Holding

Clauses that extinguish the insured’s right if not complied with, such as the twelve‑month claim period and the three‑month forfeiture provision, are not void under Section 28 and therefore bar the suit.

Summary

The appellant National Insurance Co. Ltd. issued two fire policies with a Riot and Strike endorsement to the respondent Sujir Ganesh Nayak & Co. When a strike halted production and caused damage, the insurer denied liability, invoking Special Condition 5(i)(b) which excludes loss from cessation of work, Clause 19 which requires a claim to be made within twelve months of the loss, and a forfeiture clause (Clause 12) demanding suit within three months of a rejected claim. The respondent filed a suit more than twelve months after the loss and after the three‑month period post‑rejection, and the High Court had allowed the claim, reversing the trial court’s dismissal. The Supreme Court examined whether Clause 19 and the forfeiture clause were void under Section 28 of the Contract Act for curtailing the statutory limitation period. It held that these clauses do not merely limit the limitation period but extinguish the insured’s right if the stipulated time is not complied with, and therefore are not void under Section 28. Consequently, the claim was not covered by the policy, the suit was barred by limitation, and the appeal was allowed, setting aside the lower courts’ judgments.

Issues considered

Whether Clause 19 of the insurance policy, which limits claim filing to twelve months after loss, is void under Section 28 of the Contract Act as a restriction on the statutory limitation period.
Whether a forfeiture clause requiring suit within three months of a rejected claim extinguishes the insured’s right and is therefore valid.
Whether Special Condition 5(i)(b) of the Riot and Strike endorsement excludes loss caused by a strike and cessation of work.
Whether the suit filed by the respondent is barred by limitation.

Legislation cited

Indian Contract Act, 1872s. 28
Limitation Act, 1963s. Article 44(b)

Subjects

InsuranceContract ActSection 28Limitation ActClaim periodForfeiture clauseRiot and strike endorsementExtinction of rightPolicy conditions

Judgment

A NATIONAL INSURANCE CO. LTD.
v.
SUJIR GANESH NA YAK AND CO. AND ANR.

MARCH 21, 1997
B
[A.M. AHMADI, CJ. AND K.S. PARIPOORNAN AND
SUJATA V. MANOHAR, JJ.)

Contract Act, 1872/Limitation Act, 1963-Section 28/Article 44
C (b )-Clauses of the Insurance Policy containing conditions that if claim not
pressed within twelve 111onths from happening of any loss or damage and also
that if claim 111ade but rejected, no action or suit commenced within three
months after such rejection, all benefits under the policy would stand f 01feited
and Insurance Company shall cease to be liable-Held: Such conditions were
valid and effective, even though the peliod specified in the clauses for com-
D mencing suit or action was sh01ter than the pen'od presCJibed by Li111itation
Act-Not hit by section 28 of the Contract Act.

The respondent firm obtained two fire policies from the appellant •
insurance company dt. 5.11.1976 and 2.5.1977, both for a period of twelve
months and had a 'Riot and Strike' endorsement of covering damage
E caused by riot and strike to the property of the insured. By a letter dt.
28.4.1977 the respondent informed the appellant that on account of strike
in the unit from 26.3.1977, the firm had suffered heavy loss as the produc-
tion had come to a halt and the finished products were damaged lying
outside the factories. The appellant, by a letter dt. 10.5.1977 replied that
p the loss sustained by the respondent was not convered by the insurance
policies. By letters dt.17.8.1977 and 25.8.1977 the respondent made claims
for he payment of the loss from the appellant. By letter dt. 22.9.1977, the
appellant reiterated its earlier reply disowning its liability for the loss
incurred by the respondent. After serving a legal notice on 25.10.1978, the
respondent filed a suit for recovery of the claim on 2.6.1980. The Trial
G Court dismissed the suit holding that damaged was not covered by the
insurance policies in view of the Special Condition 5 (l)(b) of the 'Riot and
Strike' endorsement of the policy, clause 19 of the policy was not hit by
section 28 of the Contract Act, 1872 and the suit was barred by limitation.
In appeal, the High Court allowed the claim of the respondent reversing
H the findings of the Trial Court. Hence this appeal by the appellant-in-
202
NATIONAL INSURANCE CO. Lm. v. SUJIR GANESH NAYAK AND CO. 203

surance company. A
Allowing the appeal, this Court

HELD : 1. The claims of the respondent can not be allowed as the
suit was filed after the expiry of the stipulated period as per clause 19 as
well as the forfeiture clause 12 of the policies. [208-C] B

2. Curtailment of the period of limitation is not permissible in view
of section 28 of the Contract Act, 1872, 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 C
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. In the instant case the claim was not subject to any
action or arbitration proceedings during the period of twelve months
referred to in clause 19 of the conditions of the insurance policy. Clause 19 D
had therefore the effect of extinguishing the right itself and consequently
the liability also. The appellant insurance company was informed about the
strike by Jetter dated 28.4.1977. The insured respondent was replied oiJ.
10.5.1977 that under the policy the appellant had no liability. This was
reiterated by letter dt. 22.9.1977. Even so more than twelve months there- E
after, on 25.10.1978 the notice of demand was issued and the suit was filed
on 2.6.1980. The forfeiture clause 12 the policy also provides that if the
claims 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. Therefore, the High Court was F
wrong in allowing the claini of the respondents. [212-G; 214-G; 215-B-C]

Food Corporation of India v. New India Assurance Co. Limited, [1994)
3 sec 324, relied on.

Vulcan Insurance Co. Ltd. v.Maharaj Singh, [1976) 1SCC943; Baroda G
Spg. & Wvg. Co. Ltd. v. Satyanarayan Marine ·and Fire Insurance Co. Ltd.,
(1913) 15 Bomb. LR 948; Pearl Insurance Co. v. Atina Ram; AIR (1960) Punj
236; Secretary Ta/uka Agricultural Produce Coporation Marketing Society
Ltd. v. Custodian New India Assurance Co. Ltd., (1989) ACJ 76 a:ndHirabhai
v. Manufactures Life Insurance Co., (1912) 14 Born. LR 741,' referred to. H
204 SUPREME COURT REPORTS [1997) 3 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2136 of
1997.

From the Judgment and Order dated 27.7.95 of the· Kerala High
Court in A.S. No. 140 of 1987.

B Vishu Mehra and K.M.K. Nair For the Appellant.

R.F. Nariman and E.M.S. Anam for the Respondents.

Pradeep Dewan and P.B. Aggarwala for the Respondent No. 2.

C The Judgment of the Court was delivered by.

AHMADI, CJ. Special Leave granted.

The respondent No.. 1 Sujir Ganesh Nayak & Company is a
registered partnership with its head office at Quilon carrying on business
D in import and export of cashew. It has four factories at Kunnikode,
Mulavana, Perumpuzha and Ayathil for processing cashew. The respon-
dent No. 1 obtained two fire policies from the appellant Insurance Com-
pany dated 5.11.1976 and 2.5.1977, both for a period of twelve months, and
for the amounts of Rs. 6,00,000/- and Rs. 1,20,000/- respectively. Both the
policies had a Riot and Strike Endorsement to the following effect:
E
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 p<;>licy con-
tained to the contrary the insurance under the Policy shall extend
to cover Riot and Strike damage which for the purpose of this
F
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 in any
G
disturbance of the public pea~ (whether in connection with
a strike or lock-out or not) not being an occurrence men-
tioned in Condition 6 of the Special Condition thereof.

2. The action of any lawfully constituted authority in suppressing
H . or attempting to suppress any such disturbance or in mini-
NATIONALINSURANCECO. LTD. v. SUJIR GANESH NAYAKAND CO. [AHMADI. CJ.)205

mising the consequences of any such disturbances. A
3. The wilful act of any striker or locked out worker done in
a
furtherance of strike or in resistance to a lock-out.

4. The action of any lawfully constituted authority in preventing
or attempting to prevent any such act or in minimising the B
consequences of any such act".

The Special Condition No. 5 (i) (b) which is relevant for the deter-
mination of the appellant's case is as under:

"SPECIAL CONDITIONS c
For the purposes of this endorsement but not otherwise there
shall be substituted for the respectively numbered Condition of the
Policy the following:-

CONDITION 5. D

(i) This insurance does not cover:-

(a) ........ .

(b) Loss or damage resulting from total or partial cessation of . E
work or the retarding or interruption or cessation of any
process or operation.

(c) ... ·""

(d) .. . F

(e) .. .

The workers of the respondent No. 1 raised a demand for hike in
wages during the period there was no work and this demand led to a strike.
The matter was taken up by the District Labour Officer for conciliation G
and was thereafter dealt with by the Labour Commissioner as well as by
the Minister for Labour. The striking workers physically obstructed the
movement of goods. By a letter dated 28.4.1977, the respondent No. 1
informed the appellant that the staff members and labour in its factories
have gone on strike from 26.3.1977 and that the striking workers have H
206 SUPREME COURT REPORTS [1997] 3 S.C.R.

A restricted the movement of the finished products from its factories and that
the goods lying in the baskets are exposed to the risk of deterioration and ..
damage. By a letter dated 10.5.1977, the appellant communicated to the
respondent No. 1 that the loss sustained by the respondent No. 1 was not
covered by the policy. The respondent No. 1 by a letter dated 17.8.1977
B asked the appellant for an advance payment of Rs. 4,00,000 and by another
letter dated 25.8.1?77 asked for payment of Rs. 4,28,827.0lp. By the letter
dated 22.9.1977, the appellant reiterated that in view of Condition 5 (i) (b) \··
of the Riot and Strike Endorsement, the Insurance Company had no
liability for the loss incurred by the respondent No. 1. On 25.10.1978, the
respondent No. 1 served a legal notice. The suit for recovery of the claim
C was filed on 2.6.1980.

The appellants contested the suit inter alia on the ground that the
suit was barred by limitation as well as by Condition No. 19 of the policy
and on the ground that the claim made by the respondent No. 1 was not
D covered by the policy. Condition 19 of the Policy which was set up by way
of defence runs as under:

"Gondition No. 19-ln 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
E pending action or arbitration''.

On behalf of the respondent No. 1, it was contendr.d 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
F 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
G 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 holding that the Condition No.
19 could not limit the period during which the suit was to be filed and that
H it simply required the respondent No. 1 to make its claim known within the
j

NATIONAL INSURAN'CE CO. Lill. v. SUJIR GANESH NAYAKAND CO. [AHMADI, C.T.]207

period of 12 months from the happening of the loss or damage. It also A
:' reversed the finding of the Trial Court that the claim was not covered by
the two policies. So far as limitation is concerned, the High Court further
observed that the letter dated 10.5.1977 could not be read as a letter of
repudiation of claim as by then no claim whatsoever was preferred by the
respondent No. 1 and further that in any case the last date of three years
from 10.5.1977 fell within the summer vacation and the suit filed on 2.6.1980
B
on reopening of the Court was within limitation.

In the present appeal, the appellant contended that Condition No.
19 extinguishes the right of the assured as the suit was not filed within 12

>-
months from the day when the loss or damage had occurred. It is further c
reiterated in the appeal that Special Condition 5 (i) (b) of the Riot and
Strike Endorsement excludes the claim of the respondent No. 1 from the
scope of the two Insurance Policies.

Section 28 of the Contract Act may be quoted now before going into
further discussion: D
"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". E

On a plain reading of the relevant part of this provision it seems clear
that if the agreement seeks to shorten the time from that prescribed by law,
it would fall within the mischief of this provision. Before the High Court,
the appellant relied on a Full Bench decision of the Punjab High Court in F
Pearl Insurance Company v. Atmaram, AIR (1960) Punjab 236 wherein it
was held that such a clause did not limit the time within which the insured
shall enforce his rights but only limited the period during which the
contract will remain alive and hence such a clause was not hit by Section
28 of the Contract Act. The respondent No. 1 on the other hand place
reliance on Secretary, Taluka Agiicultural Produce Cooperative Marketing G
Society Ltd. v. New India Assurance Company Limited, (1989) ACJ 26
wherein the High Court of Karnataka held that the period of limitation
despite 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
""i
of this Court in Food Corporation of India v. New India Assurance Co., H
208 SUPREME COURT REPORTS [1997] 3 S.C.R.

A [1994] 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 a11d Another, [1976]
1 SCC 943 and The Baroda Spin11i11g & Weaving Co. Ltd. v. 171e
B Satyanarayan Marine & Fire Insurance Co. Ltd., (1913) 15 Bombay Law
Reporter 948. In the latter 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 rejec-
tion.... all benefit under this policy shall be forfeited".
c 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 the
policy will be forfeited. The Bombay High Court following certain English
decisions held that the contract was not hit by Section 28 of the Contract
Act as the clause did not restrict the limitation but merely extinguished the
D right.

In Baroda Spinning & Weaving Co. Ltd. (supra), in the High Court
of Bombay the five insurance policies provided that 'if the claim be made
and rejected and action or suit cannot be commenced within three months
E after such rejection all benefits under the policy" shall be forfeited'. On the
suit being filed three months after the rejection of the claim the High Court
held that the said condition was not within the scope of Section 28 of the
Contract Act since that Section spoke about enforcement of a subsisting
right and not a right which stood extiguished on the repudiation of the .
claim and the action not having been commenced within a period of three
F months. In taking this view the High Court referred to an earlier decision
in Hirabhai v. Ma11ufacturers Life lllsura11ce Company, (1912) 14 B.L.R. 741
wherein the clause was:

"No suit shall be brought against the company in connection with
the said policy later than one year after the time when the cause
G of action accrues".

The view taken was that the clause was intended to convey that if no suit I
was instituted within a year then neither party shall be regarded as having •
any subsisting right against the other to enforce the contract. The correct-
H ness of this view was doubted as it was felt that the clause did not operate
I
NATIONALINSURANCECO.Lill. v. SUJIRGANESHNAYAKANDCO.(AHMADJ,CJ.]209

as a release or forfeiture of the rights of the assured but was intended to A
limit the time for filing of the suit and fell within the mischief of Section
28 of the Contract Act and was therefore void. Bachelor J. who was party
to the decision in Hirabhai's case also agreed that the view taken in that
case was difficult to sustain. It would seem from these two decisions that
unless the language of the clause in a contract is susceptible of the meaning B
that it releases or forfeits the rights on the expiry of the stipulated period
the same would fall within the net of Section 28 if the clause merely
restricts the period within which action should be commenced.

However, strong reliance was placed on the decision of this Court in
Vulcan Insurance case (supra) in which clause 19 of the policy was verbatim C
the same as in the present case. Relying on that clause this Court observed
in paragraph 23 as under:

"We do not propose, as it is not necessary, to decide whether the
action commenced by respondent No. 1 under Section 20 of the D
Act for the filling 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 E
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 on 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 back insured the mortgage p
properties from time to time with the appellant-company under different
insurance policies, the terms whereof being the same. A fire 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-in-
surance company repudiated the claim under the terms of the policy. G
Thereupon respondent No, 1 wrote to the insurance company that since it
had repudiated the claim, a difference had arisen between the parties and
appointed a sole arbitrator to decide the dispute. At the same time it
mentioned that if the insurance company desired to nominate an arbitrator
it may do. so. The insurance company however took the stand that since it H
210 SUPREME COURT REPORTS [1997] 3 S.C.R.

A had repudiated the claim, the arbitration clause in the policy was rendered
inoperative and no arbitration proceedings could legally be initiated. This
led to the respondent No. 1 filing an application under Section 20 of the
Arbitration Act, 1940. The application was contested. The trial court held
that on the repudiation of the claim under clause 13, the dispute fell within
the scope of the arbitration clause 18 but was barred by limitation in view
B
of clause 19. On appeal, the Delhi High Court held that clause 18 was
restricted in its scope and did not attract all kinds of disputes and differen-
ces yet reference to arbitration is not ousted and the arbitration clause
remains operative unless barred by clause 19 and in the instant case it was
not barred since respondent No. 1 had commenced the arbitration process
C which was pending when the time ran out. The High Court, therefore,
reversed the trial court order and remanded the case for appointment of
arbitrators. The insurance company carried the matter to this court. While
dealing with the submissions at the Bar, this Court in paragraph 8 of the
judgment observed that only one point need be decided, namely, whether
D in view of the repudiation of the liability under clause 13, a dispute was
raised which could be referred to arbitration? It also said that incidentalty
reference will be made to the other question as to whether the proceedings
were barred by clause 19 of the policy? This court answered the first point
in the negative and hence no decision was necessary on the second point
but the court answered it only incidentally. This is also clear from the
E observation extracted earlier.

The next case we would like to notice is the Food Corporation of
India (supra); the abridged factual matrix is that it, as principal, had
appointed millers for procuring, hulling and supplying rice on certain
F conditions. On behalf of these millers the respondent insurance company
executed Fidelity Insurance Guarantee in favour of the appellant
whereunder the former undertook to indemnify the latter for any loss
suffered by the appellant by reason of breach of agreement. Under the
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
G 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 in-
surance 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
H appellants against the respondents including the insurance companies. The
NATIONAL INSURANCE CO. LID. v. SUJIRGANESHNAYAKANDCO. [AHMADl,CT.]211

insurance companies filed appeals in the High Court which were allowed A
holding that the terms of the guarantee concerned in each case did not
entitle the appellant to sue the insurance companies after 'six months'
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 B
company had undertaken 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 this bond after the expiry of
(period) six months from the date of termination of the contract i.e., the
contract with the rice miller. On a plain reading of this restriction clause, C
it is clear that if the appellant desired to enforce its rights under the
contract, it should do so within 'six months'. of the termination of the
contract and if it failed to do so its right under the contract would
extinguish. It was, therefore, imperative for the appellant to lodge its claim
with the insurance company within the period of six months to assert its
rights failing which the right would stand forfeited. This Court, therefore, D
held that the suits were barred under the restriction adverted to since they
were admittedly filed after the rights stood extinguished on the expiry of
six months after the insurance company repudiated the demands.

Sahai, J. who wrote a separate but concurring judgment extracted the E
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:
F
"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 curtailment of limitation".
G
Referring to the language of the various terms of the agreement, the
learned judge holds in paragraph 8 thus:

"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 H
212 SUPREME COURT REPORTS [1997] 3 S.C.R.

A 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
expirity of six months from the date of the termination of the
B contract. This cannot be construed as curtailing the normal period
of limitation provided for filing of the suit. If it is construed so it
may run the risk of 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
c 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''.
D
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
E 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
p 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 within a specified time
is permissible and can be enforced. If the policy of insurance provides that
G 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
H facts of this case.
NATIONALINSURANCECO.LTD. v. SUJIRGANESHNAYAKANDCO.(AHMADl,CJ.)213

Now let us first notice the view expressed by the High Court in the A
impugned judgment. The finding on this issue is available in para 12 of the
judgment which runs as under : ·

"In the instant case, clause 19 of the contract of insurance only
states that the insured shall enforce his claim before the expiration
of twelve months of the date of happening of he damage. It does B
not expressly prohibit the insured from filing a suit beyond that
period. Under the Limitation Act, there is a specific article for
filing a suit for damages due under the contract of insurance. Any
clause in the contract of insurance curtailing the period of limita-
tion will be hit by Section 28 of the Contract Act. If clause 19 of C
the contract of insurance is construed in such a way, it limits the
period of limitation to twelve months from the date of happening
of the loss or damage and it would seriously prejudice the rights
... of the insured. The insurer can very well defeat the claim of the
insured by rejecting the claim after the period of 12 months from
the date of happening of the loss". D
The High Court started with the analysis as to whether the clause
restricts the period of limitation or extinguishes the right but ultimately
rests its conclusion on the finding that the contract is unconscionable - a
ground which is not contended for by the parties. The High Court further E
proceeds to say:

"Under Article 44 (b) of the Limitation Act, the period of limita-
tion runs from the date of rejection of the claim. Thereafter, it is
clear that clause 19 of the contract of insurance only prescribes
the period during which the claim is to be preferred by the insured F
before the insurance company and it does not, in any way, curtail
the period of limitation prescribed under the Limitation Act for
filing a suit of that nature".

The clause before this Court in Food Corporations case extracted
herein before can instantly be compared with the clause in the present case. G
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 H
214 SUPREME COURT REPORTS [1997] 3 S.C.R.

A making a claim to the Insurance Company. It was therefore held that the ----1

clause extinguished the right itself and was therefore not hit by Section 28 '(
of the Contract Act. Such clauses are generally found in insurance ccn-
tracts 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 1
B '
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.
c
Keeping the above legal distinction in mind we may now consider the
facts of the present case. The two insurance policies were both for a period
of twelve months and bore a 'Riot and Strike' endorsement covering
damage caused by riot and strike to the property of the insured. On
account of the strike in the unit from 26.3.1977, the production had come
D to a halt and as the management was not allowed to remove the goods the
unit suffered heavy damage and loss for which a claim was made which
claim was rejected by the insurer. The insured served notice and then filed
a suit. One of the grounds on which the suit was contested by the insurance
company was based on the language of clauses 19 and 12 extracted earlier.
E
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
F 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
ei,.iinguishing the right itself and consequently the liability also. Notice the
G 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 after on
25.10.1978 the notice of demand was issued and the suit was filed on
H 2.6.1980. It is precisely to avoid such delays and to discourage such belated
NATIONALINSURANCE CO. LTD. v. SUJJR GANESH NAY AK AND CO. [AHMADI, CJ.]215

claims that such insurance policies contain a clause like clause 19. That i~ A
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, B
an action or suit must be commenced within three months after such
.!'ejection; 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 Vo/can Insurance case
(supra) while interpreting a clause couched in similar terms this court said:
"It has been separately held that such a clause is not hit by Section 28 of C
the Contract Act". Even if the observations made are in the nature of obiter
dicta we thinks they proceed on a correct reading of the clause.

For the foregoing reasons, we allow this appeal, set aside the decree,
order and judgments of the courts below and direct that the suit shall stand
dismissed with no order as to costs throughout. D
H.K. Appeal allowed.