Section 28 Contract Act: A 2025 Guide to Fair Contracts in India
In business, a contract is a promise. But what happens if that promise is broken? Section 28 of the Indian Contract Act, 1872, acts as a safeguard. It prevents contracts from including clauses that block or severely limit a party’s right to enforce their claims in court.
In 2025, new Supreme Court rulings and arbitration updates have added clarity. For businesses in hubs like Mumbai and Kolkata, understanding this law is more vital than ever. This guide explains the core principles of Section 28 Contract Act, recent legal developments, key exceptions, and drafting practices for enforceable contracts.
What Does Section 28 Contract Act Say?
Section 28 declares two types of clauses void:
- Absolute Restriction of Legal Proceedings
Any agreement that completely bars a party from enforcing their rights in a court is void. No one can sign away their fundamental right to justice.
- Shortening of Limitation Period
A contract cannot shorten the time to bring a claim if the period is less than what the Limitation Act permits. This prevents parties from being forced into impossible deadlines.
Together, these rules ensure fairness in agreements and protect access to justice.
Recent Legal Developments (2025)
- Exclusive Jurisdiction Clauses Are Valid With Limits
In Rakesh Kumar Verma vs. HDFC Bank Ltd. (2025), the Supreme Court ruled that Section 28 does not automatically void exclusive jurisdiction clauses. Such a clause is valid if:
- It does not remove the right to sue completely.
- The chosen court has the legal authority to hear the case.
This ruling matters for businesses in Mumbai and Kolkata, where exclusive jurisdiction clauses are common in contracts.
- Courts Strike Down Shortened Time Limits
Courts have struck down clauses that demand a claim within 90 days when the Limitation Act allows three years. A 2025 Supreme Court judgment reinforced this. It protects parties from unfair pressure to file claims too quickly.
Exceptions Where Section 28 Does Not Apply
- Arbitration Agreements
Parties can agree to arbitration instead of court. This is not an absolute bar; it only changes the forum. Arbitration is often faster, more flexible, and private. Many startups in Mumbai prefer this route to avoid long trials.
- Bank Guarantees
Banks can include clauses that extinguish their liability after a set period (at least one year from a specific event). This exception ensures stability in trade and supply chain contracts, especially in hubs like Kolkata.
- Extinguishment of Rights vs. Restricting Suits
A clause that extinguishes rights after a period differs from one that only blocks lawsuits. If the right itself is gone, Section 28 may not apply. Because this area is complex, expert legal advice is essential.
Best Practices for Drafting Contracts
To keep your contracts enforceable under Section 28 Contract Act:
- Avoid Absolute Bars: Never insert a clause that denies the right to approach court.
- Draft Exclusive Jurisdiction Clauses Carefully: Choose a competent court and use clear language.
- Do Not Shorten Limitation Periods: Always align time limits with the Limitation Act.
- Use Arbitration Clauses Wisely: Define the rules and seat of arbitration clearly.
- Get a Legal Review: A corporate lawyer can check employment, insurance, or supply contracts before you sign.
Conclusion
Section 28 of the Contract Act is a safeguard against unfair clauses that strip away the right to justice. The 2025 rulings, especially on exclusive jurisdiction, bring much-needed clarity. Businesses can use arbitration or venue clauses, but they must not cross the line into denying legal rights.
By understanding Section 28, drafting carefully, and seeking expert legal review, you can create fair and enforceable contracts that protect both your business and its partners.
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