(1)
R. RAJASHEKAR ..... Vs.
TRINITY HOUSE BUILDING CO-OPERATIVE SOCIETY .....Respondent D.D
15/09/2016
Facts: The respondent cooperative society engaged an agency to acquire lands from the State Government for house site formation. The agency acted as a middleman between the State Government and the cooperative society. Meanwhile, some landowners challenged the acquisition through writ petitions, and during the proceedings, lands were transferred by the landowners to others. Additionally, the middl...
(2)
SECRETARY, TAMILNADU PUBLIC SERVICE COMMISSION ..... Vs.
A.B. NATARAJAN .....Respondent D.D
15/09/2016
Facts: The case involved a challenge to appointments made in Tamil Nadu State Services following allegations of irregularities in the examination process conducted by the Tamil Nadu Public Service Commission. The High Court of Madras initially rejected a petition challenging the appointments, but the decision was overturned on appeal, leading to the termination of services of some selected candida...
(3)
UNION OF INDIA ..... Vs.
M/S INDUSIND BANK LTD. .....Respondent
Section Acts Rules and Article Mentioned:
Section 28: Contract Act, 1872
Subject:
Applicability of Section 28 of the Contract Act, 1872, both in its unamended and amended form, regarding the invocation of bank guaranteeERSUS
Headnotes:
Facts:
The dispute arose from contracts executed by the appellant with exporters in January 1996 for the export of extra-long staple cotton.
Exporters furnished bank guarantees on January 31, 1996.
Exporters failed to provide certain required export documents within the stipulated period.
Consequently, the Textile Commissioner invoked the bank guarantees.
The respondent bank refused to honor the guarantees, citing contractual provisions.
The appellant contended that the bank was still obligated to make payment under the bank guarantees, invoking Section 28 of the Contract Act, both in its unamended and amended form.
Issues:
Whether the amended Section 28 of the Contract Act, 1872, applies to the bank guarantees dated January 31, 1996.
Whether the rights and liabilities accrued from agreements entered into before the enactment of the amended Section 28 are affected by it.
Held:
The court held that the bank guarantees, dated January 31, 1996, are not affected by the amendment made a year later, on January 8, 1997.
Section 28, being substantive law, operates prospectively, as there is no clear indication of retrospectivity in its language.
The amended Section 28, which sought to make certain agreements void for the first time, is deemed remedial in nature and not clarificatory or declaratory of the law. Therefore, it does not apply to agreements entered into before its enactment.
Decision: The court dismissed the appeals, holding that the respondent bank was not absolved of its obligation to pay under the bank guarantees.
Referred Cases:
CIT Vs. Vatika Township (P) Ltd., (2015) 1 SCC 1
Food Corpn. of India Vs. New India Assurance Co. Ltd., (1994) 3 SCC 324
H.P. State Forest Co. Ltd. Vs. United India Insurance Co. Ltd., (2009) 2 SCC 252
L'Office Cherifien des Phosphates Vs. Yamashita-Shinnihon Steamship Co. Ltd., (1994) 1 AC 486 : (1994) 2 WLR 39 : (1994) 1 All ER 20 (HL)
Main Vs. Stark, 1890 15 A.C. 384 at 388
Mithilesh Kumari Vs. Prem Behari Khare, (1989) 2 SCC 95
National Insurance Co. Ltd. Vs. Sujir Ganesh Nayak & Co., (1997) 4 SCC 366
Phillips Vs. Eyre, (1870) LR 6 QB 1
Purbanchal Cables & Conductors (P) Ltd. Vs. Assam SEB, (2012) 7 SCC 462
R. Rajagopal Reddy Vs. Padmini Chandrasekharan, (1995) 2 SCC 630
Sukhram Vs. Harbheji, 1969 3 S.C.R. 752
Vulcan Insurance case, (1976) 1 SCC 943
JUDGMENT
R.F. Nariman, J.—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 Note and the Memorandum that the shipment period will be 180 days from the date of registration of quota or up to 31.8.1996, whichever is earlier.
5. Pursuant to this Press Note and Memorandum, four sale contracts were executed between M/s Indocomex Fibres Pvt. Ltd., Singapore and the four exporters, all in January, 1996. On 31.1.1996, the four exporters made an application together with a bank guarantee of even date. In February, the exporters were permitted to export the total quantity of 9175 bales vide an Allocation-cum-Registration Certificate dated 6.2.1996 within a validity period of shipment up to 31.7.1996. It may be mentioned in passing that this date was extended as many as three times, the third extension being notified as upto 28.2.1997.
6. As the four exporters failed and neglected to furnish supporting documents regarding export of goods allocated to them within the stipulated period, the Textile Commissioner, by a letter dated 3.1.1997, called upon the exporters to submit the necessary documents within 15 days from the date of issue of this letter but not later than 20.1.1997, failing which the bank guarantees would be enforced. As the exporters failed and neglected to furnish these documents, the Textile Commissioner, vide letters dated 15.5.1997, invoked the bank guarantees. Vide letters of even date, the Respondent Bank refused to pay under the said guarantees, stating that the same could be invoked only within the extended period of three months i.e. up to 30.4.1997, and not later. By a letter dated 27/28.8.1997, the Textile Commissioner informed the Respondent Bank that in light of the amendment to Section 28 of the Indian Contract Act, which came into force on 8.1.1997, the Bank was not absolved of its obligation to make payment under the bank guarantee. To this, the Bank vide letter dated 19.9.1997, reiterated its earlier stand and stated that it was not liable to make payment under the bank guarantee after 30.4.1997. It may be mentioned in passing that two of the aforesaid group companies, namely GPB Fibres Ltd. and M/s Bhagwati Cotton Ltd. were amalgamated on 12.9.1997.
7. On 23.7.1998, the Textile Commissioner called upon both the exporters and the Respondent Bank to pay the sums covered by the bank guarantee. As this letter evoked no response, three summary suits - being 2959/1999, 2963/1999 and 2996/1999 - were filed on 8.4.1999 by the Union of India and the Textile Commissioner against the exporters and the Bank in the High Court of Bombay. By order dated 4.12.2001, as amended on 22.1.2002, unconditional leave to defend the suits was granted to the Bank, and conditional leave to so defend the suits to the exporters upon depositing the amount of Rs. 3,82,59,450/- in the Court within 12 weeks from the date of the said order. On 20.1.2003/27.2.2003, the Division Bench dismissed the appeal filed by the Union of India on the ground that it was not maintainable under Clause 15 of the Letters Patent of the High Court. On 14.8.2003, an SLP filed by the Union of India met with the same fate.
8. All four exporters remained ex-parte, as a result of which the suits came to be decreed ex-parte against the said exporters on 29.11.2004.
9. On contest with the Bank, a learned Single Judge of the Bombay High Court on 22.2.2008, was of the view that as the bank guarantees in question were in force on 8.1.1997, when the amendment to Section 28 of the Contract Act took place, the amended Section 28 would apply to the facts of these cases. This being the case, the clause in the bank guarantees extinguishing rights and discharging the liability of the Bank if a claim were not to be made within three months of the date of expiry of the bank guarantee, was held to be void. Consequently, it was held that the invocation of the aforesaid bank guarantees, being without the aforesaid time constraint, was valid, and the said suits were, therefore, decreed in favour of the Union of India and against the bank.
10. In an appeal against this judgment, by the impugned judgment dated 20.4.2011, a Division Bench of the Bombay High Court, while holding that the amended Section 28 would apply to the facts of these cases, came to the opposite conclusion by following certain judgments of this Court, and therefore, reversed the learned Single Judge, holding that since the bank guarantees were not invoked within the time prescribed, the suits would have to be dismissed. The Union of India has filed the present appeals before us.
11. Shri A.K. Panda, learned senior advocate appearing on behalf of the Union of India, has stated that the Single Judge was correct in applying Section 28(b) as amended in 1997, and that the condition contained in the bank guarantee which restricted the period within which it could be invoked is, therefore, void. To buttress his submission, he cited (1995) 2 SCC 630, R. Rajagopal Reddy v. Padmini Chandrasekharan. According to learned counsel, the Division Bench, having reiterated that the amended Section 28(b) would apply, was not correct in its conclusion that such clause in the bank guarantees would not be void. According to learned counsel, the Supreme Court judgments relied upon were all pre-amendment, and could not therefore be relied upon to arrive at the opposite result from the learned Single Judge.
12. On the other hand, Dr. A.M. Singhvi, learned senior advocate, and Shri Krishnan Venugopal learned senior advocate, contended that both the Single Judge and the Division Bench were not correct in applying the amendment to Section 28. According to both the learned counsel, the bank guarantees themselves being dated 31.1.1996, would not be affected by an amendment made one year later i.e. on 8.1.1997. The relevant date and the relevant law applicable would be as on 31.1.1996, which would be the unamended Section 28. This being the case, according to them, a catena of judgments has held that if a clause in a contract does not restrict the limitation period within which one can approach a Court, then it is perfectly valid and not hit by Section 28 (unamended). For this purpose, they cited several judgments before us. An alternative plea was also raised by them that, on the assumption that the amended Section 28 would apply, even then, regard being had to the limited object sought to be achieved by the amendment, which followed a Law Commission Report, it would be clear that even on application of Section 28(b), the aforesaid clause in the bank guarantees would not be hit. In particular, they argued that the revised Section 28 suggested by the Law Commission was not in fact enacted verbatim in Section 28(b), and that the crucial words "or on failure to make a claim" are missing in the amended Section 28. They also referred to a subsequent amendment of Section 28 in 2012, specifically dealing with bank guarantees, in the course of their arguments.
13. The primary contention with which we are faced is whether Section 28 applies in its original form or whether it applies after amendment in 1997. In order to answer this question, it is first necessary to set out Section 28 in its original form and Section 28 after amendment. The Section reads as under:-
Original Section
28. 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.
Amendment w.e.f. 08.01.1997
28. Agreements in restraint of legal proceeding, void. Every Agreement,
(a) 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;
(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights by usual legal proceedings, is void to that extent."
14. In order to answer this primary question, we have first to see whether the change made in Section 28 could be said to be clarificatory or declaratory of the law, and hence retrospective. It is common ground that the statute has not made the aforesaid amendment retrospective as it is to come into force only with effect from 8.1.1997.
15. The original Section is of 1872 vintage. It remained in this incarnation for over 100 years and was the subject matter of two Law Commission Reports. The 13th Report of the Law Commission of India, September, 1958 examined the Section and ultimately decided that it was not necessary to amend it, given the fact that there is a well-known distinction between agreements providing for relinquishment of rights as well as remedies as against agreements for relinquishing remedies only. This was reflected in para 57 of the Report as follows:-
"57. Decided cases reveal a divergence of opinion in relation to certain clauses of insurance policies with reference to the applicability of this Section. On examination, it would appear that these cases do not really turn on the interpretation of the D.D
15/09/2016
Facts:The dispute arose from contracts executed by the appellant with exporters in January 1996 for the export of extra-long staple cotton.Exporters furnished bank guarantees on January 31, 1996.Exporters failed to provide certain required export documents within the stipulated period.Consequently, the Textile Commissioner invoked the bank guarantees.The respondent bank refused to honor the guaran...
(4)
DEVIKA BISWAS ..... Vs.
UNION OF INDIA .....Respondent D.D
14/09/2016
Facts: The case involved a writ petition (Writ Petition (Civil) No.95 of 2012) filed by a health rights activist, Devika Biswas, regarding sterilization procedures conducted on women and men in various states of India, including Bihar, Kerala, Madhya Pradesh, Maharashtra, and Rajasthan. The petition highlighted instances of unsafe and unethical sterilization practices, such as a single surgeon per...
(5)
DELHI DEVELOPMENT AUTHORITY ..... Vs.
SUKHBIR SINGH .....Respondent D.D
09/09/2016
Facts: The Delhi Development Authority (DDA) initiated land acquisition proceedings in 1961, notifying the landowners' properties for acquisition. Possession of the land was taken in 2000, several decades after the initial notification. However, the compensation payable to the landowners was neither tendered nor paid promptly. The compensation amount was handed over to the Land Acquisition Co...
(6)
PANKAJ ..... Vs.
STATE OF RAJASTHAN .....Respondent D.D
09/09/2016
Facts:The incident involved the shooting and subsequent death of Raj Kumar, allegedly by the appellant, Pankaj, in a juice shop in Bharatpur.The prosecution's case relied primarily on the testimony of PW-8, the sole eyewitness to the incident, and alleged recovery of the firearm used in the crime.Various discrepancies and inconsistencies were noted in the prosecution's case, including do...
(7)
M/S HARISH CHANDRA & COMPANY ..... Vs.
STATE OF U.P. THR. SUPERINTENDING ENGINEER .....Respondent D.D
08/09/2016
Facts:M/S Harish Chandra & Company (the Appellant), a civil contractor, entered into agreements with the State of U.P. (the Respondent) for certain construction works.Disputes arose between the parties regarding the execution of the agreements, leading them to invoke arbitration.The arbitrator passed a reasoned award, partially allowing the appellant's claims and rejecting the respondent&...
(8)
STATE OF RAJASTHAN ..... Vs.
LBS B.ED. COLLEGE .....Respondent D.D
08/09/2016
Facts: The case involved an appeal questioning the legal acceptability of an order passed by the High Court of Judicature for Rajasthan, concerning the admission of students for the academic year 2015-2016. The order allowed admission subject to the fulfillment of new guidelines issued by the National Council for Teacher Education (NCTE).Issues: The extent of the State Government's authority ...
(9)
GIRISH RAGHUNATH MEHTA ..... Vs.
INSPECTOR OF CUSTOMS .....Respondent D.D
07/09/2016
Facts:Intelligence information led to a raid where a co-accused was apprehended with 30 Kgs. of poppy straw allegedly purchased from the appellant without a valid license.The appellant was found to have sold the contraband to the co-accused, and his statement under Section 67 of the NDPS Act further incriminated him.Issues:Procedural irregularities regarding the recording of prior information.Admi...