1. -THE appellant feeling aggrieved by the order dated 28.10.1996 dismissing the complaint relating to insurance claim passed by the State Commission, Ahmedabad, has filed the present appeal.
2. FACTS giving an occasion to the appellant to file this appeal are as under: The appellant was a registered partnership firm and is engaged in manufacturing acids and also involved in processing and distillation and sale of chemicals at its factory at Vadodara for the last more than 30 years. The appellant had taken Machinery Breakdown Insurance Policy from the respondent for the period from May 10, 1994 to May 9, 1995 in regard to 1500 litres glass linked reactor for a sum of Rs. 4,50,000, for installation in the factory. Pre-insurance survey of the reactor was done by the surveyor of the respondent. After obtaining the insurance policy, the reactor was put to use and it was functional till August 25, 1994. The insurance policy was issued for a total sum of Rs. 4,69,272.40 which covered the value of the glass parts. However, at about 3 p.m. on 25.8.1994, it was noticed that it had developed holes. The appellant accordingly informed the appellant about damage to the reactor on 26.8.1994. The respondent appointed a surveyor. The appellant supplied whatever information was demanded by the surveyor. The respondent repudiated the claims vide letter dated 27.4.1995 on the ground that damage to heat resisting and anti-corrosive lining and cracking of glass lining were excluded. The reactor contained 80% glass parts and if glass parts were excluded, it would have been meaningless to have insurance. In the aforesaid circumstances, the complainant filed the claim for Rs. 6,00,000 as compensation and costs.
The respondent resisted the claim by asserting that the repudiation of the claim vide letter issued on 27.4.1995 was fully justified and there was no deficiency in service. Since the complaint has not been filed within three calendar months from the date of repudiation, the complaint was not maintainable under Clause 12 of the policy for the complaint was not filed on 24.1.1996.
The State Commission took the view that in terms of Clause 12 of the policy, the complainant had abandoned its claim and consequently dismissed the complaint.
3. WE have heard the parties Counsel and gone through the record.
Before proceedings further, let us see the Clause 12 of the policy, which reads as under: "It is also hereby further expressly agreed and declared that if the company shall disclaim liabilility to the insured for any claim hereunder and such claim shall not within 3 calendar months from the date of such 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 abandoned and shall not thereafter be recoverable hereunder."
4. SINCE the complaint has not been filed by the complainant within three calendar months from the date of repudiation, the short question, which needs our consideration is as to whether the complaint was maintainable or not under Clause 12 of the policy.
Section 28 of the Contract Act was amended w.e.f. 8.1.1997. The Bench of this Commission presided over by Hon''ble Mr. Justice M.B. Shah on a similar point in the case of New India Assurance Co. Ltd. v. K.A. Abdul Hameed & Anr., II (2005) CPJ 54 (NC), in Revision Petition Nos. 986 of 1995 and 338 of 1998 after considering numerous judgments, observed as under:
"4. Prima facie, it appears that the aforesaid condition in the insurance policy would be void in view of Section 28(b). 5. Section 28 is as under- "28. Agreements in restraint of legal proceedings, void- Every agreement- (a) by which any party thereto is restricted absolutely fron 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; or (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. is void to that extent".
6. However, it is contended that- (a) this condition was part of the contract which had taken place in 1992, the claim was repudiated in 1993 and the complaint was filed in 1995 when Clause (b) of Section 28(b) of the Act was not in existence. (b) Similar condition came up for interpretation before the Apex Court in the case of petitioner and the Court has upheld such condition.
7. Learned Counsel for the petitioner has referred to the three-Judge Bench decision of the Supreme Court in National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co. & Anr., (1997) 4 SCC 366. In this decision the Supreme Court upheld the contention of the Insurance Company and observed:
"14. Sahai, J. [(in Food Corporation of India v. New India Assurance Co. Ltd., (1994) 3 SCC 324)] who wrote a separate but concurring judgment extracted the clause of the Fidelity Insurance Guarantee (which we have extracted earlier) and then posed the question: What does it mean? What is the impact of Section 28 of the Contract Act on such a clause? Pointing out that the said Section 28 was a departure from the English law (there is no such statutory bar in English law) the learned Judge observes that (SCC p. 330, para 3)- "...Even though the phraseology of Section 28 is explicit and strikes at the very root by declaring any agreement curtailing the normal statutory period of limitation to be void the Courts have been influenced by the distinction drawn by English Courts in extinction of right by agreement and curtail-ment of limitation." Referring to the language of the various terms of the agreement, the learned Judge holds in paragraph 8 thus: (SCC p. 335)- "From the agreement it is clear that it does not contain any clause which could be said to be contrary to Section 28 of the Contract Act nor it imposes any restriction to file a suit within six months from the date of determination of the contract as claimed by the company and held by the High Court. What was agreed was that the appellant would not have any right under this bond after the expiry of six months from the date of the termination of the contract. This cannot be construed as curtailing the normal period of limitation provided for filing at the suit. If it is construed so it may run the risk at being violative of Section 28 of the Contract Act. It only puts embargo on the right of the appellant to make its claim known not later than six months from the date of termination of contract. It is in keeping with the principle which has been explained in English decisions and by our own Court that the insurance'' companies should not be kept in dark for long and they must be apprised of their liabilities immediately both for facility and certainty. The High Court erroneously construed it as giving up the right of enforceability of its claim after six months. "
15. 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 provides for the forfeiture or waiver of the right itself if no action is commenced within the period stipulated by the agreement. Such a clause 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 with 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." In our view, the Supreme Court declared the law as under: "Curtailment of the period of limitation is not permissible in view of Section 28 but, extinction of right itself unless exercised within a specified time is permissible and can be enforced".
8. Legislature thought the aforesaid approach may be sound in theory but in practice it causes serious hardship and might even be abused, and it harms the interest of a consumer dealing with big corporations and causes serious hardships to those who are economically disadvan-taged. Hence, Clause (b) of Section 28 was added. This is made clear by the Statement of Objects and Reasons for substituting Section 28. The same are as under: "The Law Commission of India has recommended in its 97th report that Section 28 of the Indian Contract Act, 1672 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 in any agreement which restricts any party thereto from enforcing his rights absolutely or which limits the time within which he may enforce his rights. The Courts have, however, held that this section shall not come into operation when the contractual term spells out an extinction of the right of a party to sue or spells out the discharge of a party from all liability in respect of the claim. What is thus hit by Section 28 is an agreement relinquishing the remedy only, i.e. where the time -limit specified in the agreement is shorter than the period of limitation provided by law. A distinction is assumed to exist between remedy and right and this distinction is the basis of the present position under which a clause barring a remedy is void, but a clause 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".
9. In this view of the matter, it is apparent that the aforesaid Clause (b) is a declaratory enactment. It declares that such term would be void and that was the intention of the Legislature. The law with regard to declaratory enactment is settled.
10. In Central Bank of India and Ors. v. Their Workmen, etc., AIR I960 SC 12 the Apex Court has approved the following law from Craies: Statute Law, 7th Edition, p. 58. The Court observed: "What is a declaratory Act? The following observations (in Craies on Statute Law, 5th Edition, pp. 56-57) are apposite- "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"."
11. Further in Shri Chaman Singh A Anr. v. Srimathi Jaikaur, (1969) 2 SCC 429, the Court has observed that: "It is well settled that if a statute is curative or merely declines the previous law retroactive operation would be more rightly ascribed to it than the legislation which may prejudicially affect past rights and transactions."
12. In view of the aforesaid law, no further reference is required to various judgments sought to be relied upon by the learned amicus curiae.
13. Considering the law as declared and amended, it is to be held that the condition which extinguishes the right of the complainant to approach the Court or Forum within a specified time as per the contract is void and cannot be enforced. The law declares such condition to be void and in such a situation it is not necessary for us to discuss the difference between void and voidable."
There could not be any dispute about the fact that when the incident has taken place before amendment, several judgments referred to did not consider the declaratory nature of the amendment. No doubt, there is a distinction between extinction of right by agreement and curtailment of limitation. The agreement is not a voluntary agreement in the instant case. It is an agreement, which is deemed in a peculiar circumstance rather it was incumbent on the insured to accept it whether it liked it or not. One could not be oblivious to the monopolistic approach in framing such clauses during British rule, much before globalisation for it is not a voluntary act but a forced act. Such clauses would militate against conscience. One could not also be oblivious about the fact that Section 28 even without amendment would be against such provisions which curtailed the right to approach the Court. It should also be noted that this clause is contained in arbitration clause. Therefore, it would relate to arbitration alone. Such provision is just a device to curtail the right.
5. THE Law Commission of India recommended that Section 28 of the Indian Contract Act, 1872 might be amended so that the anomalous situation created by the existing section may be rectified.
6. IN view of the above, it is felt that the amendment in Section 28 is of declaratory nature would have retrospective effect and consequently the claim ot the complainant could not be dismissed on the ground of assumption that he had abandoned the claim against known fact.
One would not be oblivious to the distinction about the right to seek arbitration and right to approach the Court. Insofar as arbitration is concerned, this kind of condition could be acceptable but in case it refuse the right to approach Court or concerned Tribunal, it is difficult to accept the proposition particularly in the light of the amendment of Section 28 being of declaratory nature.
A similar question, arose before a Division Bench of the Delhi High Court in the case of M/s. Ramsons Southend v. Division Manager, New India Assurance Co. Ltd. & Ors. in 71 (1998) DLT 842 (DB), R.FA No. 289/92 decided on 3rd November, 1997. In regard to similar question the following observations are made:
"35. In the light of the above case law and the different clauses referred to therein and Clause 9, we must note three concepts of limitation, extinction of right on account of non-filing of claim with the Insurance Company and in case of dispute in seeking arbitration and still further not filing the suit and deemed abandoned in the circumstances mentioned in the concerned clause.
36. In this connection, let us revert back to Clause 9 in its entirety. We will start with the presumption that Clause 9 was never intended to violate provisions of Section 28 of the Contract Act. If we treat Clause 9 simply as an arbitration clause, then Exception I to Section 28 of the Contract Act relating to saving of contract should refer to arbitration dispute that may arise would protect the said clause. In case we treat it as a contract as extinguishing right to enforce any liability under the insurance cover, then again the provision under Clause 9 would not be hit by Section 28 of the Contract Act. It is evident that first part of Clause 9 refers to arbitration in case of difference as to quantum to be paid under the policy. The second part provides that no difference or dispute shall be referable to arbitration if the company has disputed and not accepted liability under or in respect of the said policy. Thus, the second part excludes possibility of reference if the company has disputed or not accepted liability under or in respect of the policy. In part three, it expressly stipulates and declares that "it shall he condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or umpire of the loss or damage shall he first obtained". Without fulfilling this condition in absence of any disclaimer no suit could he filed without seeking arbitration meaning thereby that the right to suit does not arise and cause of action does not exist till this condition is fulfilled. This is a condition precedent. In so far as the fourth part is concerned, if it is to be read as part and parcel of the entire Clause 9 and due emphasis is laid on the words "also", "further" "hereunder", "then" and the phrase "then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder". If due emphasis is given to words "also", "further" and "hereunder", it would have to be held that this part is confined to arbitration proceedings as part and parcel of Clause 9. Then, it would not be hit by Section 28 of the Contract Act. What militates against this kind of interpretation is that this part seeks that the insured must make his claim "the subject matter of a suit in a Court of law" and if it is not made, "then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder". In these three conditions it is to be made a subject-matter of a suit in a Court of law, meaning thereby that the suit has to be filed. It has further to be read along with part 2, which provides an exception to the arbitration clause in case of dispute or non-acceptance of liability under the policy. In the case of disclaimer of liability, the matter would not be referred to arbitration and if there is no reference to arbitration in part 4 of clause 9 if there is specific reference to make the claim subject-matter of a suit in Court of law, then it appears difficult to accept the proposition that in part 4 the assertion of right to claim arbitration is only referred to and only that would be deemed to be abandoned. Moreover, if this part related to reference to arbitration then the term ''reference'' and phrase "shall not thereafter be referred to" or "referable to arbitration hereunder" would have been used and "not recoverable hereunder". Recovery could be of the amount of the claim alone and not of the claim in arbitration. Should it mean, therefore, that part 4 is hit by Section 28 of the Contract Act. We would not like to just jump to the conclusion without further examining it.
37. Undisputedly, in this case, the claim has been filed by the appellant plaintiff within the stipulated time and the respondent-defendant has disclaimed the liability under the insurance policy. It is to be seen that fourth part of clause 9 provides for two kinds of consequences in case of disclaimer of liability and non-filing of a suit within 12 months from the date of such disclaimer. Firstly, the claim shall for all purposes be deemed to have been abandoned. Secondly, the claim shall not thereafter be recoverable.
38. Now, let us appreciate the distinction between limitation, deemed abandoned, extinction of right, with reference to clause 9. Abandonment or deemed abandon-ment would relate to (a) enforcement of right to claim recovery of the amount in arbitration; (b) enforcement of right in Court; and (c) enforcement of the rights (a) and (b) both. Accordingly to the Black''s Law Dictionary, the terms "abandonment", "extinguishment" and limitation mean as under- "Abandonment. The surrender, relinquishment, disclaimer or cession of property or of right. Voluntary relinquishment of all right, title, claim and possession, with the intention of not reclaiming it. State v. Bailey 97 396, 235 A.2d 214. 216. The giving up of a thing absolutely, without reference to any particular person or purpose, as vacating property with the intention of not returning, so that it may be appropriated by the next comer or finder. The voluntary relinquishment of possession of thing by owner with intention of terminating his ownership, but without vesting it in any other person. Dober v. Ukase Inv. Co., 139 Or. 626, 10 P.2d 356, 357. The relinquishing of all title, possession, or claim, or a virtual intentional throwing away of property. Term includes both the intention to abandon and the external act by which the intention is carried into effect. In determining whether one has abandoned his property or rights, the intention is the first and paramount object of inquiry, for there can be no abandonment without the intention to abandon. Roebuck v. Mecosta. County Road Commission, 59 Mich. App. 128, 329 N.W.2d 343, 345. Generally, "abandonment" can arise from a single act or from a series of acts. Holly Hill Lumber Co. v. Grooms, 198 S.C. 118, 16 S.E.2d 816, 821. This is not an essential element of act, although the lapse of time may be evidence of an intention to abandon, and where it is accompanied by acts manifesting such an intention, it may be considered in determining whether there has been an abandonment. Ullman ex rel. Erama v. Payne, 127 Conn. 239, 16A.2d 286. 287. "Abandonment" differs from surrender in that surrender requires agreement, and also from forfeiture, in that forfeiture may be against the intention of the party alleged to have forfeited. "Extinguishment. The destruction or cancellation of a right, power, contract, or estate. The annihilation of a collateral thing or subject in the subject itself out of which it is derived. "Extinguishment" is sometimes confounded with "merger", though there is a clear distinction between them. "Merger" is only a mode of extinguishment, and applies to estates only under particular circumstances; but"extinguishment" is a term of general application to rights, as well as estates. "Extinguishment" connotes the end of a thing, precluding the existence of future life therein; in "mergers" there is a carrying on of the substances of the thing, except that it is merged into and becomes a part of a separate thing with a new identity. Mcroberts v. Mcroberts. 177 Okl. 156 P.2d 1175. 1177. "Limitation. Restriction or, circumspection; settling an estate or property. A certain time allowed by a statute for bringing litigation. The provisions of state constitution are not a "grant" but a "limitation" of a legislative power. Ellerbe v. Davit, 193 S.C. 332, 8 S.E.2d. 518, 520; Mulholland v. Ayers, 109 Mont. 558, 99 P. 2d 234, 239. (Emphasis supplied)
39. It may be mentioned that this part 4 proceeds to provide that to keep the right alive the suit was also required to be filed within a period of one year. Thus, Clause 9 bars, in case of disclaimer of the liability under the insurance cover, firstly, the right to enforce arbitration; and secondly, prescribes period of filing of the suit within a period of one year also. This is strictly in contrast with the intention of the clause dealt with in the case of Food Corporation of India v. New India Assurance Co. Ltd. & Ors. (supra), as well as in paragraph 22 of the National Insurance Co. Ltd. (supra) are not applicable to the facts of the present case. Moreover, fourth part does not refer to bar confined to arbitration clause and to enforce arbitration clause only. Enforcement of right to arbitration protected by explanation under Section 21 since it refers to filing of the suit also within a period of one year, the clause is hit by the main provisions of Section 28 of the Contract Act.
40. It is further notable that the abandonment itself is based on the restriction of one year''s period provided by fourth part of Clause 9. Consequently, it intends to prescribe a period of limitation for filing the suit from the date of disclaimer in violation of Section 28 and accordingly it is hit by Section 28 of the Contract Act. Part 4 provides two kinds of consequences in case of disclaimer of liability and non-filing of a suit within 12 calendar months from the date of such disclaimer: (i) then the claim shall for all purposes be deemed to have been abandoned, (ii) the: claim shall not thereafter be recoverable. No party would be forced to abandon his claim, without express consent or conduct, by a deeming provision to make his claim unenforceable.
41. In the aforesaid facts and circumstances and the foregoing discussion, we are of the definite opinion that suit is neither barred by limitation provided under Section 44(b) of the Limitation Act nor it falls within the mischief of abandonment under Clause 9 of the Insurance policy.
7. IT may also be mentioned that in the case of Rehmatunnisa Begum v. Price, AIR 1917 PC, it was observed as a general principle that "no man can exclude himself from the protection of the Courts. Further it is trite saying that the Courts should lean in favour of the construction which keeps the remedy alive."
Since the matter has been decided only to this point, we feel that this order cannot be sustained in view of the declaratory nature of the Section 28 and the ultimate impact of such clause on the right to suit beyond the right to claim arbitration. We feel that the matter has to be remanded back to the State Commission to decide the matter on merits after giving an opportunity to both the parties after leading the evidence.
8. BOTH the parties are directed to appear before the State Commission on 8.1.2007. Ordered accordingly.
