Section 28 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 28 makes void, to the extent stated, two kinds of agreement: one that absolutely restricts a party from enforcing his rights by the usual legal proceedings or limits the time within which he may do so, and one that extinguishes rights or discharges liability on the expiry of a specified period so as to restrict enforcement. It then saves arbitration agreements and, since 2013, certain bank and financial institution guarantee terms.
Every agreement (a) by which a party 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 do so, or (b) which extinguishes the rights of, or discharges from liability, any party on the expiry of a specified period so as to restrict enforcement, is void to the extent. Exceptions: a contract to refer future disputes to arbitration (only the amount awarded recoverable); a written contract to refer an existing question to arbitration; and a bank or financial institution guarantee term with a period not less than one year from the specified event.
The amendment history in the text
The footnotes give the history, and we state it as they do:
- Section 28 in its present form (clauses (a) and (b) and the words "is void to the extent") was substituted by Act 1 of 1997, section 2, with effect from 8 January 1997.
- Exception 3 (bank and financial institution guarantees) was inserted by Act 4 of 2013, section 17 and the Schedule, with effect from 18 January 2013.
- The second clause of Exception 1 was repealed by Act 1 of 1877.
- Another footnote cross-refers, for arbitration, to the Arbitration Act, 1940 and section 389 of the Companies Act, 1956; those are footnote references, not part of the section text.
If you want to understand how these rules affect the dispute clauses in your own contracts, our legal dispute resolution service can help you review them.
The main rule: two kinds of void agreement
The section reads: "Every agreement,— (a) 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; or (b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to the extent."
| Clause | What the agreement does | Key words |
|---|---|---|
| (a), first limb | Restricts a party absolutely from enforcing his rights by the usual legal proceedings in the ordinary tribunals | "restricted absolutely", "usual legal proceedings", "ordinary tribunals" |
| (a), second limb | Limits the time within which he may enforce his rights | "limits the time" |
| (b) | Extinguishes rights or discharges liability on expiry of a specified period so as to restrict enforcement | "extinguishes", "discharges", "specified period" |
The effect is that the agreement is "void to the extent" of the restriction. Compare section 27, which says "to that extent void"; see our article on section 27. The words suggest that only the offending part is void; the section does not say more, and we do not claim more.
The exceptions
Exception 1: future disputes to arbitration
This section "shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred."
So a clause sending future disputes on a subject or class of subjects to arbitration, with only the awarded amount recoverable, is saved.
Exception 2: questions already arisen
"Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration." Two points: the contract must be in writing, and the question must have already arisen. The saving also keeps any law on references to arbitration. Read the current arbitration law directly; this article does not describe it.
Exception 3: bank and financial institution guarantees
Exception 3 reads: "This section shall not render illegal a contract in writing by which any bank or financial institution stipulate a term in a guarantee or any agreement making a provision for guarantee for extinguishment of the rights or discharge of any party thereto from any liability under or in respect of such guarantee or agreement on the expiry of a specified period which is not less than one year from the date of occurring or non-occurring of a specified event for extinguishment or discharge of such party from the said liability."
Elements:
- a contract in writing;
- by which a bank or financial institution stipulates a term in a guarantee (or an agreement providing for a guarantee);
- the term extinguishes rights or discharges a party from liability on the expiry of a specified period;
- the period is not less than one year from the date of occurring or non-occurring of a specified event.
The Explanation defines "bank" by listing seven categories: a banking company, a corresponding new bank, a co-operative bank and a multi-State co-operative bank (each as defined in section 5 of the Banking Regulation Act, 1949), the State Bank of India, a subsidiary bank under the State Bank of India (Subsidiary Banks) Act, 1959, and a Regional Rural Bank. "Financial institution" means any public financial institution within the meaning of section 4A of the Companies Act, 1956. Read the Explanation itself for the exact clauses. For guarantee law more generally, see our overview of indemnity and guarantee, sections 124 to 147.
No illustrations
Section 28 has no illustrations in the text. The example below is our own.
Example (our own, not the Act's). Rohit's company signs a supply contract with Sudha Traders. One clause says: "No claim under this contract may be brought in any court." That clause restricts a party absolutely from enforcing his rights by the usual legal proceedings in the ordinary tribunals. Under clause (a), it is void to that extent. Another clause says: "All claims lapse if not notified within 30 days of delivery, after which the supplier is discharged from all liability." That fits clause (b) if it extinguishes rights on the expiry of a specified period so as to restrict enforcement, and is void to that extent. A third clause says: "Any dispute arising under this contract shall be referred to arbitration, and only the amount awarded shall be recoverable." That fits Exception 1 and is saved.
What can the parties change?
The parties cannot validate a clause that falls within clause (a) or (b) by agreement; it is void to the extent. They can use the exceptions: choose arbitration, in writing for existing questions, and, if a bank or financial institution, include a guarantee extinguishment term with a period of not less than one year from the specified event. The text does not say anything further about the content of arbitration clauses.
Practical points
- Read your dispute clauses. A clause that bars the courts altogether, or shortens the time to sue, is within the section's words.
- Use arbitration clauses carefully. Exception 1 saves a reference of future disputes to arbitration, with only the awarded amount recoverable.
- Notice periods. A clause that extinguishes rights after a specified period may fall within clause (b).
- Guarantee terms. For a bank or financial institution guarantee, check the one-year minimum in Exception 3.
Need help with dispute clauses?
If your contract has arbitration, limitation or claim-lapse clauses and you are unsure how section 28 applies, or you are already in a dispute over one, our legal dispute resolution team can review the clause and the position.
Key takeaways
- An agreement that absolutely restricts a party from using the usual legal proceedings, or limits the time to do so, is void to the extent (s.28(a)).
- An agreement that extinguishes rights or discharges liability on expiry of a specified period so as to restrict enforcement is void to the extent (s.28(b)).
- Exceptions save arbitration references and, since 2013, bank and financial institution guarantee terms of not less than one year.
- Section 28 was substituted by Act 1 of 1997; Exception 3 was inserted by Act 4 of 2013.
Read next
- Section 27: restraint of trade and non-compete clauses
- Sections 29 and 30: uncertainty and wagering agreements
- Void and voidable contracts: sections 24 to 30
- Indemnity and guarantee: sections 124 to 147
Disclaimer: Based on the text of the Indian Contract Act, 1872 as consulted on 1 October 2026. Many questions under this Act turn on case law and on the wording of the particular contract, which this article does not cover. It is general information, not legal advice; check the official text and take advice before acting.