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Report No. 97

Chapter 3

Demerits of the Existing Law

3.1. Anomaly and hardship under the present position.-

The very brief summary of the existing legal position given in the preceding paragraphs shows that a distinction is assumed to exist between "remedy" and "right" and that distinction is the basis of the present position under which a clause barring a remedy is void, but a clause extinguishing the rights is valid. Now, this approach may be sound in theory. In practice, however, it causes serious hardship and might even be abused, so as to defeat the cause of economic justice. Such contractual clauses are usually inserted where the parties are not in an equal bargaining position. By giving a clause in an agreement that shape and character of a provision extinguishing the right (and not merely affecting the remedy), a party standing in a superior bargaining position can achieve something which could not have been achieved by merely barring the remedy.

In other words, under the present law, a more radical and serious consequence-the abrogation of rights-becomes permissible, while a less serious device-the extinction of the mere remedy-becomes impermissible. Prima facie, such a position appears to be highly anomalous. By providing for the extinction of a right, the parties are actually creating a law of prescription of their own, which is a far more important matter than merely creating a law of limitation of their own. If the law does not allow the latter consequence to be imposed by agreement, a fortiori, the law should not allow the former consequence also to be imposed by agreement.

Section 28 of the Indian Contract Act, 1872 - Prescriptive Clauses in Contracts Back

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