P L D 1989 Lahore 390
Before Abdul Shakurul Salam, C.J.,
Abaid Ullah Khan and Khalil‑ur‑Rehman Khan,JJ
Messrs ALI PIPE INDUSTRIES,
THE UNIVERSAL INSURANCE COMPANY LTD.
and 2 others‑‑Respondents
Regular First Appeal No.101 of 1983 and Civil Revision NO‑1026 of 1987, heard on 28th May, 1988.
[Case‑law extensively discussed].
Muhammad Amin Butt for Appellant (in Regular First Appeal No. 101 of 1983).
Ch. Maqsood Hassan and Ch. Siddiq Ahmad for Respondents Nos. 1 and 2 (in Regular First Appeal No.101 of 1983).
Bahadur Ali for Respondent No.3 (in Regular First Appeal No.101 of 1983).
Chaudhry Maqsood Hassan and Chaudhry Siddiq Ahmad for Petitioners (in Civil Revision No.1026 of 1987).
Chaudhry A. Waheed Saleem for Respondents Nos. 1 to 3 (in Civil Revision No.1026 of 1987).
Syed Sajjad for Respondent No.4 (in Civil Revision No.1026 of 1987)
Dates of hearing: 21st, 22nd, 23rd and 28th May, 1988.
ABDUL SHAKURUL SALAM, C.J.‑‑I have gone through the judgments proposed to be delivered by my learned brothers fir. Justice Abaidullah Khan and Mr. Justice Khalilur Rehman Khan. Precedents and statutory provisions have been dealt with extensively. The learning, labour of love and analysis of principles have been so elaborate and incisive that I need only to say: I agree that clauses in fire or lightning insurance policies which provide for forfeiture or non‑liability after specified period are not void under Section 28 of the Contract Act, 1872.
ABAID ULLAH KHAN, J.‑‑The question for determination before the Full Bench, referred to by a Division Bench is whether or not the conditions of contract of insurance incorporated in the policy of insurance against the risk of fire or lightning providing for
(a) forfeiture of all benefits under the policy if no action or suit is commenced within three months of the rejection of the claim (if made) or (in case of an arbitration taking place) after the arbitrator or arbitrators or umpire shall have made their award”
and stipulating that
“(b) in no case whatever is the insurance company to be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is subject of pending action or arbitration”
are void under section 28 of the Contract Act, 1872.
2. It may be pertinent to glance over the relevant facts in brief of Regular First Appeal No. 101 of 1983, Messrs Ali Pipe Industries, Faisalabad v. The Universal Insurance Companty Limited, Lahore, and others and Civil Revision Petition No. 1026 of 1987, Messrs Central Insurance Company Limited, Lahore v. Mallick Canvas Industries, Lahore and others, wherein the point in issue has been raised. In the appeal case, Messrs Ali Pipe Industries, the appellant, against the mortgage of its factory, obtained loan of Rs.60,000 from the Allied Bank of Pakistan Limited, Faisalabad, respondent 3. The mortgaged property was insured against any loss due to fire or lightning to the extent of Rs.22,00,000 with the Universal Insurance Company Limited, Lahore, respondent 1. Respondent 2 is the branch office of respondent 1 at Faisalabad through which the insurance policy is said to have been procured by the appellant. As alleged by the appellant there was wind storm with lightning and thunder during the night between the 25th and 26th May, 1979, and the lightning struck the factory resulting in complete demolition of the building and destruction of machinery installed therein. The appellant informed respondent 1 about what had happened and the surveyors sent by the latter inspected the spot on the 2nd June, 1979. The claim made by the appellant was repudiated and rejected by respondents 1 and 2, as they say, by their letter dated the 18th July, 1979. The appellant instituted suit on the 6th December, 1980, to recover Rs.22,00,000 from respondents 1 and 2. Apart from refuting the legitimacy of the claim, respondents 1 and 2 pleaded the bar of limitation on the ground that the suit having not been commenced within three months of the rejection of the claim as also within twelve months from the happening of the loss or damage, all benefits under the policy stood forfeited under conditions Nos.13 and 19 of the policy. They averred that even the claim had not been made within the stipulated time.
3. The learned Civil Judge, Faisalabad, seized with the trial of the suit, formed the view that the appellant could have brought suit within twelve months of the date of loss or damage as envisaged by condition No. 19 of the insurance policy and since the suit had been instituted after the expiry of twelve months of the happening of the loss it was time‑barred and consequently dismissed it on the 7th February, 1983.
4. In Civil Revision Petition No.1026 of 1987, respondents 1 to 3 got their stock of canvas, tarpaulin, tents, etc., lying in their factory and godowns, situate on Shalimar Link Road, Lahore, insured with the petitioner, Messrs Central Insurance Companv Limited, Lahore, against fire through three different policies covering the risk to the tune of Rs.62.00,000. By another policy they got the building and machinery of their factory insured against risk of fire for Rs.11,00,000 with the petitioner. As narrated by respondents 1 to 3 afire broke out in the factory and godowns at about mid‑night between the 10th and 11th April, 1985. Though the fire is stated to have been put out by the fire brigade of the Lahore Municipal Corporation yet respondents 1 to 3 claim to have suffered a loss of more than Rs.52,50,000. Respondents 1 to 3 preferred their claim to the petitioner which ultimately rejected it on the 1st August, 1985. Respondents 1 to 3 filed suit on the 9th April, 1986, to recover Rs.97,50,000 on account of damage due to fire as well as for loss of business, reputation and interest. The petitioner disputed the genuineness of the claim and came out with the plea that by initiating suit after the expiry of three months of the date of rejection of their claim, respondents 1 to 3 had forfeited all benefits under the policies according to the terms and conditions thereof.
In view of the commercial nature of the case it was represented on behalf of the petitioner to the learned trial Civil Judge to settle and decide preliminary issues but the learnd Civil Judge framed all the issues on the 7th June, 1987. Again the petitioner moved an application for setting down the issue relating to limitation for preliminary hearing. The petitioner’s prayer did not receive favourable consideration at the hands of the learned Civil Judge who rejected the application and directed the plaintiff to produce evidence on all the issues. The petitioner impugned the validity of the order of the learned Civil Judge before this Court in revisional jurisdiction.
6. The question touching the validity of the portion of the contract of insurance against damage by fire or lightning providing for forfeiture of all benefits under the policy if no action or suit is commenced within three months of the rejection of the claim and curtailing the period during which the liability of the insurance company is sustainable has been repeatedly argued before various superior Courts of Pakistan and India for over seven decades. Many a vain attempt has been made on behalf of the concerned parties to have the contract declared void under section 28 of the Contract Act, 1872 (IX of 1872). Though the Courts have several times examinedR the issue at length, for example, among others in the cases reported as Girdharilal Honuman Bux v. Eagle Star and British Dominions Insurance Company Limited AIR 1924 Calcutta 186, G.Rainey v. Burma Fire and Marine Insurance Company Limited AIR 1926 Rangoon 3, A.N.Ghose v. Reliance Insurance Company AIR 1934 Rangoon 15, Rubi General Insurance Company v. Bharat Bank AIR 1950 (East) Punjab 352, Pearl Insurance Company v. Atam Ram 1960 Punjab 236 (FB), The Vulcan Insurance Company Limited v. Maharaj Singh AIR, 1976 Supreme Court 287 and Sargodha Central Co‑Operative Bank Limited v. New Hampshire Insurance Company PLD 1982 Karachi 627, f they have accepted the view formed and law laid down by the Bombay High Court (Division Bench comprising of Scott, C.J., and Batchelor , J.) in Baroda Spinning and Weaving Company Limited v . Satyanarayan Marine and Fire Insurance Company Limited AIR 1914 Bombay 225(2) declaring such an agreement to be valid. The usual clause of the contract of insurance relating to forfeiture of benefits under the fire insurance policy in case of failure of commencement of suit or action within three months of rejection of claim is couched in the language ‑f clause 13 of the contract of insurance in the case in hand and runs as under,‑‑
“If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the insured or any one acting on his behalf to obtain any benefit under this policy; or, if the loss or damage be occasioned by the willful act, or with the connivance of the insured; or, if the claim be made and rejected and an action or suit be not commenced within three months after such rejection, or (in case of an arbitration taking place in pursuance of the 18th condition of this policy) within three months after the arbitrator or arbitrators or umpire shall have made their award, all benefits under this policy shall be forfeited.”
Condition No. 18 of the policy is reproduced as follows,‑‑
“If any difference arises as to the amount of any loss or damage such difference shall independently of all other questions be referred to the decision of an arbitrator, to be appointed in writing by the parties in difference, or if they cannot agree upon a single arbitrator, to the decision of two disinterested persons as arbitrators, of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of notice in writing requiring an appointment, the other party shall be at liberty to appoint a sole arbitrator; and in case of disagreement between the arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or affect the authority or powers of the arbitrator, arbitrators or umpire respectively; and in the event of the death of an arbitrator or umpire, another shall in each case be appointed in his stead by the party or arbitrator (as the case may be) by whom the arbitrator or umpire so dying was appointed. The cost of the reference and of the award shall be in the discretion of the arbitrator or arbitrators or umpire making the award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained.”
Condition No.19 restricting the period of liability of the company is to the following effect,‑
“In no case whatever shall the Company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration.”
The contention of the learned counsel representing the interests of the insured is that the learned Courts, while upholding the validity of the above referred to two clauses (Nos.13 and 19) of contract of insurance, went alongwith the reasoning, without subjecting it to critical examination, employed in Baroda Spinning and Weaving Company’s case. The learned counsel maintains that under the law prevailing in this country, as also in India, it is not within the competence of the Court or of the parties to ignore, override or waive the statute of limitation and that the time of limitation within which the rights may be enforced being fixed by .the statute is not open to alteration by agreement between the parties. He submits that any contract stipulating period of limitation for initiation of legal action less than the one prescribed by the Limitation Act, 1908, would be against public policy and void to that extent. His argument is that the effect of the above referred to clauses of the insurance contract is not different from placing limit on time within which the plaintiff can enforce his rights by means of bringing a suit and this restraint is clearly forbidden under section 28 of the Contract Act and as such is void. He points out that in all matters barring insurance the superior Courts have consistently held that any contract laying down period of limitation shorter than the statutory one is void.
7. The learned counsel appearing on behalf of the insurance companies rested their case on the above‑quoted precedents and invoking the aid of the doctrine of stare decisis canvassed for following the rule which has been established by a long course of decisions and which has been followed and acted upon by persons in the formation of contracts and conduct of affairs for a considerable length of time.
8. In order to appreciate the arguments of the learned counsel it appears appropriate to notice in some detail the process of development of the view formulated by the Bombay High Court and also to go over the cases referred to in the judgment and banked upon by the Court in reaching decision. The pertinent condition in the policy of fire insurance sued on by the plaintiffs was “if the claim be made and rejected, and an action or suit be not commenced within three months after such rejection, all benefits under this policy shall be forfeited.” The plaintiff‑appellant’s claim was rejected by the insurance company on the 20th April, 1911, but the suit was not commenced till the 14th August, 1911. The suit was no doubt instituted within the period allowed by the law of limitation as contained in Article 86 of the first schedule of the Limitation Act, 1908 (IX of 1908). The suit was dismissed for its having been brought beyond three months of the rejection of claim. The appellant’s counsel conceded before the Court that such a condition was not unreasonable or opposed to public policy and the learned Court found support for the concession from the remarks of the Judicial Committee of the Privy Council made in Home Insurance Company of New York v. Victoria‑Montreal Fire Insurance Company (1907) A.C.59. However, the learned counsel argued that the condition was void as an agreement of the nature described in section 28 of the Contract Act, 1872, since it limited the time within which a party to the contract might enforce his rights under the contract by the usual legal proceedings and as such could not be pleaded in bar to the suit. The relevant part of section 28 declaring agreement in restraint of legal proceedings to be void is phrased in the following words,‑‑
“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.”
The argument of the appellant’s counsel before the Court was that the forfeiture clause was equivalent to an agreement that no Court should entertain any suit on the policy unless commenced within three months of the rejection of the claim. According to the learned counsel section 3 of the Limitation Act, 1908, indicated that the law of Limitation in India (and also in Pakistan) could not be modified by agreement of the parties as it could be done in England, there was no distinction under that Act between the rights and remedies and a conditional agreement to forfeit rights after the lapse of the period within which the remedy was not barred by the law of Limitation was a void agreement. As is apparent from his judgment, Scott, C.J., was not prepared to accept the proposition that there was no distinction in India between rights and remedies. He observed that section 28 of the Limitation Act, 1908, showed the cases in which the loss of the remedy would destroy the right, though it did not cover a suit for money such as was before the Court, but on the other hand the loss of the right always involved the disappearance of the remedy which was a very material consideration in the case of a conditional forfeiture of all benefits under a policy. He opined that section 28 of the Contract Act was aimed only at covenants not to sue at any time and covenants not to sue for a limited time which had given rise to difficulty in England. In this connection he referred to the judgments in the cases of Ford v. Beech (1848) 116 E.R.689, Beach v. Ford (1848) 68 E.R.85, Gibbons v. Vouillon (1849) 137 E.R.596, Newington v. Levy (1870) L.R.6 C.P.180, Slater v. Jones and Capes v. Ball (1873) L.R.8 EX.186 and mentioning the state of English Law said that a conditional release or forfeiture was a very different thing from a covenant not to sue, although in order to avoid circuity of action a covenant not to sue was sometimes held to be equivalent in effect to a conditional release. He did not consider the condition of forfeiture appearing in the agreement of insurance before him to be within the scope of section 28 of the Contract Act.
9. As the perusal of the judgment of Batchelor, J., indicates the learned counsel for the appellants canvassed for the desirability of looking rather to the substantial effect intended by section 28 than to the precise from of words which the legislature had used. His argument was that however valid and important in law be the distinction between the barring of a remedy and the extinguishment of a right, yet to the man of business it was much the same thing whether his right be gone. or the remedy for enforcing that right be barred. He urged that in substance and effect there was no appreciable distinction between saying “I agree that upon the expiry of three months after the rejection of my claim, my rights shall be forfeited”, as was said in the contract of insurance, and saying “as to the time within which I may enforce my right, I agree to limit it to the period of three months after the rejection of my claim.” However, in the opinion of the learned Judge the distinction existed and was vital in the construction of the section. As he understood the matter, what the plaintiff was forbidden to do under section 28 was to limit the time within which he was to enforce his rights, but what he had done under the contract was to limit the time within which he was to have any rights to enforce and that appeared to him to be a very different thing. He pointed out that this view had been tacitly accepted by the Calcutta High Court in the South British Fire and Marine Insurance Company v. Brojo Nath Shaha (1909) ILR 36 Calcutta 516 though he admitted that the decision was of no direct assistance since the question of the effect of section 28 of the Contract Act on such agreements had not been expressly considered.
10. Assuming the validity of such an agreement in England he thought that it could not be contended that insurance companies in India had less need than such companies in England of the protection afforded by an agreement for the acceleration of legal proceedings to be brought against them and that being so there was the less reason to suppose that the legislature intended section 28 to have the far‑reaching effect for which the plaintiffs‑appellants had contended before him.
11. Being conscious of the note of caution sounded by the House of Lords in the Bank of England v. Vagliano Brothers (1891) A.C.107 for having recourse to the pre‑existing state of law for the purpose of interpreting a provision of a codifying statute, section 28 in the instant case, the learned Judge, taking a cue from the speech of Lord Herschell that ‘if a provision be of doubtful import, such resort would be perfectly legitimate’ and thinking that law as to the validity of a covenant not to sue was much complex, proceeded to examine and take note of the state of law existing in England prior to 1872, when the Indian legislature undertook the codification of the law of contract and enacted the (Indian) Contract Act. The following portion of his judgment reflects the process of reasoning adopted by him to support the conclusion reached by him,‑‑
“Reference to the authorities will, I think, disclose that there was much complexity in the law as to the validity of a covenant not to sue: see Baron Parke’s judgment in Ford v. Beech (i’.6 E.R.689). It was there held that a covenant not to sue at any time, though not in terms releasing the debtor, yet operated as a release upon the principle of avoiding circuity of action. But a covenant not to sue for a limited time operated only as a covenant, and could not be pleaded as a reason: Thimbleby v. Barrow (1838) 7 L.J.Ex.128; while a covenant not to sue for a limited time, with a condition suspending the right of action during that time, was construed as an additional release and could be pleaded in bar of a suit brought within the time: Walker v. Nevill (1864) 34 L.J. Ex.128.
There were also, as the decisions show, other incidental matters of much difficulty in this branch of the law, and I am inclined to think that the genesis of S.28 is to be found in the Indian legislature’s desire to sweep away the refinements of the then English law and to enact for India a simpler and more suitable rule. The two prohibitions in the section certainly seem to follow the distinction made in the English cases, and, if that is so, the prohibition of the limitation of time within which a party may enforce his rights follows the English doctrine that a covenant not to sue for a limited time does not amount to a release. And if S.28 be read as a whole, and compared with the effect of such decisions as I have noticed, it seems a probable inference that the Indian legislature considered it would be simple, and therefore, more convenient, to brush away the somewhat fine distinctions of the English law by laying down the broad general rule that all agreements should be void which either absolutely restrict a contracting part ‘s right to resort to the Courts or merely limit the tire within which the rights should be enforced; in that case the phrase as to limiting the time would necessarily bear the same meaning which it has in the English Courts’ judgments, the meaning namely, that it is not open to a party to covenant that, while his rights subsist, he will diminish the period within which he shall be at liberty to sue. These considerations therefore appear to me to afford an additional reason for the conclusion that the language of S.28 has been carefully chosen so as to convey the narrower meaning to which alone the words are apt and appropriate.”
12. Though Scott, C.J. , doubted the correctness of the decision of the Bombay High Court in Hira Bhai v. Manufacturers Life Insurance Company (1912) 16 Indian Cases 1001), Batchelor, J., considered the case to have been rightly decided. In that case the clause of contract of life insurance required to be construed was as follow,‑
“No suit shall be brought against the company in connection with the said policy later than one year after the time when the cause of action accrues.”
The suit was instituted after a year, but within three years as provided by Article 86 of the First Schedule of the Limitation Act, of the death of the deceased. In answer to the plea of bar of limitation raised by the company it was argued for the plaintiff‑appellant that the deceased who had insured his life could not contract himself out of his right to resort to a Court of justice and agree to lessen the period prescribed for a suit by the legislature in the Limitation Act, 1908. It was urged that the condition curtailing the period of limitation was void under section 28 of the Contract Act. The Court observed that if the words in the clause were to be interpreted literally there might be considerable force in the argument addressed to it. It accepted the proposition that where there was a right the party could not enter into a contract and agree that he would resort to a Court of justice within a period other than that provided by the Limitation Act. However, it was of the view that the terms used in an insurance contract must be interpreted with reference to the object and exigencies of insurance. It held that the condition was valid for the parties had agreed in substance that if no suit were to be brought within a year, neither party should be regarded as having any right as against the other; in other words, the condition contained in the clause meant that there was to be a waiver of the rights of the respective parties if no suit was brought within a year.
13. In South British Fire and Marine Insurance Company v . Brojo Nath Shaha (1909) I. L.R.36 Calcutta 516 no question regarding validity of the condition shortening the period of limitation within which the suit could be brought was raised or decided. Therefore, decision of this case does not furnish any persuasive force for accepting the validity of the condition.
14. In Home Insurance Company of New York v. Victoria‑Montreal Fire Insurance Company (1907) A.C. 59 (PC), a case from Canada, the Canadian Pacific Railway Company was insured by the Western Assurance Company of Canada against damage by fire. Twenty per cent of the liability of the Western Assurance Company under its policy was insured by the Home Insurance Company of New York which insured a portion of its liability to the Western Assurance Company with the Victoria‑Montreal Fire Insurance Company. In case of both the Home Insurance Company of New York and Victoria‑Montreal Fire Insurance Company, the insurance was effected by attaching to a printed form of fire insurance policy a typewritten slip or rider containing the special terms of the so‑called reinsurance. The printed form (which was the standard fire insurance policy of the States of New York, New Jersey, Pennsylvania and Connecticut) was not amended except by the insertion of the syllable “re” before the word “insurance”. So amended it was expressed to be a reinsurance against all direct loss or damage by fire, etc. Although all the terms of an ordinary fire insurance policy were included in the reinsurance policy, nothing of those terms appeared to be applicable to the case of a policy by which the assured was insured, not against direct loss occasioned by fire but against the liability or a portion of the liability undertaken by the original insurer or the insurer covering the original insurer’s direct policy.
15. Among the stipulations contained in the printed form of the reinsurance policy was one restricting the time for bringing action and was in the following form,‑‑
“No suit or action on this policy for the recovery of any claim shall be sustainable in any Court of law or equity until after full compliance by the insured with all the foregoing requirements nor unless commenced within twelve months next after the fire.”
16. The Canadian Pacific Railway Company were paid by its insurer, the Western Assurance Company of Canada, on the 10th March, 1901, after a lengthy inquiry, for damage its property suffered as a result of the fire which occurred on the 26th April, 1900. The Home Insurance Company of New York paid its proportion of loss on the 13th April, 1901. The Victoria‑Montreal Fire Insurance Company denied the claim of the Home Insurance Company of New York in accordance with the limitation clause reproduced above as the action was not commenced within twelve months next after the fire.
17. The trial Judge held that the limitation clause was inapplicable to the contract of reinsurance sued upon. The Court of Review unanimously confirmed his decision. However, the Supreme Court by a majority of three to two reversed this judgment and held that the clause was applicable. The Privy Council on appeal regarded the condition to be inapplicable to the contract of reinsurance. They observed that the clause prescribing legal proceedings after a limited period was a reasonable provision in a policy of insurance against direct loss to specific property because in such a case the insured was master of the situation and could bring action immediately but in a case of reinsurance against liability the insured was helpless and could not move until the direct loss was ascertained between parties over whom he had no control and in proceedings he could not intervene.
18. It may be convenient to review English cases referred to in the judgment of Baroda Spinning and Weaving Company’s case. The earliest in point of time is of Thimbleby v. Barrow (1838) 7 L.J. Ex. 128. The plaintiff therein sued on a bond for the recovery of outstanding debt of L 1500 for money paid and L 92 as interest before the expiry of ten years during which period he had agreed not to call any demand or compel payment of the amount. The defendant tried to plead the covenant not to sue for a limited time in bar to the action. The Court of Exchequer held, on the basis of authorities with which books were found to be full, that the breach of the agreement to forbear suing rendered the party liable in damages but it was not pleadable in bar.
19. The facts of the cases Ford v. Beech 116 English Reports 689 and Beech v. Ford 68 English Reports 85 are that on the 28th May, 1839, William Beech made two promissory notes, one for L 140 and the other for , 200, payable to John Ford. John Ford having threatened to sue William Beech upon the notes, Alfred Beech, the latter’s brother, interposed and an agreement was entered into in the following terms:‑‑
“I hereby consent to pay Mr. John Ford, in trust for my sister Elizabeth Beech, the sum of 200, for her sole use and benefit, or the sum of b 25 per annum, so long as the b 200 shall remain unpaid. This sum of b 25 yearly is to be paid every quarter, and should two quarters remain in arrears, such arrears will be considered as a violation of the agreement; and this I promise to do as a consideration for money advanced to my brother William Beech on two bills of his acceptance, bearing date May 28th, 1839, to John Ford, so that the bills and interest on them be suspended and rendered inoperative, so long as I continue to pay the said sum of b 6, 5s, sterling every quarter to Mr. John Ford; but, on the payment of 200 to Mr. Ford at any one time, all further claim pertaining to the said bills on my brother William Beech is to cease, and the said bills are to be given up by Mr. Ford. Should my sister Elizabeth Beech decease, such sum of b 6, 5s. per quarter to be still paid to Mr. Ford, to be at his disposal to allow to any member of my family whom he may think proper; The payments to commence from the 25th of December, 1843.
January 31st, 1844‑‑‑‑To this agreement I am a consenting party.‑ ‑‑‑J. FORD.”
William Beech was privy to this agreement.
20. Disputes afterwards arose between William and Alfred Beech and John Ford. On the 19th August, 1844, Ford commenced an action in the Queen’s Bench against William Beech to recover the sum of b 440 which was made up of principal and interest on the two notes and a sum of 15 claimed to be due on another transaction.
21. William and Alfred Beech filed bill in December, 1844, against John Ford and Elizabeth alleging the performance of the agreement on the part of Alfred and in particular that it was arranged between William, Alfred Beech and Ford that the sum of 6, 5s. per quarter, mentioned in the agreement, should be paid by Alfred Beech to Elizabeth Beech herself instead of being paid to Ford for her use and that between the date of agreement and the 25th of June, 1844, when the second quarterly sum became payable Alfred Beech had, in pursuance of the arrangement, paid or caused to be paid to Elizabeth Beech diverse sums of money, amounting in the whole to more than 12, 10s. The bill prayed a decree for the specific performance of the agreement of the 31st January, 1844, and that the sum of money to be paid by. Alfred Beech might be secured for the benefit of Elizabeth Beech; that if necessary, a trustee might be appointed in the room of Ford;’ that Ford might be restrained by injunction from proceeding with his action upon the two promissory notes; and that the notes might be delivered up to be cancelled.
22. Ford, by his answer; denied that any arrangement had been made between himself and Alfred Beech for the payment of the quarterly sum by the latter directly to his sister Elizabeth; and on the contrary, Ford said that he had always stipulated that such payments, which were his bounty to Elizabeth Beech, should be received by himself and administered or paid to her by himself:
23. On the plea of set‑off William Beech obtained a verdict in the action in his favour from the Queen’s Bench on the 17th December, 1846. When the cause initiated by William and Alfred Beech against John Ford came up for hearing before the Vice‑Chancellor’s Court in June, 1847, it appeared that John Ford had brought his error to reverse the judgment. The cause of William and Alfred Beech was directed to stand over until the decision of the Court of Error should be known. The judgment of the Queen’s Bench was afterwards reversed in the Exchequer Chamber.
24. The question for decision which came up before the Exchequer Chamber was whether the agreement of the 31st January, 1844, operated as a legal suspension of Ford’s right to sue upon the notes so long as Alfred Beech should continue to make the quarterly payments or whether the effect of the agreement was limited to rendering Ford liable to an action for damages in the event of his suing contrary to its terms. Applying the common and universal principle of construction that the agreement ought to receive that construction which its language would admit and which would best effectuate the intention of the parties to be collected from the whole of the agreement and that greater regard was to be had to the clear intent of the parties than to any particular words which they might have used in the expression of their intent, the Court of Error found that it was quite clear that it was not the intention of the parties that the agreement should have the effect from the moment of its being signed, of utterly and for ever and in all events extinguishing the plaintiff’s claim and demand upon the notes and of ever maintaining an action for the recovery or in other words that it should operate as a release of the money due from the defendants. The Court noticed the very old and well‑established principle of law that the right to bring a personal action, once existing and by act of the party suspended for ever so short a time, was extinguished and discharged and could never revive. The Court refused to construe the agreement to operate as a legal suspension of the plaintiff’s right to sue and to give to the agreement the effect of an immediate release of the demand upon the notes and an extinction of the debt. It construed the agreement to mean that Ford had agreed to forbear his suit until the quarterly payment should cease to be made and that the effect of agreement on his part was not to, suspend the right of action in the meantime but to subject him to an action for damages in the event of his suing contrary to his agreement.
25. The Court further observed that the only case in which a covenant or promise not to sue was held to be pleadable as a bar or to operate as a suspension and by consequence a release or extinguishment of the right of action, was where the covenant or promise not to sue was general, not to sue at any time. On the authority of Fowel v. Forrest 2 Wms. Saudn. 47 gg. , the Court held that in such cases in order to avoid circuity of action, the covenant might be pleaded in bar as a release, for the reason assigned, that the damages to be recovered in an action brought for suing contrary to the covenant would be equal to the debt or sum to be recovered in the action agreed to be forborne. It quoted the rule laid down in Thimbleby v. Barron 3 M & W 210 that a covenant not to sue for a limited time for a simple contract debt could not be pleaded in bar to an action for such debt. The judgment determined that the performance by Alfred Beech of the agreement of the 31st January, 1844; could not at law be pleaded in bar to an action by Ford upon the notes and that Alfred Beech, if damnified by such action, must seek compensation by a cross action.
26. The cause brought by William and Alfred Beech against Ford came up for hearing before the Vice‑Chancellor’s Court in June, 1848. The Vice‑Chancellor construed the agreement as a contract by Alfred Beech to provide for Elizabeth Beech the annuity of 25 or gross sum of 200 as the substitute for the two notes and by John Ford that the two notes should thenceforth be only a security for the performance of such contract and not as an agreement, under which the original right of the payee, John Ford, against the maker, William Beech, would revive on his failure of the quarterly payments by the brother. Alfred Beech was held to be entitled to the specific performance of agreement in equity, not on the ground of circuity of cross action which the rule of law occasioned, but on the ground that the Chancellor’s Court, by modifying its decree, could give to all parties the benefit of the agreement, while a Court of law, being unable to modify its judgment, could not give one party the benefit of the agreement without depriving another party of such benefit. Alfred Beech was ordered to pay to Elizabeth Beech the balance of 200 due to her and on such payment satisfaction of the judgment and the action started by John Ford in respect of the two notes was to be entered up.
27. In Gibbons v. Vouillon 137 English Reports 596, an agreement was entered into between the defendant of the first part, three individuals named as trustees of the second part and the plaintiff and certain other persons, creditors of the defendant, of the third part, providing that the defendant, who was unable immediately to satisfy his debts due to the parties of the second and the third parts, should have a letter of licence permitting him to carry on business, under the inspection of the trustees, for five years and in pursuance of the agreement the parties of the second and the third part, by indenture bearing the date of the 17th of May, 1843, gave and granted to the defendant until the 17th of May, 1848, or until the licence was revoked under the provisions of the indenture, full and free licence and authority to carry on business, and it was provided that, if any of the said persons parties thereto of the second or the third part, should, at any time thereafter during the continuance of the licence thereby granted, molest or interfere with the defendant, contrary to the true intent and meaning of the said indenture, the defendant should be released, exonerated, acquitted and forever discharged of and from the debts and demands whatever which were due to, or then could be made by, the creditor or creditors respectively by whom the said letter of licence thereinbefore contained, should in any respect be contravened, and of and from all manner of actions, suits, etc. by reason, on account, o. in consequence of the same debts or demands respectively, and that the said indenture should or might be pleaded in bar to such respective debts or demands accordingly. The plaintiff commenced suit before the expiry of the term of five years mentioned in the indenture for the realization of his debts. The plaintiff’s action was considered to amount to molestation or interference with the defendant and the indenture was held to operate as defeasance and pleadable in bar as such. The Court concluded that there was clear and manifest intent, to be collected from the deed, that it would operate as a release, from the happening of the event which the parties contemplated, namely, the molestation which had happened by bringing of action by the plaintiff.
28. The decision in the case of Newington v. Levy (1870) L.R. 6 C.P. 180) rests on the principle of res judicata. The facts of the case are quite simple. The plaintiff was the holder of a bill of exchange dated the 16th March, 1868, payable after six months which had been accepted by the defendant. The plaintiff brought action upon the bill and the defendant delivered plea on the 3rd November, 1868, setting up a release under composition deed entered into (after the commencement of action, namely, on the 8th October, 1868) under the provisions of the Bankruptcy Act, 1861, between himself and his creditors of whom the plaintiff was one, by which deed the creditors released the defendant from their respective debts on the condition that the defendant pay the creditors composition of one shilling in the pound, in two instalments, 6d on the 6th April, 1869, and on the 6th October, 1869. No payment was made by the defendant by the 6th April, 1869. The plaintiff put in replication on the 13th April, 1869, that the instalment due was unpaid and the release consequently became void. The defendant; however, rejoined that his omission to establish the instalment on the 6th April, 1869, was a mere mistake and that he had tendered the amount before replication and had since always been ready to pay the instalment into Court. That being a good answer in equity to his replication the plaintiff confessed the plea and claimed and received his costs. The judgment was accordingly entered for the defendant. Two months later the plaintiff brought second action upon the same bill and the defendant in his plea set out all the proceedings in the first action. The plaintiff replied, as before, the non‑payment of the instalment of composition due on the 6th April, 1869. To this replication the defendant demurred. The decision of the first action was held to operate as res judicata to the second action.
29. The question which was raised in Slater v. Jones and Capes v. Ball (1873) L.R. 8 Ex. 186 was whether or not, in cases where an extraordinary resolution had been agreed to and passed under section 126 of the Bankruptcy Act, 1869, to accept a composition payable by instalments or at a future time, creditors who were bound by or had agreed to that resolution were disabled from suing for their respective debts before the time for payment of the composition agreed to be accepted in satisfaction of the debt, or of any instalment of it, had arrived. It was held that no such creditor who was a party to or was bound by such resolution could bring an action for his original debt until default by the debtor in payment of the composition or an instalment thereof had taken place and that to any such action brought before such default such resolution formed a good plea in bar. Distinction between operative provisions of the earlier Bankruptcy Act, 1861, to which reference had been made during the course of arguments before the Court of Exchequer, and Bankruptcy Act, 1869, was noticed. Under and in compliance with the provisions of the earlier Act composition deeds were framed which differed from one another in their several conditions and the effect of each was considered with reference to the facts of a particular case. In some cases the operation and effect of the deed was to extinguish the original debt absolutely, in others it was not so. Where a release or words which were equivalent to a release were contained in the deed, the deed was pleadable in bar but otherwise it was not so. Consequently the terms of the deed itself had to be considered in each case in order to ascertain what were the intentions of the parties as to the deed being a bar or not; but in the Act of 1869 composition deeds were no longer required; in their stead the Act made a resolution of the creditors when passed with certain prescribed formalities binding on all the creditors whose names and addresses with the amount of their respective debts were shown in a statement to be produced by the debtor at the meeting at which that resolution was passed. The statute, without any reference to the terms of the resolution, enacted “the creditors of a debtor unable to pay his debts may, by an extraordinary resolution resolve that a composition shall be accepted in satisfaction of the debts due to them from the debtor.” So it was the passing of resolution which determined the satisfaction of the debts.
30. In Walker v. Nevill (1864) 34 L.J. Ex.73 the plaintiff sued the defendants upon a bond for the recovery of debt. Defendant Nevill pleaded in bar a deed of composition under section 192 of the Bankruptcy Act, 1861, containing the covenant not to sue for a limited time and also expressly providing that during such limited time the deed might be pleaded in bar. It was held that the covenant in the deed by the defendant not to sue for a limited time was under the circumstances reasonable because there was an express provision that during the limited time the deed might be pleaded in bar. The judgment was recorded for the defendant.
31. A quick survey of various cases involving interpretation of insurance agreement restricting time for bringing action by the insured decided by the superior Courts of Pakistan and India may now be undertaken. The earliest reported case brought to our notice is of M. A. Ywet v. The China Mutual Life Insurance Company Limited 1911 Indian Cases 756. This was a contract of life insurance policy.. Clause VII of the contract runs as follow:‑‑
“No suit of recovery under this policy shall be brought after one year from the death of the assured.”
The suit was of course brought after more than a year of the death of the assured. The life insurance company pleaded the above clause of contract in bar of action. It was suggested by the plaintiff that the condition was unreasonable and unlawful, but the Small Cause Court of Rangoon, relying upon what had been mentioned in J.B. Porter’s Laws of Insurance, judged the condition to be neither unreasonable nor unlawful. Accordingly it found the suit barred and dismissed it with costs. However, in appeal the Lower Burma Chief Court considered the condition to be void under section 28 of the Contract Act, 1872. The judgment, which is quite brief, by the Chief Court is as follows:‑‑
“The Judge of the Small Cause Court has held that a condition in a life policy saying that no suit shall be brought on the policy after one year from the death of the assured is a reasonable condition and valid one. Section 28 of the Contract Act clearly makes such a condition void. The decree is set aside and the case is remanded to the Small Cause Court to be tried on its merits.”
32.Hirabhai Narotamdas’ case 16 Indian Cases 1001 has already been dealt with. Then comes the case of Baroda Spinning and Weaving Company Limited v. Satyanarayan Marine and Fire Insurance Company Limited AIR 1914 Bom. 225 (2) which has been analysed in detail above. The Courts in subsequent cases heavily relied upon and followed this case to uphold the validity of the condition of the insurance contract limiting time for bringing action.
33. In Girdharilal Honuman Bux v. Eagle Star and British Dominions Insurance Company Limited AIR 1924 Calcutta 186 the issue whether the plaintiffs had by reason of their failure to commence suit within three months of the rejection of their claim forfeited all benefits under the provisions of the condition of the insurance policy and if so whether their suit was maintainable was decided following the reasoning given in the cases of Hirabhai Narotamdas v. The Manufacturers Insurance Company and Baroda Spinning and Weaving Company Limited v. Satyanarayan Marine and Fire Insurance Company Limited. The contention on behalf of the plaintiff that the condition was void under the provisions of sections 23 and 28 of the Contract Act did not find favour with the Court. To endorse reasonableness of the condition support was derived from the observation made by the Privy Council in Home Insurance Company of New York v. Victoria‑Montreal Fire Insurance Company (1907) A.C. 59 and the statement found in Porter’s Laws of Insurance that;
“Insurers may lawfully limit the time within which an action may be brought to a period less than that allowed by the Statute of Limitations and that the true ground on which the clause limiting the time of claim rests and is maintainable is that, by the contract of the parties, the right of indemnity in case of loss and the liability of the company therefor did not become absolute unless the remedy is sought within the time fixed by the condition in the policy.”
34. In G.Rainey v. Burma Fire & Marine Insurance Company Limited AIR 1926 Rangoon 3, A.N. Ghose v. Reliance Insurance Company AIR 1934 Rang. 15 and the Rubi General Insurance Company v. Bharat Bank AIR 1950 (East) Punjab 352 the condition was, following the reasoning employed in the Baroda Spinning and Weaving Company case, found to be valid. Arguments describing it to be against public policy and void under the Contract Act were repelled in G.Rainey
and Rubi General Insurance Company cases; the Courts stressed the importance of making early claims against insurance companies so that companies should have opportunities of investigating the facts and obtaining evidence when the matters were fresh so as to measure the liability to the extent of damage caused with a certain amount of accuracy because lapse of time resulted in all kinds of claims which were not capable of determination with any amount of exactitude. In Dawood Tar Mahmed Bros. v. Queensland Insurance Co. Ltd. AIR 1949 Cal. 390, the Court simply followed the fule in A . N . Ghose v . Reliance Insurance Company AIR 1934 Rang. 15, whose decision in turn was based on the reasoning of Baroda Spinning and Weaving Company’s case and rejected the argument of the plaintiff that the clause limiting time for bringing action was against public policy and void.
35. In Full Bench judgment of Pearl Insurance Company v. Atma Ram A I R 1960 Punjab 236 the state of law obtaining in England and the United States of America touching the validity of agreement providing for period of limitation shorter than the one prescribed by the statute of Limitation for bringing an action on an insurance policy was noticed. After reviewing the case‑law on the subject the Court proceeded to uphold the validity of the clause principally on the following grounds:‑‑
(1) The primary duty of a Court of law is to enforce a promise which the parties have made and to uphold the sanctity of contracts into which the parties have an unfettered right to enter provided they are not opposed to public policy or are not hit by any provision of the law of the land.
(2) The object and exigencies of insurance are such that promptitude in asserting or enforcing a claim and also in its settlement was of the essence. The Insurance Companies would thus be justified in putting a time limit within which the claim must be enforced: otherwise all rights under the policy would come to an end.
(3) A clause of this nature does not provide a different period of limitation from the one prescribed by the Indian Limitation Act. Notwithstanding the existence of the clause, it is open to the insured to maintain an action within three years as prescribed by the Limitation Act subject to the Company waiving the clause although under the Limitation Act the suit must be dismissed if instituted after the expiry of the prescribed period and the waiver is wholly ineffective.
(4) A contract may contain within itself the elements of its own discharge express or implied for its determination in certain circumstances.
(5) As the clause does not limit the time within which the insured could enforce his rights and only limits the time during which the contract will remain alive it is not hit by the provisions of Section 28 of the Contract Act.”
The reasoning running through the Baroda Spinning and Weaving Company’s case greatly influenced the Court to formulate its decision and discard the arguments advanced on behalf of the insured that such a condition was against public policy and void under the Indian law of Contract and Limitation.
36. As is apparent from para. 23 of its judgment in Vulcan Insurance Co., Ltd. v. Maharaj Singh A I R 1976 S C 287 the Supreme Court of India did not actually decide the crucial question of limitation; it rested its observations regarding the validity of clause 19 of the Contract of Insurance on what had been laid down in Baroda Spinning and Weaving Company’s case and the cases which followed. It said:‑‑
“We do not propose, as it is not necessary, to decide whether the action commenced by respondent No.l under section 20 of the Act for the filing 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; vide Baroda Spinning and Weaving Co. Ltd. v. The Satyanarayan Marine and Fire Insurance Co. Ltd., ILR 38 Bom. 344 = (AIR 1914 Bom. 225(2)); Dawood Tar Mahomed Bros. v. Queensland Insurance Co. Ltd., AIR 1949 Cal. 390 and The Ruby General Insurance Co. Ltd. v. The Bharat Bank Ltd. AIR 1950 (East) Punjab 352.”
In Sargodha Central Co‑operative Bank Limited v. New Hampshire Insurance Company P L D 1982 Kar. 627 a learned Single Judge of the Sind High Court dismissed the insured’s suit, inter alia, on the ground that the insurance company was not liable in terms of clause 19 of the policy of the contract of insurance after the expiration of 12 months from the happening of the loss which had occurred on the 23rd May, 1962, though on merits he found that the insured had suffered loss to the extent of Rs.2,20,766.50 as per report of the surveyor appointed by the insurance company. In appeal before a Division Bench it was urged on behalf of the insured‑appellant that clause 19 of the insurance policy in fact curtailed the period of limitation for filing a suit and, therefore, was hit by sections 23 and 28 of the Contract Act, 1872. After passing through cases referred to above dealing with the issue the High Court deemed it appropriate to follow the principle of stare decisis and did not disturb the validity of clause 19 of the insurance contract. In reaching the conclusion it made the following observations:‑‑
“Since the High Courts in India have for about 70 years consistently taken the view that a clause in the insurance policy limiting liability of the insurance company for a certain period does not hit section 23 of the Contract Act, in our view it will not be just and proper to upset the above view after the expiry of such a long period Since for the last 70 years the clauses identical with the clause of insurance policy had been construed as having not violated section 23 or 28 of the Contract Act and, therefore, are enforcible, in our view the parties to the insurance contracts are presumed to have known the above legal position. It will, therefore, not be just and proper to hold now that the clause in question violates section 23 or 28 of the Contract Act. The appellants /plaintiffs while entering into the contract of insurance ‘are presumed to have understood that the respondent/defendant would be liable for a period of 12 months.”
38. It may be pertinent to take note of Lord Herschell’s advice, of which Batchelor, J., was conscious and which has come to be Lahore All Pakistan Legal Decision accepted as one of the standard measures of interpretation of codifying statutes, rendered in the case of Bank of England v. Vagaliano Brothers (1891) A.C. 107, which turned upon the Bills of Exchange Act, 1882, the first English Act which could be said to have the qualities of a code. The noble Lord, in discussing the opinions of the Court of Appeal, said:
“My Lords, with sincere respect for the learned Judges who have taken this view, I cannot bring myself to think that this is the proper way to deal with such a statute as the Bills of Exchange Act, which was intended to be a code of the law relating to negotiable instruments. I think the proper course is in the first instance to examine the language of the statute and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will bear an interpretation in conformity with this view.
If a statute, intended to embody in a code a particular branch of the law, is to be treated in this fashion, it appears to me that its utility will be almost entirely destroyed, and the very object with which it was enacted will be frustrated. The purpose of such a statute surely was that on any point specifically dealt with by it, the law should be ascertained by interpreting the language used instead of, as before, by roaming over a vast number of authorities in order to discover what the law was, extracting it by a minute critical examination of the prior decisions, dependent upon a knowledge of the exact effect even of an obsolete proceeding such as a demurrer to evidence. I am of course far from asserting that resort may never be had to the previous state of the law for the purpose of aiding in the construction of the provisions of the code. If, for example, a provision be of doubtful import, such resort would be perfectly legitimate. Or, again, if in a code of the law of negotiable instruments words be found which have previously acquired a technical meaning, or been used in a sense other than their ordinary one, in relation to such instruments, the same interpretation might well be put upon them in the code. I give these as examples merely; they, of course, do not exhaust the category. What, however, I am venturing to insist upon is, that the first step taken should be to interpret the language of the statute, and that an appeal to earlier decisions can only be justified on some special ground.
One further remark I have to make before I proceed to consider the language of the statute. The Bills of Exchange Act was certainly not intended to be merely a code of the existing law. It is not open to question that it was intended to alter, and did alter it in certain respects. And I do not think that it is to be presumed that any particular provision was intended to be a statement of the existing law, rather than a substituted enactment.”
39. The Lord Chancellor, Lord Halsbury, in his speech ‘(at page 120 of the report) warned against going outside a statute which codifies the law in the following words:
“It seems to me that, construing the statute by. adding to it words which are neither found therein nor for which authority could be found in the language of the statute itself, is to sin against one of the most familiar rules of construction, and I am wholly unable to adopt the view that, where a statute is expressly said to codify the law, you are at liberty to go outside the code so created, because before the existence of that code another law prevailed.”
40. It is of utmost importance to keep in view the fundamental difference between the English and Indian (as also Pakistani) laws of contract and limitation touching curtailment of the statutory period of limitation by agreement of the parties. Whereas under the English law it is permissible to agree to a period of limitation shorter than the one prescribed by the statute for bringing an action it is not possible to do so according to the law prevailing in India and now in Pakistan. Some of the peculiarities of the Limitation Act, 1908, in the sphere of its interpretation and application, in the light of judicial pronouncements, whose name is legion, may be usefully noticed. The Limitation Act, 1908, a consolidating and amending statute, is exhaustive of all matters dealt with by it and the Courts are not permitted to travel beyond its provisions to add to or to supplement D them. The High Court has no powers by rules to add to or modify the provisions of the Limitation Act except when such power is conferred upon it by statutory authority Ghunilal Jethabhai v. Barot Dhyabhai Amulakh, (1907) ILR 32 Bom. 14 (FB), Narsingh Sahai v. Sheo Prasad, (1918) ILR 40 All. 1 (FB) and Bhairan Ghulam v. Ram Autar Singh, (1921) I.L.R. 43 All. 660 (FB), refer. The inherent powers of the Court cannot override the statute of limitation. More than one decision of the Privy Council, for example, Nagendranath De v. Sureshchandra De (1932) I L R 60 Cal. 1 (PC), Maqbool Ahmad v. Partap Narain (1935) I.L.R. 57 Allahabad 242 (PC), Ariff v. Jadunath Majumdar (1931) I.L.R. 58 Calcutta 1235 (PC), has insisted that matters dealt with by the Limitation Act should be determined S according to true construction of the words used by the legislature and equitable considerations cannot be applied so as to override and abrogate the express provisions of the Act. It is not within the competence of the Court or of the parties to ignore or waive the statute Kundomal v. Daulat Ram Vidya‑Prakash, AIR 1940 Lah. 75. When the legislature in its wisdom has fixed a period of limitation for a particular action, it is not within the province of the Court to alter, much less shorten it by interpreting the provision in the name .1 of considerations of expediency. It is not open to parties to alter the prescribed period of limitation or to contract themselves out of the operation of the statute. An agreement contracting out of the statute of limitation can never have the effect of preventing the period of limitation from running out Jawaharlal v. Mathura Prasad (1934) I.L.R. 57 Allah. 108 (FB).
41. Section 28 enacted into the Indian Contract Act, 1872, which codified the law of contract for the first time in India marked a departure from the English law which allowed limiting by agreement of time within which a party could enforce his rights. Therefore, it would have been in consonance with the advice of Lord Herschell given in Bank of England v. Vagaliano Brothers, reproduced above, to interpret the relevant clause of the insurance agreement as also section 28 itself according to the plain language and natural meaning uninfluenced by any consideration derived from the previous state of law. Analysis of English cases referred to and relied upon by Scott, C.J., and Batchelor, J., in support of their views, does not indicate any similarity of facts and situation with the case in hand. It may be submitted with respect that “the import of implications and effects of the agreements and statutory provisions involving forbearance to sue for some time in the circumstances which were wholly alien to those obtaining in Baroda Spinning and Weaving Company’s case was hardly justifiable for the purpose of interpretation of the insurance agreement and section 28 of the Contract Act.
42. When we look at the real meaning of the relevant clauses of the agreement in question, the object they intend to achieve and the intention of the parties behind them it brings us to the one and the only conclusion that the plaintiff is debarred for ever after the expiry of the stipulated time of (three or twelve months), which falls short of the statutory time of limitation, from enforcing his rights by an action in a Court of law or elsewhere. It is immaterial whether the words expressing forfeiture of benefit or rights on the expiry of three months after rejection of claim or words limiting the time within which rights can be enforced are used; the net result and effect of the either is that the plaintiff’s choice to enforce his rights is limited F to the period of three (or twelve) months and he cannot avail of the extended period of limitation allowed by law. The contract looked at and interpreted as a whole leads to the only conclusion that the time for enforcing plaintiff’s rights has been curtailed. Forfeiture of his rights if the action is not brought within three months is just equivalent to fixing the period within which he can enforce his rights within the bounds of three months. The distinction between the two phrases, forfeiture of benefit or rights upon the expiry of three months or limiting of time to three months within which one could enforce his rights noticed in Baroda Spinning and Weaving Company’s case is just of phraseology and artificial; the two lead to the same destination of blocking the way of the plaintiff to enforce his rights in a Court of law. It is not permissible to frustrate and nullify the object of law by employment of selected phraseology in a contract because if such a course were to be allowed to be adopted it would amount to giving a licence to the parties to contract out of the Limitation Act which is otherwise forbidden by law to do. By trickery of words no one can be permitted to get at where the law forbids to tread. It would be unconscionable to rob an insured of his statutory right to bring an action within the much larger period of three years as envisaged by Article 86 of the First Schedule of the Limitation Act, 1908, and instead to force him to exercise his right within the much shorter period. A contract, like the one in hand, which essentially reduces the statutory period of limitation for enforcing one’s rights through usual legal proceedings, cannot but be adjudged to be void. in the light of section 28 of the Contract Act.
43. The decision in Baroda Spinning and Weaving. Company’s case has been frequently questioned and debated, and accepted not with absolute veneration, as is apparent from the judgments of the High Courts of Pakistan and India referred to above. Nevertheless, the all important question which now arises for consideration is whether the interpretation of the law declaring the legality of the conditions of contract of insurance under review, which originating from this decision has held the field for almost three‑quarters of a century, should be disturbed. Successive affirmations by judicial pronouncements have made it assimilate in the mainstream of the law of insurance and have reinforced the business community’s belief in its correctness. The people involved in the fire and lightning insurance business, insurers as well as insured, are acceptably of above average means, knowledge and intelligence and generally have ready access to legal advice. They can very well be presumed to be aware of the implications and effects of various clauses of insurance contract laying restrictive time limits for making claims and initiating actions. They have been entering into contracts, settlements and fiscal arrangements on the basis of the law propounded by the Courts. No serious inconvenience or injustice would flow from allowing the law to stand rather its overruling would be productive of inconvenience. In order to ensure certainty and consistency in the law and to preserve the sanctity of precedent as a good source of law it would be eminently just and proper to follow the principle of stare decisis as in such cases the superior Courts, to quote just a few of the distinguished pronouncements, John Barin v. Richard Fothergill L.R. 7 H.L. 158, The London Street Tramways Company Limited v . The London County Council (1898) A.C. 375, Manager, Jammu and Kashmir State Property in Pakistan v. Khuda Yar P L D 1975 S C 678, Pir Bakhsh v . The Chairman, Allotment Committee P L D 1987 S C 145, have done Consequently despite the views expressed above I would be reluctant to cause the least disturbance to the prevailing state of law.
KHALIL‑UR‑REHMAN KHAN, J.‑‑The question referred to the Full Bench for determination is, whether or not the conditions of contract of insurance incorporated in the Insurance Policy providing for
“(a) forfeiture of all benefits under the policy if no action or suit is commenced within three months of the rejection of the claim (if made) or (in case of an arbitration taking place) after. The arbitrator or arbitrators or umpire shall have made their award.”
and stipulating that
“(b) in no case whatever is the insurance company to be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is subject of pending action or arbitration”
are void under section 28 of the Contract Act 1872.
2. The aforenoted question was raised while arguing two cases namely Messrs Ali Pipe Industries v. Universal Insurance Company Ltd. and others (R.F.A. No.101/83) and Messrs Central Insurance Company Limited v. Mallick Canvas Industries and others (C.R. No.1026/87).
The relevant facts of the case of Ali Pipe Industries are that a suit for recovery of Rs.22,00,000 was filed against the Insurance Company on account of loss suffered due to lightning which struck the factory causing damage to the building and machinery on the night between 25/26‑5‑1979. The company rejected the claim on 18‑7‑1979 asserting that the loss is not payable under the Fire Insurance Policy. The proposal to have the matter resolved through arbitration was also not accepted and this led to the filing of suit on 7‑12‑1980. The suit was resisted by the Insurance Company inter alia on the grounds that clause 19 of the Policy shows that it was specifically agreed between the parties that Company was not liable for any loss or damage after the expiry of 12 months from the happening of loss or damage unless the claim was subject of pending action or arbitration. The alleged loss in the present case happened on the night between 25/26‑5‑1979, the defendant rejected the plaintiff’s claim on 18‑7‑1979 and the suit was instituted 12 months after the date of loss, so the Company was not liable to make payment. The plaintiffs counsel further argued that the plaintiff has not signed the Policy, therefore, he was not bound by the terms and conditions laid down in the, policy. The learned Trial Court with regard to the second submission, observed that the plaintiff is blowing hot and cold in the same breath, as on the one hand he claims losses on the basis of policy in question and on the other hand, he disaffirms it. As regards the first submission, it was held that the plaintiff can only institute the suit within 12 months from the date of occurrence which he did not, therefore, the suit was barred by time. The learned trial Judge also relied on Sargodha Central Co‑operative Bank Ltd. v. New Hampshire Insurance Company (P L D 1982 Kar. 627) for holding that the clause was not hit by Section 28 of the Contract Act. The suit was accordingly dismissed vide judgment and decree dated 7‑2‑1983. This led to the filing of the first appeal.
3. The relevant facts of the civil revision filed by Central Insurance Company are that a suit for recovery of Rs. 97,50,000 was filed by Malik Canvas Industries against the Central Insurance Company and others to recover losses caused by fire in the factory godown on the night between 10th and 11th April, 1985 on the basis of Fire Insurance Policy issued by the petitioner. The claim was submitted and the Surveyors were appointed who submitted report on 28‑7‑1985. The Insurance Company, the petitioner, vide letter, dated 1‑8‑1985 declined to entertain the loss and rejected the claim. The respondent, plaintiff then filed suit for recovery on 9‑4‑1986. This suit was resisted by the Insurance Company inter alia on the grounds that the suit having been filed after the expiry of three months from the date when the claim was rejected as admitted in para. 8 of the plaint, all benefits under the policy in question stood forfeited in terms thereof on the expiry of three months and as such the suit was liable to be dismissed on this score alone. The learned Trial Court framed necessary issues arising out of the pleadings of the parties including the issue, whether the suit is liable to be dismissed having been filed after three months from the date of rejection of claim. The matter was then adjourned for production of evidence by the plaintiff /respondent. Thereafter, an application was submitted by the Insurance Company praying that the issues on law, particularly issue No.2 (above quoted) be determined first. This application was dismissed by the learned trial Judge vide order dated 19‑6‑1987 observing that the matter can be decided within a fortnight if the parties produce their evidence and that issue No.2 involves the questions of fact as well as law like other issues viz. issues Nos. 1, 3 and 4 and that if any finding is given on issues Nos. 1 to 4 one way or the other, the case would be subjected to double trial. The plaintiff was. therefore, directed to produce its evidence on all issues. This order was then challenged by the insurance Company in revision jurisdiction. The learned Judge before whom the regular first appeal and the civil revision came up for hearing, framed the aforenoted question for reference to a larger Bench. This is how the question came to be referred to us.
4. Learned counsel for the plaintiffs in the two suits contended that Section 28 of the Contract Act marked a departure from English law which permits parties to limit by agreement the time within which the right may be enforced, but the parties in India and Pakistan in view of the provisions of Sections 23 and 28 of the Contract Act 1872, are not permitted to opt or contract out of statute. It was argued that it is neither within the competence of the Court nor the parties are allowed to ignore, override or waive the statute of Limitation prescribing the period within which rights may be enforced; that Limitation Act does not make distinction between the rights and remedies and a conditional agreement to forfeit rights after lapse of the period within which the remedy was not barred by the law of Limitation was a void agreement; that however valid and important in law be the distinction between the barring of remedy and extinguishment of a right yet to a man of business it was much the same thing whether his right be gone or remedy for enforcing the right be barred. It was added that under the two clauses, in essence, the insured is debarred for ever after the expiry of stipulated time (3 or 12 months which falls short of statutory time of limitation) from enforcing his right by an action in a Court of law.
5. The arguments of the learned counsel for the plaintiff‑insured are premised on the premises that Article 86, Limitation Act, applies’ to the Fire Insurance Policy in question and clauses 13 and 19 of the Policy are in conflict with Article 86 and as such the covenant contained F in these clauses is of no legal consequence in view of the provision contained in Section 28, Contract Act, which debars a party to opt out of a Statute or contract out of liability. The very premises on which the entire edifice of the argument rests, in my humble view, is unfounded and non‑existent. To bring the point home, perusal of the relevant clauses of law is necessary.
6. The relevant clauses of Fire Insurance Policy read:
Clause 13 runs as follows:
“If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the insured or any one acting on his behalf to obtain any benefit under this policy; or, if the loss or damage be occasioned by the wilful act, or with the connivance of the insured; or if the claim be made and rejected and an action or suit be not commenced within three months after such rejection, or (in case of an arbitration taking place in pursuance of the 18th condition of the policy) within three months after the arbitrator or arbitrators or umpire shall have made their award, all benefits under this Policy shall be forfeited.”
Condition No.18 of the policy is reproduced as follows:‑
“If any difference arises as to the ,amount of any loss or damage such difference shall independently of all other questions be referred to the decision of an arbitrator to be appointed in writing by the parties, in difference, or if they cannot agree upon a single arbitrator, to the decision of two disinterested persons as arbitrators, of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of notice in writing requiring an appointment. the party shall be at liberty to appoint a sole arbitrator; and in case of disagreement between the arbitrators. the differences shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or affect the authority or powers of the arbitrator, arbitrators or umpire respectively: and in the event of the death of an arbitrator or umpire, another shall in each case be appointed in his stead by the party or arbitrators (as the case may be) by whom the arbitrator or umpire so dying was appointed. The cost of the reference and of the award shall be in the discretion of the arbitrator or arbitrators or umpire making the award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be firsi obtained.”
Clause 19 runs as follows:‑
“In no case whatever shall the Company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration.”
As against these clauses, Article 86 of the first schedule of the Limitation Act 1908 provides as under:
Description of suit. Period of Time from which
Limitation. period begins to run
(b) On a policy of insurance
when the sum insured is Three (b) the date of the
payable after proof of years. occurrence causing
the loss has been given loss.
or received by the insurers.
Section 28 of the Contract Act is as under:‑
“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.”
7. Article 86(b) allows three years period from the date of occurrence causing the loss for filing a suit on a policy of insurance when the sum insured is payable “after proof of the loss has been given or received by the insurers”. The provision envisages the; filing of a suit when the sum insured is payable after proof of the loss; in other words when proof of loss has been made and insured sum becomes payable. It is also apparent that when the sum insured has not become payable immediately provision of Article 86(b) has no application. The cases in hand do not also fall within Article 115 which is a sweeping Article for all cases of breach of contract not specially provided for in the Act. See Province of West Pakistan v. Muhammad Ibrahim P L D 1972 Quetta 58 and Bharat National Bank Ltd. v. Bishan Lal AIR (1931), 13 Lah. 448(455). Article 115 is a general provision applying to all actions ex contractu not provided for otherwise. It applies inter alia to what are known in English Law as implied contracts which rest merely on construction of law and in which there is strictly speaking, no agreement of the parties to the terms of which they are bound. (See Nand Lal v. Partab Singh (1922), 3 Lah. 326(328), Maharaya Kumar Gopal Saran v. Chaukari, Lal (1933), 12 Pat. 792. It will be seen that Article 86(b) of Limitation Act does not apply to each and every contract based on insurance policy.. The use of the words “after proof of loss has been given to I or received by the insurers” necessarily restricts the application of the Article to the cases where sum insured becomes payable on submission of proof. The clause relevant for the purposes of seeing as to when the claim becomes payable under the Fire Insurance Policies in two cases is clause 11. It provides that on the happening of any loss or damage the insured shall forthwith give notice thereof to the Company, and shall within 15 days after the loss or damage or such further time as the Company may in writing allow in that behalf, deliver to the Company:
(a) a claim in writing for the. loss and damage containing as particular an account as may be reasonably practicable of all the several articles or items of property damaged or destroyed and of the amount of the loss or damage thereto respectively having regard to their value at the time of the loss or damage not including profit of any kind.
(b) Particulars of all other insurances if any.
It further provides that the insured shall at all times at his own expense produce, procure and give to the Company all such further particulars, plans, specifications, books, vouchers, invoices, documents, proofs and information with respect to the claim as required and that no claim under the policy shall be payable unless the terms of the condition have been complied with, The claim under the policy is thus payable on giving of notice forthwith and delivery of claim within 15 days or in the further period allowed in writing. All documents and other information is to be provided if so required by the Company. It will, therefore, be seen that Article 86(b) of Limitation Act as such does not apply to the Insurance Policy in question. Article 115 of Limitation Act also does not apply and as such the argument that clause 13 has the effect of shortening the period prescribed by the Limitation Act for bringing a suit against the insurer is not available at all. The cumulative effect of the clauses contained in the Insurance Policies in question is that in case of rejection of claim, the action or suit is to be instituted within three months of the rejection of claim; and in case there has been an arbitration, the proceedings are to be taken under law within a L period of three months otherwise all benefits under the policy shall stand forfeited. Then comes condition 18 which provides for arbitration if difference arises as to the amount of any loss or damage. Arbitration on account of other differences is not contemplated. If no claim is made at all nor action is commenced within one year, liability of company comes to an end. Then clause 19, containing the agreement of the parties, provides one year period for claiming or ascertaining that there has been loss and that the claimant is entitled to the insured sum. Once a claim is lodged and is rejected, then suit or action at law is to be initiated within three months or if arbitration clause applies, proceeding to have the arbitration proceedings commenced taken within three months, otherwise the parties agree that benefits accruing or rights under the policy shall stand forfeited. Such an agreement in the aforenoted situation is in no way in conflict with the provisions contained in Article 86(b) Limitation Act, 1908. It will be more true to say that the Article 86(b) does not apply to ~ the claim made and rejected in the instant two cases and as such no’, question arises of limiting the period provided by Article 86(b), Limitation Act or in other words of invoking the provisions of Section 28, Contract Act, 1872.
8. The stage is now set to examine and to determine the effect in law of the forfeiture clauses contained in clauses 13 and 19 of the Fire Insurance Policy. Whether such a clause is liable to be struck down on the grounds of public policy under section 23, Contract Act. How these clauses in Fire Insurance Policy can be sustained when ‘discharge from liability’ clauses contained in other contracts have invariably been held to be ineffective in law being in conflict with the provisions of sections 23 and 28 Contract Act.
9. The first point of distinction is the non‑applicability of the Article of Limitation Act to the Contract of insurance. The precedents namely Islamic Republic of Pakistan v. Zafarud Din Khattak and Sons (P L D 1969 Pesh. 313) and Federation of Pakistan v. M/s. Muhammad Shafi and Sons P L D 1971 Pesh. 93) wherein clause containing the words “Governor‑General shall stand discharged from liability unless arbitration or suit commenced within 3 months” were held to be void, were not cases concerning Fire Insurance and were governed by different Articles of Limitation Act. In this view of the matter the judgments viz. Nathu Mal Ram Das v. D.B. Ram Sarup & Co. and others A I R 1932 Lah. 169, Gobardhan Das v. Dau Dayal A I R 1932 All. 273 and Pherai v . Pudai Ram A I R 1925 Oudh 502 referred to in the Peshawar case are also not relevant. As regards the legal character and nature of the covenant contained in clauses 13 and 19 of the Policy, reference is invited to para 1794 pages 742‑43 of the Book “Insurance by Macgillivary and Parkington, sixth Edition”.
“Para. 1794. Construction of conditions; It is the practice of insurers to incorporate into their policies provisions to .the effect that particulars or proof of loss are to be delivered in a certain way or within a certain time. These clauses are often expressed to be conditions precedent to recovery and what has been said in relation to clauses requiring notice of loss applies with equal force to clauses requiring particulars or proof of loss. In Welch v. Royal Exchange Assurance ((1939) 1K. B.294) for example the policy provided that no claim was to be payable unless the required particulars were given within a reasonable time. It was , held by the Court of Appeal that prosecution of the particulars within a reasonable time was a condition precedent to recovery and that, even if the insured ultimately did produce them, he could not succeed in his claim. If the stipulation as to time is a condition precedent, a failure to furnish particulars puts an end to the insurer’s liability and the assured cannot revive his rights by delivering particulars at a later time. (Whyte v. Western Assurance Co. (1873) 22 L.CJ 215 P.C.). .
The benefit of any such clause can be waived by the insurer and the same principle will apply as in the case of waiver of notice clauses; Yorkshire Insurance Co. Ltd. v. Craine (1922) 2A.C. 541, a mere failure to mention the clause as a defence to a claim at an early stage will not amount to a waiver. (Whyte v. Western Assurance (Supra)).
The insurer may grant an extension of time but any conditions attached to such extension must be strictly followed. (Re. Care & Sun Fire Insurance Co. (1897) 3 T.L.R. 186).
This very. aspect of the such like covenant containing clauses under consideration has been highlighted in the Halsbury’s Laws of England Volume ?5 in paras. 423 to 425 as a condition precedent which goes to the root of the contract and its non‑performance renders the contract invalid and ineffective. The relevant extract reads:‑
The second type of condition is what is commonly described as a condition precedent of the policy. As its name indicates, it is a term going to the root of the contract in relation to its inception, that is to its validity in origin. . ‑.
“A condition subsequent is a condition dealing with the matter which arises after the policy has begun to operate. This kind of condition sub‑divides into two distinct types according to whether it is the policy itself or merely a claim under the policy which is affected in the event of non performance.
A condition subsequent affecting the policy is a condition relative in its essence to duties arising ,after the inception of the policy which by necessary intendment or express agreement, affects the continued validity of the policy in the sense that, if there is a breach, the other party may treat the policy as” at an end. (Thomson v. Weems (1884) 9 App. Cas 671. HL, New India Assurance Co. Ltd. v. Yeo Beng Chow (1972) 3 All ER 293. Glen v. Lewis (1853) 8 Exch 607, Farnham v. Royal
Insurance Co. Ltd. (1976) Lloyd’s Rep 437 and Equitable Fire and Accident Office Ltd. v. Ching Wo Hong (1907) AC 96, PC).
A condition subsequent affecting the recovery under a policy is a condition dealing with the situation where the claim has arisen or is 911pged to have arisen and prescribing the duties which have to he fulfilled if the claim is to be enforced. j A condition of this kind is to be performed before a claim can be maintained or before the enforcement of a claim in particular manner can be obtained. Such a condition is often described as a condition precedent to the maintenance or enforcement of the claim but in the strict sense it is not a condition precedent as it relates to something to be done subsequent to the commencement of the policy’s effective life and failure to comply with such a condition does not affect the essential validity of the policy itself. It may be stipulated that a claim is riot to be enforceable unless the assured has furnished the insurer with all such proofs and information with respect to the claim as may be reasonably required, if in fact, the assured has refused to furnish such information the claim becomes unenforceable then or at any time afterwards. However, a condition may be so framed that even though it relates to the making of a claim, failure to observe the requirement imposed by it will affect the continued validity of the policy. (Soe London Guarantie Co. v. Fearnley (1880) 5 APP Cas 911, Welch v. Royal Exchange Assurance (1939)1KB 294).'”
10. Another feature of clause 13 quoted above may also be noted. The stipulation to the effect that “in case of rejection of claim, action or suit is not instituted within 3 months” finds its place alongwith the stipulation that the claim be in any respect fraudulent, or any false declaration is made, or any fraudulent means or device are used etc. all benefits under the Policy shall cease. Thus, omission to initiate action at law or institute a suit within the stipulated period is agreed to be treated as fraudulent a factor which otherwise renders the most solemn contracts void and unenforceable. This omission to act promptly is treated as an act intended to deprive the insurer opportunity to verify physical circumstances surrounding inception of loss and its magnitude and thus fraudulent in intent and rendering the entire contract void and resulting into ceasing of the liability.
11. Now I intend to examine the reasons given in Baroda Spinning and Weaving Company and in the other cases decided thereafter, to see whether these reasons are in any manner weak or faulty. In the case of Baroda Spinning and Weaving Company, the relevant observations may be reproduced:
As per Scott, J:
“I cannot accept the proposition that there is no distinction in India between rights and remedies. S.28, Limitation Act. shows the cases in which the loss of the remedy will destroy the right but that does not cover suits for money such as we are now concerned with. On the other hand the loss of the right always involves the disappearance of the remedy, a very material consideration in the case of a conditional forfeiture of all benefit under a policy.
In my opinion S.28, Contract Act, is aimed only at covenants not to sue for a limited time, which had given rise to difficulty in England.”
Learned Judge, thereafter, cited cases (Ford v. Beach etc.) in illustration of the observations made and continued to say that “in order to avoid cirtuity of action, a covenant not to sue was some .,times held to be equivalent in effect to a conditional release. It was due to this reason that doubt as to the correctness of the decision in Hira Bhai’s case (1912) 16 I.C. 1001 was expressed by both the learned Judges (Scot J. and Beaman, J.) In this precedent, the clause in the Life Insurance Policy was held to be not violative of Section 28, Contract Act.
As per Batchelor, J:
“In my opinion, however, the distinction, which beyond question exists, is vital in the construction of the section. As I understand the matter, what the plaintiff was forbidden to do was to limit the time within which he is to have any rights to enforce; and that appears to me to be a very different thing.”
The reasoning of Scot, J. was accepted without much discussion by the learned Judges of the High Courts in India in all those Fire Insurance cases that came up for decision in later years. These clauses were, however, fully discussed by a Full Bench of the High Court of Punjab (India) in the case of Pearl Insurance Co. v. Atma Ram (A I R 1960 Punjab 236) and after reviewing the case‑law on the subject, the Court upheld the validity of the clause by offering the following reasons:‑
“(1) The primary duty of a Court of law is to enforce a promise which the parties have made and to uphold the sanctity of contracts into which the parties have an unfettered right to enter provided they are not opposed to public policy or are not hit by any provision of the law of the land.
(2) The object and exigencies of insurance are such that promptitude in asserting or enforcing a claim and also in its settlement was of the essence. The Insurance Companies would thus be justified in putting a time limit within which the claim must be enforced; otherwise all rights under the policy would come to an end.
(3) A clause of this nature does not provide a difficult period of limitation from the one prescribed by the Indian Limitation Act. Notwithstanding the existence of the clause, it is open to the insured to maintain an action within three years as prescribed by the Limitation Act subject to the Company waiving the clause although under the Limitation Act the suit must be dismissed if instituted after the expiry of the prescribed period and the waiver is wholly ineffective.
(4) A contract may contain within itself the elements of its own discharge express or implied for its determination in certain circumstances.
(5) As the clause does not limit the time within which the insured could enforce his rights and only limits the time during which .the contract will remain alive it is not hit by the provisions of section 28 of the Contract Act.”
The other cases from Indian jurisdiction may be noted.
The Bombay High Court in the case of The New India Insurance Co. Ltd. v. Radheshyam Motilal Khandelwal and others AIR 1974 Bom. 228 held that a suit by the insured for reimbursement brought more than three months after repudiation of the claim by the insurer is not maintainable in the light of the condition of forfeiture in the policy. The matter came up before the Indian Supreme Court in the case of Vulcan Insurance Co. Ltd. v. Maharaj Singh and another AIR 1976 SC 287 and in para 23 of the judgment after referring to long chain of cases decided by the different Courts, learned Judge observed, that repeatedly it has been held that such a clause was not hit by section 28 of the Contract Act. The matter again came before the Supreme Court of India in the case of M/s. M.G. Brothers Lorry Service v. M/s. Prasad Textiles (1984 PSC 301). It was observed that “if under a particular bargain the rights of parties were extinguished that would be permissible, that will not hit the provisions of section 28 of Contract Act and as such would not be voilative of section 23 of the said Act. But if rights are not extinguished but only remedies are barred, different consideration would apply” . In addition to the cases noticed by my learned brother Abaid Ullah Khan, J. in the judgment, two other cases viz. Assam Roadways v. National Insurance Co. (A I R 1979 Cal. 178) and Indian Drugs and Pharmaceuticals Ltd., Hyderabad v. Savani Transport P. Ltd. Hyderabad (A I R 1979 AP 41) were also noticed in the case of M/s. M.G Brothers Lorry Service v. M/s. Prasad Textiles (1984 P S C 301) by Supreme Court of India for holding that under condition
No. 15 of the Way Bill, there was neither any extinguishment of liability nor contracting out of liability but only a special period of limitation of notice was provided which was in conflict with section 10 of Carriers Act. Condition No.15, if permitted, will defeat provisions of section 10 of Carriers Act and so this condition was void in view of section 23, Contract Act. This vital distinction distinguishes the aforenoted cases from those cases whereby with the use of mere phraseology, the periods of limitation provided by the statute were sought to be by passed or ignored. That effort to bypass the statute or in other words to contract out of liability is rendered ineffective. It is equally important not only to keep secure and intact the contracts but also to sanctify the covenants entered in to by the parties with their consent freely and independently. It will, therefore, be seen that the judgments delivered and holding the field for the last 75 years were based on sound reasoning and the distinction pointed out for upholding the clauses contained in Fire Insurance Policies was real, sound and cogent. Moreover, the added reason viz. non‑applicability of the relevant Article of the Limitation Act to the Policies in question put the matter beyond controversy.”
12. This brings me to the question of stare decisis and the need if any to review the precedent law. I may mention here that on inquiry made by me, the Office reported that examination of the matters (R. F. As., Civil Revisions etc.) brought before this Court from 1967 till 1988 reveals that only in three matters the Insurance Companies pleaded in defence clauses 13 and 19 of the Fire Insurance Policy. The two matters are the cases out of which the present reference arose and the third one is Central Insurance Company Limited v. Messrs C.B. Industries Limited (C.R. No.1306/88). This aspect will be relevant for considering the question, whether the interest of justice demands reconsideration of the settled question of law which has held the field for the last almost a century. While so observing, I am conscious of the observations of the Supreme Court in the case of ;Hiss Asma Jilani v. Government of the Punjab and another (P L D 1972 S C 139) by Hamoodur Rahman, C.J. as under:
“I am not unmindful of the importance of this doctrine but in spite of a Judge’s fondness for the written word and his normal inclination to adhere to prior precedents I cannot fail to recognise that it is equally important to remember that there is need for flexibility in the application of this rule, for law cannot stand still nor can we become mere slaves of precedents . . . . . . . . . The doctrine of stare decisis cannot be invoked to sustain, as authority, a decision which is in conflict with the provisions of the State Constitution; or a decision which is in conflict with a previous statutory enactment to which the decision makes no reference, and which is made without reviewing or construing the statute, and in such a case the statute should be followed rather than the decision . …”
Again on page 170 of the report
“It is followed that the decision was set aside which has held the field for 50 years by overruling that the doctrine of stare decisis has application.”
In Manager, Jammu and Kashmir State Property in Pakistan v. Khuda Yar and another (P L D 1975 S C 678) it was held by Muhammad Afzal Cheema, J. as under:
“There are instances though very rare where even the principle of stare decisis with all the binding effect and respectability to which a consistently held age‑old view is entitled has been departed from to satisfy the paramount demands of justice. It is a matter of common knowledge that superior Courts in every country have been at times constrained to review their own judgments and considerations of unsettlement or uncertainty of law have not been allowed to stand in the way of reversing earlier decisions despite the sanctity of unanimity and their unquestioned acceptance as the law of land over a long period of time.”
I may also quote the observations by Muhammad Haleem, C.J. in the case of Pir Bakhsh v. The Chairman Allotment Committee and others (P L D 1987 S C 145) as under:
“A solemn decision upon a point of law arising in any given case becomes an authority in a like case, because it is the highest evidence which we can have of the law applicable to the subject, and the Judges are bound to follow that decision so long as it stands unreversed, unless it can be shown that the law was misunderstood or misapplied in that particular case. If a decision has been made upon solemn argument and mature deliberation, the presumption is in favour its correctness, and the community have a right to regard it as a’ just declaration or exposition of the law, and to regulate their actions and contracts by it. It would, therefore, be extremely inconvenient to the public if precedents were not duly regarded, and implicity followed. It is by the notoriety and stability of such rules that professional men can give safe advice to those who consult them, and people in general can venture to buy and trust, and to deal with each other. If judicial decisions were to be lightly disregarded, we should disturb and unsettle the great landmarks of property. When a rule has once been deliberately adopted and declared, it ought not to be disturbed unless by a Court of appeal or review, and never by the same Court, except for every urgent reasons, and upon a clear manifestation of error; and if the practice were otherwise, it would be leaving us in a perplexing uncertainty as to the law.
Precedent is the highest evidence of the law and holds the field so long it is regarded as a good law on the principle of stare decisis” .As regards the use of precedent as in indispensable foundation upon which to decide what is the law and its application to individual cases. It provides at least some degree of certainty upon which the individual can rely in the conduct of their affairs as well as a basis for orderly development of legal rules. Too rigid adherence to precedent may lead to injustice in a particular case and also unduly restrict the proper development of the law. There are, therefore, exceptions to the rigid adherence to this rule.”
It was because of these observations that inquiry was made to find out the practical effect of the application of the objected to clauses on the claims made before the Courts and to demonstrate the magnitude of the injustice if any being perpetrated on the business people. It is also to be kept in view that Fire Insurance Policies are taken out by men of business and not by a common man in street or members of general public. The men in business are expected to be aware of the terms and conditions under which they are taking out insurance of their properties. The history of the litigation for the last two decades does not show infliction of any undue hardship or injustice due to unjudicious use of the objected to clauses of the Insurance Policy by the Insurers.
13. I will add that inclusion of the covenant to the effect that in case of rejection of claims, action or suit be commenced within three months otherwise benefits under the policy will stand forfeited and treating the said covenant at par and of the same effect, as the covenant that any fraud or misrepresentation will render the policy void, is not without purpose rather there seems to be a great deal of sense in it particularly in the case of Fire Insurance or insurance against accident where the liability to the extent of damage caused when the matters are afresh can be measured with certain amount of accuracy. Lapse of time in such cases may result in all kinds of claims which are not capable of determination with any amount of exactitude. The omission to move within the agreed period as such is thus agreed to be treated as fraudulent vitiating the contract itself. The insurers, therefore, insist that it is in the interest of Insured that the extent of loss sustained should be speedily ascertained, paid and adjusted. They claim that time frame contemplated in the covenants is necessary not only for ascertaining the extent of the damage caused but also for verification of physical circumstances surrounding inception of loss, for taking salvage protection measures including the steps to minimise the loss and also for initiating coordinated action with other insurers if so involved. Moreover, in case the liability of the Insurer is allowed to continue indefinitly or for over a period of years then rate of premium will increase manifold for no benefit to the insured. The business people will suffer. I may however add that if the insurer has entertained the claim or proceeded to abide by the policy after the period prescribed thereunder it may amount to waiver with necessary consequences. It was for this reason that discussion as to waiver of notice clause was quoted from Halsbury’s Laws of England in one of the paras above.
For reasons recorded above, it is held that covenants in question contained in Fire Insurance Policy are not void under section 28 of the Contract Act. So, my answer to the question referred is in the negative.
M. B. A./A.609/L Reference answered.