TaxTMI 
TaxTMI 
2016 (9) TMI 1601
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....randum 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 exp....
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....e 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....
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.... 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....
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....ation thus: 1.2 Under Section 28 of the Indian Contract Act, 1872 - to state the point in brief - an agreement which limits the time within which a party to an agreement may enforce his rights under any contract by proceedings in a court of law is void to that extent. But the Section does not invalidate an agreement in the nature of prescription, that is to say, an agreement which provides that, at the end of a specified period. If the rights thereunder are not enforced, the rights shall cease to exist. As will be explained in greater detail in later Chapters of this Report, this position creates serious anomalies and hardship, apart from leading to unnecessary litigation. Prima facie, it appeared to the Commission that the Section stood in need of reform on this point. The arguments for and against amendment of the Section will be set out later. For the present, it is sufficient to state that the problem is one of considerable practical importance as such stipulations are frequently found in agreements entered into in the course of business. 17. After going through the existing case law and finding that the existing case law resulted in economic injustice because of unequal ....
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....sed Section 28, main paragraph, Contract Act as recommended 28. 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 (b) which limits the time within which he may thus enforce his rights, or (c) which extinguishes the rights of any party thereto under or in respect of any contract on the expiry of a specified period (or on failure to make a claim) or to institute a suit or other legal proceeding within a specified period, or (d) which discharges any party thereto from any liability under or in respect of any contract in the circumstances specified in Clause (c), is void to that extent. 18. A period of 13 years passed after which this Report was implemented. The Statement of Objects and Reasons of the Amendment reads as follows: The Law Commission of India has recommended in its 97th report that Section 28 of the Indian Contract Act, 1872 may be amended so that the anomalous situation created by the existing Section may be rectified. It has been held by the courts that the said Section 28 shall invalidate only a Clause i....
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.... Retrospection is not to be presumed for the presumption is the other way but many statutes have been regarded as retrospective without a declaration. Thus it is that remedial statutes are always regarded as prospective but declaratory statutes are considered retrospective. Similarly sometimes statutes have a retrospective effect when the declared intention is clearly and unequivocally manifest from the language employed in the particular law or in the context of connected provisions. It is always a question whether the legislature has sufficiently expressed itself. To find this one must look at the general scope and purview of the Act and the remedy the legislature intends to apply in the former state of the law and then determine what the legislature intended to do. This line of investigation is, of course, only open if it is necessary. In the words of Lord Selborne in Main v. Stark [1890] 15 A.C. 384 at 388, there might be something in the context of an Act or collected from its language, which might give to words prima facie prospective a large operation. More retrospectivity is not to be given than what can be gathered from expressed or clearly implied intention of the legisla....
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....ing such a defence in a suit by benamidar. Such an Act which prohibits benami transactions and destroys rights flowing from such transactions as existing earlier is really not a declaratory enactment. With respect, we disagree with the line of reasoning which commanded to the Division Bench. In this connection, we may refer to the following observations in Principles of Statutory Interpretation, 5th Edn., 1992, by Shri G.P. Singh, at page 315 under the caption 'Declaratory statutes': The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court: For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word "declared" as well as the word enacted. But the use of the words 'it ....
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....e and again, has observed that any substantive law shall operate prospectively unless retrospective operation is clearly made out in the language of the statute. Only a procedural or declaratory law operates retrospectively as there is no vested right in procedure. In the absence of any express legislative intendment of the retrospective application of the Act, and by virtue of the fact that the Act creates a new liability of a high rate of interest against the buyer, the Act cannot be construed to have retrospective effect. Since the Act envisages that the supplier has an accrued right to claim a higher rate of interest in terms of the Act, the same can only be said to accrue for sale agreements after the date of commencement of the Act i.e. 23-9-1992 and not any time prior. [paras 51 and 52] 24. Similarly, in CIT v. Vatika Township (P) Ltd. (2015) 1 SCC 1, this Court held that the proviso to Section 113 of the Indian Income Tax Act, 1961 was prospective and not retrospective. In so holding, the Constitution Bench adverted to certain general principles as under: Of the various Rules guiding how a legislation has to be interpreted, one established Rule is that unless a con....
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....hts and liabilities that have already accrued as a result of agreements entered into between parties are sought to be taken away. This being the case, we are of the view that both the Single Judge and Division Bench were in error in holding that the amended Section 28 would apply. 26. Considering that the un-amended Section 28 is to apply, it is important to advert to the said Section and see what are its essential ingredients. First, a party should be restricted absolutely from enforcing his rights under or in respect of any contract. Secondly, such absolute restriction should be to approach, by way of a usual legal proceeding, the ordinary Tribunals set up by the State. Thirdly, such absolute restriction may also relate to the limiting of time within which the party may thus enforce its rights. 27. At this point, it is necessary to set out the exact Clause in the bank guarantees in the facts of the present cases. One such Clause reads as under: .... Unless a demand or claim under this guarantee is made against us within three months from the above date (i.e. On or before 30.4.97), all your rights under the said guarantee shall be forfeited and we shall be relieved and di....
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....ld be filed, would be valid and not hit by Section 28. In paragraph 8 of the judgment, the learned Judge put it thus: It does not directly or indirectly curtail the period of limitation nor does it anywhere provide that the Corporation shall be precluded from filing suit after expiry of six months. It can utmost be construed as a condition precedent for filing of the suit that the Appellant should have exercised the right within the period agreed to between the parties. The right was enforced under the agreement when notice was issued and the company was required to pay the amount. Assertion of right is one thing than enforcing it in a court of law. The agreement does not anywhere deal with enforcement of right in a court of law. It only deals with assertion of right. The assertion of right, therefore, was governed by the agreement and it is imperative as well that the party concerned must put the other side on notice by asserting the right within a particular time as provided in the agreement to enable the other side not only to comply with the demand but also to put on guard that in case it is not complied it may have to face proceedings in the court of law. Since admittedly t....
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....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 [(1976) 1 SCC 943] 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. [para 21] 35. In H.P. State Forest Co. Ltd. v. United India Insurance Co. Ltd. (2009) 2 SCC 252, this Court had to decide whether Clause 6(ii) of an insurance policy was hit by the unamended Section 28. This Clause reads as follows: 6(ii). In no case whatsoever shall the Company be liable for any loss or damage 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 h....