REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6347 OF 2000

H.P. State Forest Company Ltd.        ……..Appellant

Vs.

M/s. United India Insurance Co. Ltd.         …….Respondent

J U D G M E N T

HARJIT SINGH BEDI,J.

1. The facts leading to this appeal are as under:

2. In  October  1987,  a  meeting  was  convened  by  the

Managing Director of the appellant with representatives

of  various  Insurance  Companies  in  Shimla  with  a

proposal to insure the timber lying in several forest areas

of the State.  A proposal was also made to the National

Insurance  Company on 26th October  1987  to  act  as  a

lead company while the other Insurance Companies were

to  be  co-sharers.   After  negotiations,  the  respondent

agreed (on the 30th October 1987) to insure the timber

lying in the South Zone in the value of Rs.3.42 Crores

and also issued a cover note dated 7th November 1987

followed subsequently by a policy dated 16th November

1987 to be valid from 6th November 1987 to 5th November

1988.   The  appellant  also  deposited  a  sum  of

Rs.2,43,504  as  the  tentative  premium  subject  to  the

approval by the Tariff Advisory Commission.  It appears

that on account of heavy rains in the Shimla region in

September 1988 and consequent large scale flooding in

the South Zone, the insured timber was washed away.

This  fact  was  conveyed  to  the  respondent  by  several

letters  between  3rd October  1988  and  31st September

1989.   The  case  of  the  appellant  is  that  instead  of

meeting  its  contractual  obligations,  the  respondent

refuted its liability to pay on the 13th October 1988 on

the pretext that the policy had, in fact, been issued for a

period of 8 months only starting from 6th November 1987

2

and ending on 5th July 1988 and the period of one year

mentioned  in  the  policy  was  on  account  of  a

typographical  mistake.   It  also  appears  that  after

prolonged  negotiations,  some  additional  premium  was

paid  with  respect  to  the  aforesaid  policy.   It  is  the

grievance of the appellant that despite having accepted

the additional  premium even after  the policy had been

repudiated  on  13th October  1988,  the  respondent-

company  still  refused  to  make  good  the  loss.   The

appellant accordingly issued a legal notice dated 7th May

1992 followed by another dated 7th December 1992 but

to no avail, and on the contrary, the respondent vide its

communication  dated  24th December  1992  yet  again

repudiated  the  appellant’  claim.   Faced  with  this

situation,  the appellant through its  Advocate,  issued a

notice  dated  18th April  1993  to  the  respondent  under

clause  13  of  the  Insurance  Policy  calling  for  the

appointment of an arbitrator.  In its reply dated 19th May

1993,  the  Insurance  Company  refused  to  accept  this

proposal as well.  Frustrated thereby, the appellant filed

3

a  complaint  before  the  National  Consumer  Redressal

Forum (hereinafter called the “Commission”) on 18th April

1994  on  which  notice  was  issued  to  the  respondent.

Several objections such as the complaint being belated

as  the  claim had been  repudiated  by  letter  dated  13th

October  1988,  and  that  the  insurance  covered  only  a

period of  8 months,  were taken by the respondent.   A

rejoinder  affidavit  was thereafter  filed  by the  appellant

controverting the pleas raised by the respondent.   The

Commission,  however,  after  prolonged  hearing  by  its

order dated 15th February 1996 relegated the appellants

to the remedy of a civil court.  This order was challenged

and was set aside by this Court on 13th March 1997 and

a direction was issued to the Commission to examine the

complaint on merits.  The Commission accordingly went

in  to  the  matter  and dismissed  the  complaint  on 16th

August  2000  holding  that  the  issues  were  covered

against the appellant by the judgment of this Court in

National Insurance Co.Ltd. vs. Sujir Ganesh Nayak &

Co. & Anr. (1997) 4 SCC 366  in which it had been held

4

that  the  complaint  could  not  be  entertained  as  it  was

time barred having been brought before the Commission

after the expiry of the period fixed by Clause 6(ii) of the

Insurance Policy.  It is against this order that the present

appeal has been filed.

3. Mr. Sharma, the learned counsel  for the appellant has

submitted that Section 44 of the Limitation Act provided

a  period  of  limitation  of  3  years  from  the  date  of

disclaimer and as such the period of 12 months fixed by

clause  6(ii)  could  not  be  sustained  by  virtue  of  the

provisions of section 28 of the Contract Act, 1872.  In

this connection, he has pointed out that this matter was

concluded  against  the  respondent  by  the  judgment  in

Food Corporation  of  India  vs.  New India Assurance

Co.Ltd.  &  Ors. (1994)  3  SCC  324  which  had  been

reaffirmed in  Muni  Lal  vs.  Oriental  Fire  &  General

Insurance Co.Ltd.  & Anr. (1996) 1 SCC 90 and that

Sujir Ganesh Nayak case (supra) which was based on

the  pre  amended  Section  28  ibid  was,  therefore,

inapplicable.   Mr. Nandwani, the learned counsel for the

5

respondent has, however, submitted that the claim had,

in fact, been repudiated on 13th October 1988 and as the

3 years period was deemed to have commenced from that

day, the complaint was barred even on the appellant’s

best case as the complaint had been filed in April 1994.

He  has,  further,  argued  that  as  far  back  as  in  the

judgment  in   Vulcan Insurance Co.Ltd.  vs.  Maharaj

Singh  &  Anr. (1976)  1  SCC  943 and  followed

subsequently  in  several  judgments  (and  even  in  those

referred to above), it had been held that a clause in an

Insurance  Policy  fixing  a  period  of  limitation

extinguishing the right to file a suit or complaint within a

certain stipulated period which could be less than that

prescribed  by  the  Limitation  Act,  was  not  violative  of

Section 28 of the Contract Act and as such the findings

of the Commission were perfectly in accordance with the

law for this additional reason as well.

4. We  have  considered  the  arguments  advanced  by  the

learned counsel for the parties.   

6

5. It  is  clear  from  the  record  that  the  timber  had  been

washed  away some  time in  September  1988  and after

prolonged  correspondence,  the  respondent  ultimately

vide  its  communication  dated  13th October  1988

repudiated the appellant’s claim.  It is also clear from the

counter  affidavit  filed  by  the  respondent  that  the

appellant had, vide its letter dated 7th November 1987,

asked for insurance cover for a period of 8 months and

that the period of one year fixed in the insurance policy

was evidently a typographical mistake which had, in any

case, been rectified in the records of the company on 17th

December 1987, that is long before the flood.  The claim

of the appellant that the respondent company had, even

after  the  13th October  1988,  impliedly  admitted  its

liability under the policy also appears to be incorrect as

the  surveyors  had  been  appointed  on  the  persistent

demand  of  the  claimant/appellant  and  the  premium

taken thereafter was only to make good the deficiency in

the premium that had been paid for the policy for the

period of eight months.  It is, therefore, apparent that as

7

on the date of the flood, there was no insurance policy in

existence or any commitment on behalf of the respondent

to make the payment under the policy.  We, therefore,

endorse the argument raised by the respondent that even

accepting the case of the appellant at its very best that

the period of limitation would be 3 years under Section

44 of the Limitation Act, the complaint would, even then,

be beyond time, having been filed in April 1994.

6. In  view  of  the  above  observations,  we  find  that  the

second issue with regard to the implications of clause 6

(ii) of the policy vis-à-vis Section 28 is really academic,

but as the learned counsel for the parties have addressed

us on this score, we have chosen to deal with it as well.

We  see  from the  order  of  the  Commission  that  it  has

relied upon  Sujir Ganesh Nayak’s case (supra) to hold

that  the  complaint  could  not  be  entertained  as  being

time barred. The counsel for the appellant had, however,

argued  before  the  Commission  as  before  us,  that  as

Section 28 of the Contract Act had undergone significant

amendments,  the  aforesaid  judgment  required  a  re-

8

appraisal.   This  submission  had  been  rejected  by  the

Commission  by  observing  that  it  was  bound  by  the

judgment  in  Sujir  Ganesh Nayak’s  case and that the

appellant could agitate the question as to its correctness

before the Supreme Court.   The matter was, accordingly,

adjourned by us to enable the parties to find out if the

amendment had, indeed, been made and, if so, to what

effect. During the resumed hearing, the learned counsel

for the appellant candidly admitted that the amendment

had been made but had thereafter been repealed and the

matter would, thus, have to be examined under Section

28 of the Contract Act, as originally placed.  We have,

accordingly, chosen to deal with this matter under that

provision.   7. It  would  be  clear

from the above prefatory note that the discussion would

involve an appreciation of Clause 6(ii) of the Policy and

Section 28 of the Contract Act.  Both these clauses are

reproduced below:  

“6(ii) In no case whatsoever shall the company be liable for any loss or damage

9

after the expiration of 12 months from the happening  of  the  loss  or  damage  unless the claim is the subject of pending action or  arbitration:  it  being  expressly  agreed and  declared  that  if  the  company  shall declaim liability  for  any  claim hereunder and  such  claim  shall  not  within  12 calendar  months  from  the  date  of  the disclaimer  have  been  made  the  subject matter of a suit in a court of law then the claim shall for all purposes be deemed to have  been  abandoned  and  shall  not thereafter be recoverable hereunder.

Section 28

Agreements  in  restrain  of  legal proceedings void-

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.

Savings  of  contract  to  refer  to arbitration dispute that may arise

Exception 1 – This section shall  not render illegal  a  contract,  by  which  two  or  more persons agree that any dispute which may arise  between  them  in  respect  of  any subject or class of subjects shall be referred to  arbitration  and  that  only  the  amount awarded  in  such  arbitration  shall  be recoverable  in  respect  of  the  dispute  so referred.

10

Savings of contract to refer  questions that have already arisen.

Exception 2 – Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any  question  between  them  which  has already arisen, or affect any provision of any law  in  force  for  the  time  being  as  to references to arbitration.”

8. In  Sujir Nayak’s case (supra)  to which primary reference

has been made by the learned counsel for the parties while

dealing  with  an  identical  situation  where  a  contract

contained  a  provision  prescribing  a  period  of  limitation

shorter than that prescribed by the Limitation Act, it was

held that the contractual provision was not hit by Section

28 as the right itself had been extinguished.   

9. Mr.  Sharma has,  however,  submitted  that in view of  the

observations  in  some  paragraphs  in  Food  Corporation  of

India’s case, the observations in  Sujir Nayak’s case  were

liable to reconsideration.  We, however, find no merit in this

plea  for  the  reason  that  in  Sujir  Nayak’s  case, Food

11

Corporation of India’s case (supra) has been specifically

considered and Vulcan Insurance Company’s case (supra)

too  had  been  relied  upon.   In Sujir  Nayak’s  case,  this

Court was called upon to consider condition 19 of the policy

which was in the following terms:

“Condition  19.  –  In  no  case  whatever shall the company be liable for any loss or  damage  after  the  expiration  of  12 months from the happening of loss or the damage unless the claim is the subject of pending action or arbitration.”

10.While construing this provision vis-à-vis Section 28 of the

Contract Act and the cases cited above and several other

cases,  in  addition,  this  is  what  the  Court  ultimately

concluded:  

“16.  From the case-law referred to above the legal position that emerges is  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 provide  for  the  forfeiture  or  waiver  of  the right  itself  if  no  action  is  commenced  within  the period stipulated by the agreement. Such a clause

12

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.  This,  in brief,  seems to be the settled legal position. We may now apply it to the facts of this case.

 19. The clause before this Court in Food Corpn.

case extracted  hereinbefore  can  instantly  be compared with the clause in the present case. The contract in that case said that the right shall stand extinguished after six months from the termination of the contract. The clause was found valid because it did not proceed to say that to keep the right alive the  suit  was  also  required  to  be  filed  within  six months. Accordingly, it was interpreted to mean that the  right  was  required  to  be  asserted  during  that period by making a claim to the Insurance Company. It was therefore held that the clause extinguished the right itself and was therefore not hit by Section 28 of the Contract Act. Such clauses are generally found in insurance contracts for the reason that undue delay in  preferring  a  claim  may  open  up  possibilities  of false claims which may be difficult of verification with reasonable  exactitude  since  memories  may  have faded by then and even ground situation may have changed. Lapse of time in such cases may prove to be quite costly to the insurer and therefore it would not be surprising that the insurer would insist that if the claim is not made within a stipulated period, the right itself would stand extinguished. Such a clause would not be hit by Section 28 of the Contract Act.

21.  Clause  19  in  terms  said  that  in  no  case would the insurer be liable for any loss or damage after  the  expiration  of  twelve  months  from  the happening  of  loss  or  damage  unless  the  claim  is subject of any pending action or arbitration. 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

13

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 thereafter 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.  That  is  the  reason  why  in  Vulcan Insurance case while interpreting a clause couched in similar terms this Court said: (SCC p. 952,  para 23)

“It has been repeatedly held that such a clause is not hit by Section 28 of the Contract Act.”

Even if the observations made are in the nature of  obiter  dicta we  think  they  proceed  on  a  correct reading of the clause.”

In the light of the fact that Food Corporation’s case has been

considered  in  Sujir  Nayak’s  case,  no  further  argument

remains in the present matter, as Clause 6(ii) and Condition

19 are, in their essence, pari materia.

14

11. Mr. Sharma has also placed reliance on  Muni Lal’s case

(supra).  In this case, the primary issue before the Court

was as to whether an amendment under Order 6 Rule 17 of

the CPC ought to be allowed after the relief which had been

sought  to  be  introduced  had  become  time  barred.   We,

therefore,  find that no case  for  interference  is  made out.

The  appeal  is,  accordingly,  dismissed.   There  will  be  no

order as to costs.

                   …………………………

…..J. (DALVEER BHANDARI)

……………………………..J. (HARJIT  SINGH  BEDI)

      New Delhi, Dated:  December 18,  2008

15