Short notes on Agreements in Restraint Legal Proceedings of Void Agreements

Section 28 declares the following two kinds of agreements void:

1. An agreement by which a party is restricted absolutely from taking usual legal proceedings, in respect of any rights arising from a contract.

2. An agreement which limits the time within which one may enforce his contract rights, without regard to the time allowed by the Limitation Act.

Restriction on Legal Proceedings :

As stated above Section 28 renders every agreement in restraint of legal proceedings void. This is in furtherance of what we studied under the definition of a ‘contract’, namely, agreement plus enforceability at law is a contract. Thus if an agreement inter-alia provides that no party shall go to a court of law, in case of breach, there is no contract and the agreement is void ab-initio. In this connection, the following points must also be borne in mind:

(a) The Section applies only to rights arising from a contract. It does not apply to cases of civil or criminal wrongs or torts.

(b) This Section does not affect the law relating to arbitration e.g., if the parties agree to refer to arbitration any dispute which may arise between them under the contract, such a contract is valid (Exceptions 1 and 2, Section 28).

(c) The section does not affect an agreement whereby parties agree ‘not to file an appeal’ in a higher court. Thus where it was agreed that neither party shall appeal against the trial court’s decision, the agreement was held valid, for, section 28 applied only to absolute restriction on taking the legal proceedings, whereas here the restriction is only partial as the parties can go to court of law alright and the only restriction is that the losing party cannot file an appeal (Kedar Nath vs. Sita Ram).

(d) Lastly, this Section does not prevent the parties to a contract from selecting one of the two courts which are equally competent to try the suit. Thus in A. Milton & Co. vs. Ojha Automobile Engineering Company’s Case, there was an agreement which inter-alia provided – “Any litigation arising out of this agreement shall be settled in the High Court of Judicature at Calcutta, and in no other court whatsoever,” The defendants filed a suit in Agra whereas the plaintiff brought a suit in Calcutta. It was held that the agreement was binding between the parties and it was not open to the defendants to proceed with their suit in Agra.