Legal Effects of Agreements Restricting Legal Proceedings

Every contract carries an implicit promise: if things go wrong, either party can walk into a court and ask for justice. Section 28 of the Indian Contract Act, 1872 exists to protect exactly that promise. It strikes down any clause that tries to shut the courtroom door on a party, whether by banning lawsuits outright or by quietly shrinking the time available to file one. For B.Com students studying void agreements, this section is a favourite exam topic because it sits at the intersection of contract drafting and public policy. Once you understand the logic, the exceptions around arbitration and forfeiture clauses stop feeling like exceptions and start feeling like common sense.

What section 28 actually says 🔗

In plain terms, Section 28 voids any agreement that either stops a party from enforcing contractual rights through the usual legal process in ordinary courts, or that limits the time within which those rights can be enforced. A second limb, added by the Indian Contract (Amendment) Act, 1997, extends this to clauses that extinguish a party’s rights or discharge a party’s liability once a specified period expires, if the real purpose is to restrict enforcement of rights.

Two distinct ways a clause can fall foul of this rule 🔗

Read closely, Section 28 actually catches two different kinds of misbehaviour in a contract:

• Absolute ouster of jurisdiction: a clause that says one party simply cannot sue the other, no matter what happens.
• Time-based restriction: a clause that technically allows a lawsuit but shortens the window for filing it, or makes rights disappear after a fixed period in a way designed to block enforcement.

Both are treated as void to that extent, meaning the rest of the contract usually survives even if this particular clause does not.

When a contract tries to shut the courtroom door completely 🔗

The clearest violation of Section 28 is a stipulation that a party will never sue the other for breach of contract, under any circumstances. Courts have consistently struck down such clauses because access to justice is treated as a matter of public policy, not something private parties can bargain away. A landlord’s promise to a bank that he would not evict a defaulting tenant until a loan was repaid, for instance, was held void because it effectively fettered the landlord’s statutory right to seek eviction through the courts, as seen in Rajendra Singh v. Seesh Pal Singh. The underlying logic applies just as easily to commercial contracts: a supply agreement that bars a buyer from ever suing for defective goods, or an employment bond that forbids an employee from approaching a labour court, would face the same fate.

Why arbitration clauses manage to survive section 28 🔗

If Section 28 voids restraints on legal proceedings, how do arbitration clauses, found in almost every commercial contract today, remain perfectly valid? The answer lies in two built-in exceptions. The first protects agreements to refer future disputes to arbitration, and the second protects agreements to refer disputes that have already arisen. As explained in this overview of exceptions to Section 28, arbitration is treated as a legitimate alternative forum for dispute resolution rather than a denial of justice, which is why the Arbitration and Conciliation Act, 1996 governs how such clauses operate.

There is a condition attached, though. An arbitration clause is valid only if it does not exclude court jurisdiction in every respect. Courts retain a supervisory role, they can appoint arbitrators when parties fail to agree, hear challenges to an award, and enforce the final decision. This is why arbitration clauses do not amount to an absolute ouster of the ordinary courts; they merely change the forum where the dispute is first heard, while leaving the court’s oversight function intact.

Exclusive jurisdiction clauses are a slightly different story 🔗

A related but distinct situation arises when two or more courts each have jurisdiction over a dispute, and the contract picks one of them as the exclusive venue. This is not an attempt to escape the judicial system altogether, only a choice between forums that are already competent to hear the case, so it does not attract Section 28. The Supreme Court reinforced this position in Rakesh Kumar Verma v. HDFC Bank, confirming that exclusive jurisdiction clauses in loan agreements and similar contracts remain enforceable as long as the chosen court genuinely has jurisdiction to begin with.

Shortening the limitation period: a separate trap 🔗

The Limitation Act, 1963 already prescribes how long a party has to file most contractual claims, generally three years from when the cause of action arises. Section 28 makes it illegal for a private contract to override this by squeezing that window. A clause requiring a party to sue within, say, sixty days of a breach, when the law allows three years, is void to the extent it shortens that statutory period. This protects weaker parties in standard-form contracts, such as insurance policies or loan agreements, from being tricked out of a remedy simply because they did not act fast enough within an artificially compressed deadline.

Forfeiture of rights: when a deadline clause actually survives 🔗

Here is where the topic gets genuinely interesting for exam purposes, because the line between a void time-limit and a valid forfeiture clause is thin. Courts distinguish between a clause that curtails the period within which a party may approach a court, which is void, and a clause that extinguishes the underlying right or claim itself if it is not raised within a stipulated time, which may be valid. The reasoning is that Section 28 targets restrictions on the remedy, not the scope of the right the parties agreed to in the first place.

A useful illustration comes from a Delhi High Court ruling discussed in the same overview of restraint clauses cited earlier: a contract clause requiring a party to refer a claim within 120 days did not violate Section 28, because it operated as forfeiture or waiver of the claim itself rather than as a shortened limitation period for a lawsuit. Contrast this with cases where a claim-filing bar functioned as a disguised limitation clause; there, courts have not hesitated to strike the clause down as void. This tension around bank guarantees and their claim periods was significant enough that the matter reached the Supreme Court in Larsen and Toubro Limited v. Punjab National Bank, which examined how far banks can set minimum claim periods without effectively extinguishing a beneficiary’s rights altogether.

The 1997 amendment’s clause (b) was added precisely to prevent parties from disguising a limitation-shortening clause as a mere “forfeiture” clause. So while genuine forfeiture provisions, tied to a condition precedent rather than a court deadline, generally survive scrutiny, courts today look at the substance of a clause rather than the label a contract gives it.

Void versus valid clauses at a glance 🔗

Why this section matters beyond the exam 🔗

Standard-form contracts, insurance policies, employment bonds, loan agreements, and vendor agreements routinely carry claim deadlines, jurisdiction clauses, and dispute resolution clauses. Understanding Section 28 helps you spot which of these are enforceable and which are void the moment a dispute lands in court. For anyone heading into commerce, finance, or business administration, this is not abstract legal theory; it directly affects how contracts should be drafted and reviewed in practice.

What do you think? If a company inserts a clause requiring customers to file complaints within 15 days or forfeit their right to a refund, would you classify that as a shortened limitation period or a genuine forfeiture clause? And should arbitration clauses in consumer contracts, where one party has far less bargaining power than the other, be treated the same way as arbitration clauses between two businesses?

References

1. https://indiankanoon.org/doc/1224074/
2. https://agamalaw.in/2022/07/19/agreements-in-restraint-of-legal-proceedings-an-overview/
3. https://blog.ipleaders.in/exceptions-section-28-indian-contract-act-1872/
4. https://ksandk.com/litigation/section-28-indian-contract-act/