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Report No. 97

3.4. Kerala case an instance of concrete hardship.-

The hardship and injustice referred to above do not reside in the realm of mere conjecture. A Kerala ease1 affords an actual illustration of such hardship. In that case, a clause in a Bank guarantee provided that a suit or action to enforce the claims under the guarantee was to be filed within six months from the date of expiry of the guarantee given by the Bank. The question arose whether the clause was valid with reference to section 28, Contract Act. It was held that it was valid. It was held that the liability of the bank was to remain alive only for a period of six months after the expiry of the period of duration of guarantee, and that the rights of the person in whose favour the guarantee was executed were extinguished on the expiry of that period.

In other words, there was an extinction of the right of the plaintiff under the contract and a discharge of the defendants from liability. (The bank and its manager, the executant of the guarantee on behalf of the bank were the defendants). Hence, it was held, the time limit imposed by the contractual clause was not hit by section 28 of the Contract Act. The conclusion so reached is, of course, in harmony with earlier decisions. But such a short period allowed to the other party-under a clause which forfeits the rights at the end of that period-must cause hardship.

1. Kerala Electrical and Alied Engineering Co. Ltd. v. Canara Bank, AIR 1980 Ker 151.

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

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