TMI Blog1997 (3) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... ed two fire policies from the appellant Insurance Company dated 5.1.1976 and 2.5.1977 both for a period of twelve months, and for the amount of Rs. 6,00,000/- and Rs. 1,20,000/- respectively. Both the policies had a Riot and strike Endorsement to the following effect: "Riot Strike Endorsement-In consideration of the payment of the sum of Rs.... additional premium, it is hereby agreed and declared that notwithstanding anything in the written policy contained to the contrary the insurance under the policy shall extend to cover Riot and strike damage which for the purpose of this endorsement shall mean (subject always to the special conditions hereinafter contained). Loss of or damage to the property insured directly caused by:- 1. The act of any person taking art together with others on any disturbance of the public peace (whether in connection with a strike or lock-out or not) not being an occurrence mentioned in condition 6 of the special condition thereof. 2. The action of any lawfully constituted authority in suppressing or attempting to suppress any such disturbance or in minimising the consequences of any such disturbances. 3. The willful act of any striker or locked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy which was set up by way of defence runs as under: "Condition No. 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." On behalf of the respondent No.1, it was contended that Condition No. 19 was hit by section 28 of the contract act Inasmuch as it seeks to shorten the time within which legal action can be commenced from that provided under the law of limitation. Further, the respondent No. 1 reiterated that the claim was covered by the two policies. The Trial Court, vide its judgment dated 30th June, 1986, observed that condition No. 19 was not hit by section 28 of the contract Act and further that the suit was otherwise barred by limitation as the claim was repudiated by the letter dated 10.5.1977 and the suit filed on 2.6.1980 was after a lapse of more than three years from the date of such repudiation . The Trial Court also found that the damage was not covered by the Insurance Policy in view of the special Condition 5(i)(b) of the Riot and Strike Endorsement. In appeal, the High Court allowed the claim holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a Condition of twelve months was three Years as provided for in Article 44 of the Limitation Act. The High Court followed the decision of this court in Food Corporation of India V. New India Assurance Co. (19994) 3 sec 324, wherein the real nature of the restriction placed by section 28 was examined and the effect of such a clause in reducing the period of limitation was considered. Before us, two other decisions cited were, The Vulcan Insurance Co. Ltd. V. Maharaj Singh and Another, (1976) 1 SCC 943; and The Baroda spinning Weaving Co. Ltd. V. The Satyanarayan Marine Fire Insurance Co. Ltd., 1913(15) Bombay Law Reporter 948. In the letter case, the Clause in question read thus: "12. Forfeiture -- If the claim be made and rejected and an action or suit be not commenced within three months after such refection all benefit under this policy shall be forfeited." The clause meant nothing more than this, namely, if the suit is not filed within three months of rejection of the claim, the rights under policy will be forfeited. The Bombay High Court following certain English decisions held that the contract Act as the Clause did not restrict the limitation but merely extingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for appointment of the arbitration agreement and for appointment of arbitrators was barred under clause 19 of the policy. It has been repeatedly held that such a clause is not hit by section 28 of the contract Act and is valid". Counsel for the respondent contended that the observation was clearly in the nature of an obiter dicta and did not lay down the correct law. That was a case in which respondent No.1 had entered into a contract with respondent No.2 for taking advances of the security of the factory Premises, plant, machinery, stock-in-trade, etc. A mortgage was executed by him in favour of the respondent-bank. The bank insured the mortgage properties from time to time with the appellant-company under different insurance policies, the terms whereof being same . Afire broke out in the factory premises and the insurance company was duly informed . The surveyor estimated the loss at Rs. 4620/- without prejudice to the terms and conditions of the policy . After some correspondence, the appellant-insurance company repudiated the claim under the terms of the policy. Thereupon respondent No.1 wrote to the insurance company that since it had repudiated the claim , a difference had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he terms of the guarantee when the appellant found that it had suffered losses on account of breach of terms and conditions of their respective contracts by the millers it made demands on the insurance company to indemnify it. These demands were made well before the expiry of six months from the date of termination of the contract with the concerned miller. The insurance company did not satisfy the demands which led the appellants to file suits to recover the losses. Those suits were decreed in favour of the appellants against the respondents including the insurance companies. The insurance companies filed appeals in the High Court which were allowed holding that the terms of the guarantee concerned in each case did not entitle the appellant to sue the insurance companies after six month period from the date of termination of the respective contracts with the rice millers. The matter was therefore carried in appeal to this Court. Under the fidelity Insurance Guarantee the concerned insurance company had undertaking to make good the loss upto the specified limit when claimed by the appellant, of course subject to the restriction "that the Corporation shall have no rights under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant to make its claim known not later of contract. It is in keeping with the principle with 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." 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 a 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 with in the period stipulated by the agreement. Such a clause i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed under the Limitation Act for filing a suit of the nature." The clause before this Court in Food Corporations 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 hat 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 Contract Act. Such clause are generally found in insurance contracts for the reason the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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