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TMI Blog2016 (9) TMI 1601X X X X Extracts X X X X X X X X Extracts X X X X ..... nature and cannot have retrospective effect. It may only be noticed, in passing, that Parliament has to a large extent redressed any grievance that may arise qua bank guarantees in particular, by adding an exception (iii) by an amendment made to Section 28 in 2012 with effect from 18.1.2013. Since we are not directly concerned with this amendment, suffice it to say that stipulations like the present would pass muster after 2013 if the specified period is not less than one year from the date of occurring or non-occurring of a specified event for extinguishment or discharge of a party from liability. Appeal dismissed. - Civil Appeal Nos. 9087-9089 of 2016 (Arising out of SLP (Civil) Nos. 16166-16168 of 2011) - - - Dated:- 15-9-2016 - C. Nagappan And Rohinton Fali Nariman, JJ. For the Appellant : A.K. Panda, Sr. Adv., R.K. Rathore, Vibhu Shankar Mishra, Manita Verma, Arunima Dwivedi, Shruti Srivastava, Raj Bahadur Yadav, M.K. Maroria, Advs. for Shreekant N. Terdal, Adv. For the Respondents : Abhishek Manu Singhvi, Krishnan Venugopal, Sr. Adv., Pranab Kumar Mullick, Soma Mullick, Sebat Kumar Deuria, Amit Bhandari, Lalit Bhasin, Nina Gupta, Mudit Sharma, P.V. Yogesw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained 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 judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section, but hinge on the construction of the insurance policies in question. The principle itself is well recognized that an agreement providing for the relinquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld of standard form contracts or standard terms. But confining ourselves to the narrow issue under discussion, it would appear that the present legal position is open to serious objection from the common man's point of view. Further, such clauses introduce an element of uncertainty in transactions which are entered into daily by hundreds of persons. 5.2 It is hardly necessary to repeat all that we have said in the preceding Chapters about the demerits of the present law. Briefly, one can say that the present law, which regards prescriptive clauses as valid while invalidating time limit clauses which merely bar the remedy, suffers from the following principal defects: (a) It causes serious hardship to those who are economically disadvantaged and is violative of economic justice. (b) In particular, it harms the interests of the consumer, dealing with big corporations. (c) It is illogical, being based on a distinction which treats the more severe flaw as valid, while invalidating a lesser one. (d) It rests on a distinction too subtle and refined to admit of easy application in practice. It thus, throws a cloud on the rights of parties, who do not know with certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extinguishing the rights is valid. This approach may be sound in theory but, in practice, it causes serious hardship and might even be abused. 2. It is felt that Section 28 of the Indian Contract Act, 1872 should be amended as it harms the interests of the consumer dealing with big corporations and causes serious hardship to those who are economically disadvantaged. 3. The Bill seeks to achieve the above objects. 19. What emerges on a reading of the Law Commission Report together with the Statement of Objects and Reasons for the Amendment is that the Amendment does not purport to be either declaratory or clarificatory. It seeks to bring about a substantive change in the law by stating, for the first time, that even where an agreement extinguishes the rights or discharges the liability of any party to an agreement, so as to restrict such party from enforcing his rights on the expiry of a specified period, such agreement would become void to that extent. The Amendment therefore seeks to set aside the distinction made in the case law up to date between agreements which limit the time within which remedies can be availed and agreements which do away with the right altogether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould lie as to whether it could be said to be clarificatory or declaratory. The language of Section 4(1) of the statute made it clear that it would apply to suits filed only after the 1988 Act came into force Further, the Bench went on to quote Maxwell on Interpretation as follows: Perhaps no Rule of construction is more firmly established than this -- that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matters of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only.' The Rule has, in fact, two aspects, for it, 'involves another and subordinate rule, to the effect that a statute is not to be construed so as to have a greater retrospective operation than its language renders necessary. [para 14] It then went on to hold as follows: As regards, reason 3, we are of the considered view that the Act cannot be treated to be declaratory in nature. Declaratory enactment declares and clarifies the real in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the Constitution came into force the amending Act also will be part of the existing law. In Mithilesh Kumari v. Prem Behari Khare [(1989) 2 SCC 95 : (1989) 1 SCR 621] Section 4 of the Benami Transactions (Prohibition) Act, 1988 was, it is submitted, wrongly held to be an Act declaratory in nature for it was not passed to clear any doubt existing as to the common law or the meaning or effect of any statute. The conclusion however, that Section 4 applied also to past benami transactions may be supportable on the language used in the section. [para 17] 23. Similarly, in Purbanchal Cables and Conductors (P) Ltd. v. Assam SEB (2012) 7 SCC 462, this Court had to decide whether the Interest on Dela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. The obvious basis of the principle against retrospectivity is the principle of fairness , which must be the basis of every legal Rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [(1994) 1 AC 486 : (1994) 2 WLR 39 : (1994) 1 All ER 20 (HL)] Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood Corporation of India v. New India Assurance Co. Ltd. (1994) 3 SCC 324, would apply on all fours to the facts of the present case. 30. The judgment of Venkatachala, J. and Bharucha, J. set out the relevant Clause in a fidelity insurance guarantee as follows: ...however, that the Corporation shall have no rights under this bond after the expiry of (period) six months from the date of termination of the contract. 31. On the facts in that case, the High Court had allowed the appeals of the Insurance Companies stating that the said Clause did not entitle the Corporation to file suits against Insurance companies after the expiry of the six months period from the date of termination of the respective contracts entered into. In setting aside the High Court judgment, this Court held that none of the clauses in the bond required that a suit should be instituted by the Corporation for enforcing its rights under the bond within a period of six months from the date of termination of the contract. The restriction adverted to in the clauses of the bond envisaged the need for the Corporation to lodge a claim based on the bond, and that if this was done, a suit to invoke rights under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Food Corporation judgment, this Court held: 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 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 belate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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