Chapter II - Of Contracts, Voidable Contracts and Void Agreements
Section 28
Section 28: Agreements restricting legal remedies
Section 28 restricts contractual clauses that block ordinary legal enforcement, shorten its time or extinguish rights in the specified way. The statutory exceptions must be read precisely, especially for arbitration and certain bank or financial-institution guarantees.
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This article is for general information. Refer to the Indian Contract Act, 1872 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
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.
Exception 1.—Saving of contract to refer to arbitration dispute that may arise.—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.
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Exception 2.—Saving of contract to refer questions that have 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.
Exception 3.—Saving of a guarantee agreement of a bank or a financial institution.—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.
Explanation.—(i) In Exception 3, the expression “bank” means—
(a) a “banking company” as defined in clause (c) of section 5 of the Banking Regulation Act, 1949(10 of 1949);
(b) “a corresponding new bank” as defined in clause (da) of section 5 of the Banking Regulation Act, 1949(10 of 1949);
(c) “State Bank of India” constituted under section 3 of the State Bank of India Act, 1955 (23 of 1955);
(d) “a subsidiary bank” as defined in clause (k) of section 2 of the State Bank of India (Subsidiary Banks) Act, 1959(38 of 1959);
(e) “a Regional Rural Bank” established under section 3 of the Regional Rural Banks Act, 1976(21 of 1976);
(f) “a Co-operative Bank” as defined in clause (cci) of section 5 of the Banking Regulation Act, 1949(10 of 1949);
(g) “a multi-State co-operative bank” as defined in clause (cciiia) of section 5 of the Banking Regulation Act, 1949(10 of 1949); and
(ii) In Exception 3, the expression “a financial institution” means any public financial institution within the meaning of section 4A of the Companies Act, 1956(1 of 1956).
What the prohibition covers
Clause (a) addresses absolute restriction of ordinary legal proceedings to enforce contractual rights, and contractual limits on time for that enforcement. Clause (b) addresses specified-period extinguishment of rights or discharge of liability so as to restrict enforcement. The agreement is void to the prohibited extent; do not assume every other term automatically disappears.
Arbitration exceptions in the displayed source
Exception 1 preserves the described agreement to refer future disputes to arbitration. Exception 2 addresses written agreements referring questions that have already arisen and preserves applicable arbitration law. An arbitration clause still needs assessment under the governing arbitration legislation and its own terms.
Bank and financial-institution guarantee exception
Exception 3 concerns a written contract of a bank or financial institution as defined in its explanation. It permits the described guarantee-related extinguishment or discharge term only with a specified period not less than one year from the occurrence or non-occurrence of the specified event. This is not a universal one-year limitation period or an exception for every commercial guarantee.
Mediation amendment and commencement
Source position checked on 11 October 2026: the text above follows the central India Code consolidation. Section 58 and the Third Schedule of the Mediation Act, 2023 would substitute Exceptions 1 and 2 of section 28 so that they also cover mediation. The commencement notification S.O. 4384(E) dated 9 October 2023 brought only sections 1, 3, 26, 31 to 38, 45 to 47, 50 to 54, 56 and 57 into force; it does not include section 58, and the India Code consolidated text of the Mediation Act (as on 6 October 2025) records no later commencement notification for section 58. Before relying on mediation-specific wording in section 28, check whether section 58 has since been brought into force.
Hypothetical business example
A supply contract says that all contractual rights disappear after a short period solely to prevent legal enforcement. The parties must test that wording against clause (b), rather than assuming it is valid because both signed. A separately drafted arbitration agreement is evaluated under its own statutory exception and applicable arbitration law.
Practical review checklist
Identify whether the clause limits proceedings, limits enforcement time or extinguishes a right or liability.
Distinguish ordinary statutory limitation from a contractual restriction and identify any claimed exception.
For a guarantee exception, check the institution definition, writing, specified event and minimum period; for dispute-resolution wording, verify the applicable law and amendment commencement.
Practical checklist
Do
- Read the full dispute, claim and extinguishment clauses together.
- Identify the exact statutory exception relied on and all its conditions.
- Check commencement and the legal framework applicable on the relevant date.
Avoid
- Do not treat Exception 3 as a general one-year deadline for every guarantee or contract.
- Do not apply an enacted amendment merely from its assent date where separate commencement is required.
Glossary
- Restraint of legal proceedings
- A restriction on enforcement of contractual rights of the kind addressed in section 28.
- Extinguishment clause
- A term purporting to end rights or discharge liability after a specified period, requiring review under clause (b).
- Commencement
- The legal bringing into force of a provision, which may require a notification distinct from enactment.
Frequently asked questions
Does every invalid restraint destroy the entire agreement?
The statutory rule makes the agreement void to the prohibited extent; the effect on other terms needs assessment.
Does section 28 prohibit every arbitration clause?
No. The displayed source includes specific arbitration exceptions, alongside the applicable arbitration law.
Is every guarantee allowed a one-year contractual cut-off?
No. Exception 3 concerns the defined banks or financial institutions, a written guarantee-related contract and the specified conditions; it is not a general limitation rule.
Can the Mediation Act amendment be assumed effective from assent?
No. Check provision-specific commencement. The 9 October 2023 notification (S.O. 4384(E)) does not include section 58, so the amendment must not be treated as operative solely from enactment.
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Contact BizeneedLast updated 11 October 2026