UNION OF INDIA & ANR.versusM/S INDUSIND BANK LTD. & ANR.

                           [2016] l 1 S.C.R. 700


A                      UNION OF INDIA & ANR.
                                     v.
                  MIS INDUSIND BANK LTD. & ANR.
                   (Civil Appeal Nos.9087-9089of2016)
B
                          SEPTEMBER 15, 2016
              [C. NAGAPPAN AND R. F. NARIMAN, JJ.]
          Contract Act, 1872:
c         s.28 (unamended and as amended w.e.f 08.01.1997) -
  Applicability of - Applications invited by Textile Commissioner for
  export of extra-long staple cotton - Contracts executed with
  exporters by appellant in January,1996 - The exporters furnished
  bank guarantee on 31.01.1996 - Exporters failed to furnish certain
D docu111ents regarding export within stipulated period~ Consequently,
  Textile Commissioner invoked the bank guarantees - Respondent-
  bank refused to pay the guarantees stating that the guarantees could
  be invoked only within extended period of three months i.e up to
  30.04.1997 as per contract and not later - Appellant pleaded that
E bank was not absolved of its obligation to make payment under
  bank guarantee u/s.28 in the light of the Amendment to s.28 w.ej
  08.01.1997 - Held: Bank guarantees themselves being dated
  31.01.1996 would not be affected by an amendment made one year
  later i.e. on 08.01.1997 -Subject matter of s.28 being ''agreements'',
F the unamended s.28 would be the law applicable as on 31.1.1996,
  which is the date of the agreement of bank guarantee - Amended
  s.28 being substantive law, operates prospectively, as retrospectivity
  is not clearly made out by its language - Being remedial in nature,
  and not clarificatory or declaratory of the law, the amended s.28
G would not apply.
         Statutes - Remedial statutes - Prospective application -
    Discussed.
          Dismissing the appeals, the Court

H
                                  700
   UNION OF INDIA & ANR. v. MIS lNDUSIND BANK LTD.                     701


       HELD: 1. On a reading of the Law Commission Report               A
together with the Statement of Objects and Reasons for the 1997
Amendment to section 28 of the Contract Act,1872, it emerges
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        B
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 t_he case law up to date between      c
agreements which limit the time within which remedies can be
availed and agreements which do away with the right altogether
in so limiting the time. These are obviously substantive changes
in the law which are remedial in nature and cannot have
retrospective effect.     [Para 19] [711-G-H; H, 712-A-B]               D

       1.2. In the instant case, considering that the subject matter
of s.28 of the Contract Act is "agreements", the unamended s.28
would be the law applicable as on 31.1.1996, which is the date of
the agreement of bank guarantee. Further, on conspectus of              E
Supreme Court decisions it becomes clear that s.28 being
substantive law, operates prospectively as retrospectivity is not
clearly made out by its language. Being remedial in nature, and
not clarificatory or declaratory of the law, by making certain
agreements covered by s.28(b) void for the first time, it is clear      F
that rights 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, the amended s.28 would not apply.
[Paras 21, 25] (713-A; 717-F-G]
                                                                        G
      Food Corpn.of India 1~ New India Assurance Co. Ltd.
      (1994} 3 SCC 324; National Insurance Co. Ltd. v. Sujir
      Ganesh Nayak & Co. (1997) 4 SCC 366 : 1997 (3)
      SCR 202; HP. State Forest Co. Ltd. v. United India
      Insurance Co. Ltd. (2009) 2 SCC 252 : 2008 (17) SCR
                                                                        H
702           SUPREME COURT REPORTS                   r2o 16111 S.C.R.

A           1013 - relied on.
           Sukhram v. Harbheji [1969) 3 S.C.R. 752; R. Rajagopal
           !;?.eddy v. PadminiChandrasekharan (1995) 2 SCC 630
           : 1995 (1) SCR 715; MithileshKwnari v. Prem Behari
           Khare (1989) 2 SCC 95 : 1989 (1) SCR 621;
B          Purbanchal Cables & Conductors (P) Ltd. v. Assam SEB
           (2012) 7 sec 462 : 2012 (6) SCR 905; CIT v. Vatika
           Township (P) Ltd. (2015) 1 SCC 1 : 2014 (12) SCR
           1037 - referred to.

c          JJ'h Report of the Law Commisston of India, 1958; 97th
           Report of the Law Commission of India, 1984 - referred
           to.
                            Case I.aw Reference

D     r1969] 3 S.C.R. 752           referred to             Para 20

      1995 (1.) SCR 715             referred to             Para22

      1989 (1.) SCR 621             referred to             Para 22
E
      ~912 (6) SCR   905            referred to             Para 23

      2014 (12) SCR 1037            referred to             Para 24

      (1994) 3 sec 324              relied on               Para 29
F
      1997 (3) SCR 202              relied on               Para33

      2008 (17) SCR 1013            relied on               Para 35
       CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9087-
G 9089of2016.
            From the Judgment and Order dated 20.04.2011 in Appeals No.
      258 of2008, 259 of2008 and 260 of2008 passed by the High Court of
      Judicature at Bombay.
H
    UNION OF INDIA & ANR. v. MIS INDUSIND BANK LTD.                        703



      A . K. Panda, Sr. Adv., R. K. Rathore, Vibhu Sha.nkar Mishra,         A
Ms. Manita Verma, Ms. Arunima Dwivedi, Ms. Shruti Srivastav, Raj
Bahadur Yadav, M. K. Maroria (for ShreekantN. Terdal) Advs. for the
Appellants. ·
        Dr. A. M. Singhvi, Krishnan Venugopal, Sr. Adv., Pranab Kumar
                                                                            B
  Mullick, Ms. Soma Mullick, Sebat Kumar Devria, Amit Bhandar, Lalit
· Bhasin, Ms. Nina Gupta, Mudit Sharma, P. V. Yogeswaran, Ms. Rann
  Puruhit, Ms. Shase Ad vs. for Respondents.
       The Judgment of the Court was deliv.ered by
       R.F. NARIMAN, J. 1. Leave granted.                                   c
       2.'fhe present appeals bythe Union oflndia raise an interesting
question as to the applicability of the 1997 Amendment to Section 28 of
the Contract Act, 1872. The facts of the three appeals are similar
inasmuch as they concern four exporters who belong to what is known
                                                                            ·D
as the GPB Group of Companies.
       3. By a Memorandum dated 6.1L1995, issued by the Textile
Commissioner under the Imports and Exports (Control) Act, 194 7, terms
and conditions for export ofraw cotton and cotton waste for September,
1995 -August, 1996 were laid down. The shipment was permitted only          E
against an irrevocable letter of credit. The exporters were required to
furnish a bank guarantee in the prescribed form at the rate of I 0% 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    F
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 I 0,000 bales of
 extra long staple cotton. It was mentioned in the Press Note and the
 Memorandum thatthe shipment period will be 180 days from the date of       G
 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.,
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704            SUPREME COURT REPORTS                          r20l61 l l S.C.R.



A     Singapore and the four exporters, all in January, 1996. On 31.1.1996,
      the four exporters made an application together with a bank guarantee
      of even date. In February, the exporters were permitted to export the
      total quantity of 9175 bales vide an Allocation-cum-Registration
      Certificate dated 6.2.1996 within a validity period of shipment up to
B     31. 7 .1996. It may be mentioned in passing that this date was extended
      as many as three times, the third extension being notified as upto
      28.2.1997.
              6. As the four exporters failed and neglected to furnish supporting
      documents regarding export of goods allocated to them within the
 c    s.tipulated period, the Textile Commissioner, by a letter dated 3 .1.1997,
      called upon the exporters to submit the necessary documents within 15
      days from the date of issue of this letter but not later than 20.1.1997,
      failing which the bank guaran~ees would be enforced. As the exporters
      failed and neglected to furnish these documents, the Textile Commissioner,
D     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
 E    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
 F    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
 0    exporters and the Respondent Bank to pay the sums covered by the
      bank guarantee. As this letter evoked no response, three summary
      suits- being 2959/1999, 2963/1999 and 2996/1999-were filed on 8.4.1999
      by the Union oflndia and the Textile Commissioner against the exporters
      and the Bank in the High Court of Bombay. By order dated 4.12.2001,
 H
   UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.                           705
                  [R. F. NARIMAN, J.]

as amended on 22.1.2002, unconditional leave to defend the suits was          A
granted to the Bank, and conditional leave to so defend the suits to the
exporters upon depositing the amount of Rs.3,82,59,450/- in the 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 oflndia on
the ground that it was not maintainable under Clause 15 of the Letters        B
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. I 1.2004.
                                                                              c
        9. On contest with the Bc;nk, 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 D
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 E
aforesaid time constraint, "".as valid, and the said suits were, therefore,
decreed in favour of the Union of India and against the bank.
        I 0. In an appeal against th is judgment, by the impugned judgment
dated 20.4.2011, a Division Bench of the Bombay High Court, while
holding that the amended Section 28 would apply to the· facts of these        F
cases, came to the opposite conclusion by following certain judgments
of this Court, and therefore, reversed the learned Single Judge, holding
that since the bank guarantees were not invoked within the time
prescribed, the suits would have to be dismissed. The Union oflndia
has filed the present appeals before us.                                      G
       11. Shri A.K. Panda, learned senior advocate appearing on behalf
of the Union of India, has stated that the Single Judge was correct in
applying Section 28(b} as amended in I 997, and that the condition

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706            SUPREME COURT REPORTS                        (2016] 11 S.C.R.



A     contained 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. Pad mini
      Chandrasekharan. According to learned coun5eJ, the Division Bench,
      having reiterated that the amended Section 28(b) would apply, was not
 B    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,
 c    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
 D    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 judgments has held that if a clause in a
      contract does not restrict the limitation period within which one can
      approach a Court, then it is perfectly valid and not hit by Section 28
 E
      (unamended). For this purpose, they cited several judgments before
      us_. An alternative plea was also raised by them that, on the assumption
      that the amended Section 28 would apply, even then, regard being had to
      the limited object sought to be achieved by the amendment, which followed
      a Law Commission Report, it would be clear that even on application of
 F    Section 28(b ), the aforesaid clause in the bank guarantees would not be
      hit. hi particular, they argued that the revised Section 28 suggested by
      the Law Commis~ion 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
 G    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
 H
   UNION OF INDIA & ANR. v. MIS lNDUSlND BANK LTD.                              707
                  [R. F. NARIMAN, J.]

amendment in 1997. In order to answer this question, it is first necessary       A
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                         B
      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. 08.01.1997                                                C
      28. Agreements in restraint of legal proceeding, void.
      J<:very Al?reement,
       (a) by which any party thereto is restricted absolutely from
          enforcing his rights un.der or in respect of any contract, by the      D
           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;
       (b) which extinguishes the rights ofany party thereto, or discharges
           any party thereto, from any liability, under or in respect of any     E
           contract on the expiry of a specified period so as to restrict
           any pa1ty from enforcing his rights by usual legal proceedings,
           is void to that extent."
         14. In order to answer this primary question, we have first to see      F
whether the change made in Section 28 could be said to be clarificatory
or declaratory oftlie 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           G
incarnation for over 100 years and was the subject matter of two Law
Commission Reports. The 13th Report of the Law Commission oflndia,
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
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708            SUPREME COURT REPORTS                            [2016] 11 S.C.R.



A     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
B
            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
 c          relinquishment of rights and remedies is valid, but an
            agreement for relinquishment of remedies only falls within
            the mischief of Section 28. Thus, in ouropinion, no change
            is called for by reason of the aforesaid conflict of judicial
            authority."
D
            16. Several decades passed, until the Law Commission in its 97th
      Report of March, 1984 suo 1110111 decided that the Section required
      amendment. An introduction to the Report stated the point for
      consideration thus:-
 E          "1.2 Under Section 28 of the Indian Contract Act, 1872 -
                            ._ in brief- an agreement which limits the
            to state the point
            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
 F          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
 G          anomalies and hardship, apart from leading to unnecessary
            litigation. Primafacie, 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
H
   UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.                          709
                  [R. F. NARIMAN, J.]

      the problem is one of considerable practical importance as             A
      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
                                                                             B
bargaining power, the Law Commission decided to recommend a change
in the Section. This was done as follows:-
      "5.1 We now come to the changes that are needed in the
      present law. In ouropinion, the present legal position as to
      prescriptive clauses in contracts cannot be defended as a              c
      matter ofjustice, logic, commonsense or convenience. When
      accepting such clauses, consumers either do not realize the
      possible adverse impact of such clauses, or are forced to
      agree because big corporations are not prepared to enter
      into contracts except on these onerous terms. "Take it or              D
      leave it all", is their general attitude, and because of their
      superior bargaining power, they naturally have the upper
      hand. We are not, at present, dealing with the much wider
      field of "standard form contracts" or "standard" terms.
      But confining ourselves to the narrow issue under discussion,          E
      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 ofunce11ainty
      in transactions which are entered into daily by hundreds of
      persons.                                                               F
      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                  G
      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    H
710           SUPREME COURT REPORTS                          (2016] 11 S.C.R.



A             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
B              application in practice. It thus, throws a cloud on the rights of
                parties, who do not know with certainty where they stand,
                ultimately leading to avoidable litigation.
           S.JOn a consideration of all aspects of the matter, we
           recommend thatSection 28 of the Indian Contract Act, 1872
 c         should be suitably amended so as to amend to render invalid
           contractual clauses which purport to extinguish, on the expil)'
           of a specified term, right accruing from the contract. Here
           is a suggestion for re-drafting the main paragraph of Section
           28.
D
           Revised Section 28, main paragrnph, Contract Act as
           recommended
           28. Evel)' agreement -
           (a)by which any party thereto is restricted absolutely from
 E            enforcing his rights under or in respect of any contract by the
              usual legal proceedings in the ordinal)' tribunals, or

           (b)which limits the time within which he may thus enforce his
              rights, or
 F          (c)which extinguishes the rights of any party thereto under or in
               respect of any contract on the exp ii)' 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
 G
               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 Repo11 was
      implemented. The Statement of Objects and Reasons of the Amendment
 H
   UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.                           711
                  [R. F. NARIMAN, J.]

reads as follows:-                                                            A
           "The Law Commission oflndia 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
                                                                              B
      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
                                                                              c
      an extinction of the right of a party to sue or spells out the
      discharge ofa 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 sho11er than the period of limitation provided             D
      by law. A distinction is assumed to exist between remedy
      and right and this distinction is the basis ofthe 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            E
      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                F
      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 Rep011
together with the Statement of Objects and Reasons for theAmendment
                                                                              G
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, forthe 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
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712               SUPREME COURT REPORTS                        [2016] l I S.C.R.



A     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 in so limiting the time. These are obviously substantive
B     changes in the law which are remedial in nature and cannot have
      retrospective effect.
               20. In Sukhram v. Harbheji, [1969] 3 S.C.R. 752, this Court
      held:-
c              "Now a law is undoubtedly retrospective ifthe law says so
               expressly but it is not always necessary to say so expressly
               to make the law retrospective. There are occasions when
               a law may be held to be retrospective in operation.
               Retrospection is not to be presumed for the presumption is
D              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
 E             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
 F             Act and the remedy the legislature intends to apply in the
               former state of the law and then det~rmine what the
               legislature intended to do. This line of investigation is, of
               course, only open if it is necessary. In the words of Lord
               Se Iborne in Main v. Stark [1890] I 5 A.C. 384 at 388, there
 G             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 legislature." (pp. 758-759)
H
   UNION OF INDIA & ANR. v. MIS INDUSIND BANK LTD.                             713
                  [R. F. NARIMAN, J.]

      21. Considering that the subject matter of Section 28 is                  A
"agreements", the unamended Section 28 would be the law applicable
as on 31.1.1996, which is the date of the agreement of bank guarantee.
It now remains for us to deal with the case law cited by both sides.
       22. In R. Rajagopal Reddy v. Padmini Chandrasekharan,
                                                                                B
(1995) 2 SCC 630, this Court was called upon to interpret the Benami
Transactions (Prohibition) Act, 1988. A 3-Judge Bench of this Court
overruled Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC
95, in arriving at the conclusion that the 1988 Act was prospective and
not retrospective. In so overruling the Division Bench judgment, this
Court held that the Act is not expressly retrospective, so that an enquiry
                                                                                c
would lie as to whether it could be said to be clarificatory or declaratory.
The language of Section 4( I) 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:
                                                                                D
      "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                    E
      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           F
      to have a greater retrospective operation than its lai1guage
      renders necessary." [para 14]
      It then went on to hold as follows:
      "As regards, reason 3, we are of the considered view that
                                                                                G
      the Act cannot be treated to be declaratory in nature.
      Declaratory enactment declares and clarifies the real
      intention of the legislature in connection with an earlier
      existing transaction or enactment, it does not create new ·

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714      SUPREME COURT REPORTS                           [2016) 11 S.C.R.


A     rights or obligations. On the express language of Section 3,
      the Act cannot be said to be declaratory but in substance it
      is prohibitory in nature and seeks to destroy the rights of
      the real owner qua properties held benami and in this
      connection it has taken away the right of the real owner
B     both for filing a suit or for taking such a defence in a suit by
      benamidar. Such an Act which prohibits benaini 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
C     commanded to the Division Bench. Jn this connection, we
      may refer to the following observations in Principles of
      $tatuton· Interpretation, 5th Edn., 1992, by Shri G.P. Singh,
      at page 3 15 under the caption 'Declaratory statutes':
         "The presumption against retrospective operation is not
D     applicable to declaratory statutes. As stated in Craies and
      approved by the Supreme Court:
          'For modem purposes a declaratory Act may be defined
      as an Act to remove doubts existing as to the common law,
 E    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
 F    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 is declared' is not conclusive
      that the Act is declaratory for these words may, at times be
      used to introduce new rules oflaw and the Act in the latter
 G    case will only be amending the law and will not necessarily
      be retrospective. In determining, therefore, the nature of
      the Act, regard must be had to the substance rather than to
      the form. If a new Act is to explain an earlier Act, it would
      be without object unless construed retrospective. An
 H
  UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.                          715
                 [R. F. NARIMAN, J.]

      explanatory Act is generally passed to supply an obvious              A
      omission or to clear up doubts as to the meaning of the
      previous Act. It is well settled that if a statute is curative or
      merely declarato_ry of the previous law retrospective
      operation is generally intended. The language 'shall be
      deemed always to have meant' is declaratory, and is in plain          B
      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          C
      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
      I~                                                                    D

      In Mithilesh Kumari v. Prem Behari Khare [(I 989) 2
      SCC 95 : (I 989) I SCR 621] Section 4 of the Benami
      Transactions (Prohibition) Act, I 988 was, it is submitted,
      wrongly held to be an Act declaratory in nature for it was
                                                                            E
      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 I 7]
                                                                             F
       23. Similarly, in Purbanchal Cables & Conductors (P) Ltd.
v. Assam SEB, (2012) 7 SCC 462, this Court had to decide whether the
Interest on Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993 could be said to be retrospective. After a review
of various judgments of this Court, this Court held:-                       G

      "There is no doubt about the fact that the Act is a substantive
      law as vested rights of entitlement to a higher rate ofinterest
      in case of delayed payment accrues in favour of the supplier
      and a corresponding liability is imposed on the buyer. This
                                                                            H
716            SUPREME COURT REPORTS                           f20161 11 S.C.R.



A           Court, time 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.
B
            [n 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
c           supplier has an accrued right to claim ah igher 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 5 I and
            52]
D
             24. Similarly, in CIT v. Vatika Township (P) Ltd., (2015) I SCC
      1, this Court held that the proviso to Section 1I3 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:-
E           "Of the various rules guiding how a legislation has to be
            interpreted, one established rule is that unless a contrary
            intention appears, a legislation is presumed not to be intended
            to have a retrospective operation. The idea behind the rule
            is that a current law should govern current activities. Law
 F          passed today cannot apply to the events of the past. rf we
            do something today, we do it keeping in view the law of
            today and in force and nottomorrow's backward adjustment
            ofit. Our belief in the nature of the law is founded on the
            bedrock that every human being is entitled to arrange his
G           affairs by relying on the existing law and should not find
            that his plans have been retrospectively upset. This principle
            of law is known as lex prospicit 11011 respicit: law looks
            forward not backward. As was observed in Phillips v.
            Eyre [( 1870) LR 6 QB I], a retrospective legislation is
H
   UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.                              717
                  [R. F. NARIMAN, J.]

      contrary to the general principle that legislation by which                A
      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.
                                                                                 B
      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) IAC 486: (1994)2 WLR39: (1994) I All ER20
      (HL)] Thus, legislations which modified accrued rights or
                                                                                 c
      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
                                                                                 D
      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 refer to few judgments              E
      containing this dicta, a little later." [paras 28 and 29]

       25. On a conspectus of the aforesaid decisions, it becomes clear
that Section 28, being substantive law, operates prospectively as
retrospectivity is not clearly made out by its language. Being remedial          F
in nature, and not clarificatory or declaratory of the law, by making certain
agreements covered by Section 28(b) void for the first time, it is clear
that rights 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           G
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
                                                                                 H
718               SUPREME COURT REPORTS                          r2016l l l S.C.R.



A     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 oftime within which the party
 B    tilay 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:
 c             ".... 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
               discharged from all liabilities hereunder."
D              28. A similar clause contained in another bank guarantee reads
      thus:-
               " .... Provided however, unless a demand or claim under this
               guarantee is made on us in writing within 3 months from
               the date of expiry of this guarantee in respect of export of
 E
               416.500 M.T. 2450 Bales OF Raw Cotton,.we shall be
               discharged from all liability under this guarantee thereafter."
             29. A reading of the aforesaid clauses makes it clear that neither
      clause purports to limit the time within which rights are to be enforced.
 F    In other words, neither clause purports to curtail the period oflimitation
      within which a suit may be brought to enforce the bank guarantee. This
      beingthe case, it is clear that this Court's judgment in Food Corpn. of
      India v. New India Assurance Co. Ltd., (1994) 3 SCC 324, would
      apply on all fours to the facts of the present case.
 G          30. The judgment ofVenkatachala,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
               fi"om the date of termination of the contract."
 H
   UNION OF INDIA & ANR. v. M/S INDUSIND BANK LTD.                             719
                  [R. F. NARIMAN, J.]

        31. On the facts in that case, the High Court had allowed the           A
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         B
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 the bond         c
could be filed within the limitation period set out in the Limitation Act.
       32: In a separate concurringjudgment R.M. Sahai, J. after going
into the case law in paragraph 3 of his judgment, made an extremely
perceptive observation. He stated that where the tiling of the suit within
limitation is made dependent on any condition precedent, then such              D
condition precedent not curtailing the limitation period within which a
suit could be filed, would be valid and not hit by Section 28. In paragraph
8 of the judgment, the learned Judge put it thus:-
       "Jt does not directly or indirectly curtail the period of                E
       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.               F
       The right was enforced under the agreement when notice
       was issued and the company was required to pay the
       amount. Assertion ofright 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               G
       assertion of right. The assertion of right, therefore, was
       governed by the agreement and it is imperative as wel I 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                H
720            SUPREME COURT REPORTS                           [2016] 11 S.C.R.



A           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 the Corporation did issue notice
            prior to expiry of six months from the tennination of contract,
            it was in accordance with the Fidelity Insurance clause and,
B           therefore, the suit filed by the appellant was within time."
            [para 8]
             33. In National Insurance Co. Ltd. v. Sujir Ganesh Nayak &
      Co., ( 1997) 4 SCC 366, this Court had to decide whether condition 19 of
      an insurance policy was hit by the unamended Section 28. Condition 19
c     reads as follows:-
            "Condition 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
D           the claim is the subject of pending action or arbitration."

             34. After referring to the relevant case law and a detailed reference
      to the Foo_d 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
 E
            twelve months from the happening ofloss 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 ifthe claim is not pressed
            within twelve months from the happening of any loss or
 F
            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
 G
            also. Notice the facts of the present case. The Insurance
            Company was informed about the strike by the letter of28-
            4-1977 and by letter dated I 0-5.-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
H
  UNION OF INDIA & ANR. v. MIS INDUSIND BANK LTD.                         721
                 [R. F. NARIMAN, J.]

      twelve months thereafter on 25-10-1978 the notice of                 A
      demand was issued and the suit was filed on 2-6-1980. It is
      precisely to avoid such delays and to discourage such belated
      claims that such insurance policies contain a clause like
      clause 19. That is for the reason that if the claims are
      preferred with promptitude they can be easily verified and           B
    · 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 ifthe claim is made but rejected, an action or        C
       suit most be commenced within three months after such
       rejection; failing which aH 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)            D
       1 SCC 943] while interpreting a clause couched in similar
       terms this Court said: (SCC p. 952, para 23)
      "It has b~en repeatedly held that such a clause is not hit by
      Section 28 of the Co.ntract Act."
                                                                            E
      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         F
6(ii) of an in.surance 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
                                                                            G
      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 hereunder and such claim
      shall not within 12 calendar months from the date of the
                                                                            H
722                SUPREME COURT REPORTS                    [2016] 11 S.C.R.



A           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 been abandoned and shat I not thereafter be
            recoverable hereunder."
             After a copious reference to Food Corporation and S.G.
B Nayak's case, this Court held that such clauses would not be hit by
      Section 28.-
          36. Considering that the respondents' first argument has been
   accepted by us, we do not think itnecessary to go into the finer details of
c _the second argument and as to whether the aforesaid clauses in the
   bank guarantee would be hit by Section 28(b) after the 1997 amendment.
   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
D -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 ifthe 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. The appeals
E are, therefore, dismissed with no order as to costs. ·


      Ankit Gyan                                               Appeals dismissed.