INTRODUCTION
Every Indian citizen is entitled to a basic right to go to a court of law if they have any grievances against another person. The Indian Contract Act of 1872 (ICA)[1] contains Section 28[2] which provides a safeguard against this right, as it states that any contract or agreement that either directly or indirectly prevents a person from enforcing their rights in the courts of law will be deemed void. Although Section 28 theoretically provides a great deal of protection, the courts have found numerous interpretative ambiguities and gaps in legislation that make enforcement difficult for the party who is at a disadvantage as a result of their inferior bargaining position. Likewise stated by scholars, “like other acts and sections, this section also has some shortcomings”[3]. This has made it necessary for all parties involved in contractual agreements to have access to the judicial system and to enforce their rights to maintain the integrity of the contractual relationship, which is a basic tenet of Section 28 of the ICA.[4].
CORE GAPS
Listed below are some of the key gaps that are identified in Section 28 of the Indian Contract Act.
- Limitation Period as a Grey Zone: Section 28 has had many issues with defining the time limit of contracts. The Limitation Act 1963[5] generally has a time limit of 3 years, and Section 28 does not allow for the limitations to be shortened. However, exception 3 in 2013[6] allows banks and financial institutions to set a minimum time limit of 1 year for making claims under a bank guarantee. While this appeared to be a solution to the issue, it has only created further ambiguity and confusion with regard to the validity of applying the same standard of time limits to other commercial agreements, construction contracts, warranty obligations or indemnity clauses.
The Delhi High Court’s ruling in Larsen and Toubro Limited v Punjab National Bank (2021)[7] Is a prime example of this confusion. They distinguished between the “claim period” and when the “creditor can pursue a legal action”, and ruled that exception 3 relates only to when the creditor can pursue legal action. In this case, the PNB bank was incorrectly enforcing a 12-month claim period for all bank guarantees, and each of the two documents used to assert their position was found to be ‘wrong and illegal’ by the High Court. This illustrates the ambiguity surrounding Exception 3.
- Retrospective Gaps: A second gap in the 1997 amendment occurs in connection with the temporal application of amendments. The 1997 amendment to Section 28, which rendered void all clauses that extinguished rights upon the expiration of a specified period, included no provision for clarifying the manner in which the amended law would apply to existing contracts at the time of the amendment. The Supreme Court addressed this matter in Union of India v. IndusInd Bank Ltd. (2016)[8], where it held that the 1997 amendment was intended only to apply prospectively, and, therefore, bank guarantees executed before the amendment would be governed by the unamended section. Although the Court’s holding may be jurisprudentially correct, the lack of a clear, express provision for prospectivity in the amendment created significant litigation and uncertainty.[9] Over many years, a properly drafted statute would have resolved this issue at the outset.
- Vague exclusivity clause: Under Section 28, parties may also limit their dispute to one court of competent jurisdiction by way of contract, which is known as an Exclusive Jurisdiction clause and has been upheld in Hakam Singh v Gammon (India) Ltd (1971)[10]. The logic used by the Supreme Court of India in allowing parties to narrow their dispute forum based upon the mutual intent of the parties seems to be correct. However, as noted by the authors of the articles reviewed, phrases such as the parties did have a “meeting of minds'” and “at their convenience” are very vague in practice or less powerful parties[11]. Furthermore, Section 28 does not provide any mechanism for determining if the Exclusivity clause was the product of true consent by both parties or had been imposed unilaterally on one party.
ARBITRATION AS THE SOLUTION
Section 28 of the Act permits either of the parties to agree to submit their disputes to arbitration prior to the dispute arising or after the dispute has already taken place. Thus, rather than limiting rights, arbitration provides an alternative means of achieving justice. According to a scholar, this results in a “double benefit” because it reduces the pressure on the courts and gives the parties the benefit of not being required to incur the cost of having to go through the litigation process and the delay this may involve[12]. This is particularly useful for institutions handling large volumes of similar disputes.
Arbitration can also deal with the problems stemming from one-sided jurisdiction clauses. According to some scholars, arbitration’s major benefit is the ability for parties to agree on a neutral seat, and thus avoid the “home court” advantage that arises from exclusive jurisdiction clauses.[13].
When arbitration clauses are drafted properly, they can help create certainty regarding limitation periods by providing clear rules regarding which event will trigger the limitation period and how long after that event the limitation period will apply. The UNCITRAL Model Law[14] allows arbitral tribunals to determine their own jurisdiction and temporal scope under the principle of competence-competence, allowing the parties to resolve time-bar issues more quickly and in a more focused manner.
The principle of separability allows the arbitration clause in a main contract to remain in effect and provide a separate forum for the resolution of any disputes, regardless of whether the main contract is declared void.
ROAD AHEAD: REFORM AND RESPONSIBILITY
Despite being viewed as a viable substitute for settlement in a court of law, arbitration has many limitations as well. Some authors have argued that arbitration agreements can be tools of inequality, in that they are imposed on the party providing the least amount of bargaining power and/or the party choosing the arbitrator lacks neutrality.
Institutional arbitration may also be prohibitively expensive for consumers and other financially weaker parties.
In many cases, therefore, arbitration does not enhance access to justice.
Thus, a more balanced solution is essential. To develop relevant legislation, it will be important to provide clarity around the types of time limitation clauses allowed under section 28 and enhance consumer protection by clarifying the contractual restrictions. Furthermore, arbitration systems must develop so that they can be affordable and accessible by implementing fee caps for low-value claims, providing simplified procedures for dispute resolution, and maximising the use of online dispute resolution systems.
Only by combining improved legal protection and accessible arbitration systems can the objectives of section 28 be significantly achieved.
CONCLUSION
Section 28 of the Indian Contract Act provides limited protection to individuals from being compelled to forfeit their rights to access the courts for redress, but it is an incomplete remedy. Section 28 does not define a time frame for bringing forth a civil action to set aside an agreement; it does not identify an appropriate forum to enforce the agreement; it does not specify whether an agreement is prospective or retrospective in operation; and it leaves considerable uncertainty as to which agreements fall within its exceptions. A well-designed arbitration framework can address many of these issues by providing a neutral and efficient dispute resolution mechanism. However, the full benefits of an arbitration process will not be realised unless both the Indian Contract Act and the relevant arbitration framework are reformed in a manner that will protect those who need it the most, and not just for the banks and institutions that have been able to utilise the existing laws for their benefit for a long time.
Author(s) Name: Rashi (Symbiosis Law School, Noida)
References:
[1] Indian Contract Act 1872
[2] Ibid s 28
[3] Suhani Gandhi, ‘Critical Analysis of Agreements in Restraint of Legal Proceedings’ (2024) SSRN <https://ssrn.com/abstract=4744452> accessed 22 June 2026
[4] Indian Contract Act 1872, s 28
[5] Limitation Act 1963
[6] Banking Law (Amendment) Act 2012
[7] Larsen & Toubro Ltd and Anr v Punjab National Bank & Anr (2021) DHC 2214
[8] Union of India and Anr v M/s IndusInd Bank Ltd and Anr (2016) 9 SCC 720
[9] Gandhi (n 3)
[10] Hakam Singh v M/S Gammon (India) Ltd (1971) 1 SCC 286
[11] Gandhi (n 3)
[12] Aditya Juneja, ‘Restraint in Legal Proceedings’ (2024) 6(3) International Journal of Legal Science and Innovation 1419 <https://ijlsi.com/paper/restraint-in-legal-proceedings/> accessed 08 June 2026
[13] Ibid
[14] UNCITRAL Model Law on International Commercial Arbitration 1985, with amendments as adopted in 2006 (United Nations Commission on International Trade Law 2008)