1997 Amendment To Indian Contract Act Operates Prospectively: SC [Read Judgment]

Section 28, being substantive law, operates prospectively as retrospectively is not clearly made out by its language, the Bench observed.

The Supreme Court in UNION OF INDIA & ANR. Vs. M/S INDUSIND BANK LTD., has held that the 1997 amendment to the Indian Contract Act, which made certain agreements covered by Section 28(b) of the Act void, operates prospectively.

The Bench comprising Justice C. Nagappan and Justice R.F. Nariman made the observation while hearing an appeal filed by the Union of India against an order of Division Bench of the Bombay High Court.

The Division Bench had upheld a Single Bench order that held that the amendment would operate retrospectively.

The following was added to Section 28 vide amendment in 1997: Every agreement which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights by usual legal proceedings, is void to that extent.

The Bench, referring to various decisions, including Constitution Bench decision in CIT v. Vatika Township (P) Ltd., (2015) 1 SCC 1, observed: “Section 28, being substantive law, operates prospectively as retrospectively 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 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 Division Bench were in error in holding that the amended Section 28 would apply.”

Read the Judgment here.