be valid. The Rangoon decision was, however, based on an earlier Bench decision in G. Rainey v. The Burma Fire and Marine Insurance Co. Ltd. , ILR 3 Rang 383: (AIR 1926 Rang 3) and on the statement by Batchelor J. in Baroda Spinning and Weaving Co. 's Case ILR 38 Bom 344: (AIR 1914 Bom 225 (2)) set out before. Apart from relying on certain decisions including the Baroda spinning Case ILR 38 Bom 344: (AIR 1914 Bom 225 (2)) the Bench observed that the plaintiff had willingly agreed that in the happening of a certain event he would forfeit all his rights from that date and any suit, therefore, brought after that date was brought on account of a cause of action which was non-existent. It was open to a party to contract that on the happening of a certain event he would lose all his rights. It could not be argued that such a condition must be one which limited the period within which he could seek relief in the ordinary courts. In this Court the same view has been adopted by Kapur J. in the Ruby General Insurance Co. Ltd. v. Bharat Bank Ltd. , AIR 1950 EP 352 and by Mehar Singh J. in the Punjab National Bank Ltd. v. American Insurance Co. Ltd. , F. A. F. O. No. 167 of 1955. The Saurashtra High Court while considering the effect of Section 28 on similar clauses existing in Bills of Lading has followed the Bombay view. Western India prospecting Syndicate Ltd. v. Bombay Steam Navigation Co. Ltd. , AIR 1951 Sau. 83.;