Visakha Petroleum Products Pte Ltd applied to set aside an award in favour of the second respondent, Indian Oil Corp Ltd. The second respondent had entered into an agreement for the supply of kerosene oil to the applicant. Clause 10.2 provided that all claims be filed within 150 days from delivery. If such claim was not admitted in full within 90 days of it being filed, the other party would be discharged of all liability unless arbitration was commenced within 360 days of delivery. Arbitration was only initiated by the second respondent in June 1997 outside the 360-day period from delivery which was from October 1995 to January 1996.  The arbitrator held that the second respondent’s claims were not barred under cl 10.2 since it was void under s 28(b) of the Indian Contract Act 1872. Under Amendment Act No 1 of 1997, a new sub-section (b) was added as follows:

Section 28. Agreements in restraint of legal proceedings void: Every agreement,-

(a) by which any party thereto is restricted absolutely from enforcing his rights under … 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 … any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent ...

Visakha applied to set aside the award on the basis that the voiding of cl 10.2 was beyond the arbitrator’s scope. The supply agreement had come to an end before the amendments came into force and these amendments were not retrospective. Clause 10.2 did not seek to curtail the period of limitation for enforcement but stipulates the extinguishment of the right itself and thus was not caught by the original s 28. The applicant also alleged bias by the arbitrator as he was appointed by the second respondent’s director. In response, the second respondent argued that the amendments are prospective.  Section 28(b) applies to 'every agreement' and 'any contract' subsisting on 8 January 1997 and which were not discharged, such as the present agreement, where the claims against the second respondent were outstanding. It relied on Chander Kant & Co v the Vice Chairman DDA, Arbitration Petition No 246 of 2005 where the court held that law as in force has to be considered when a dispute arises and not when a contract was entered into. The second respondent submitted that the purpose of enacting s 28(b) was to overcome the situation wherein liability was extinguished under a clause like cl 10.2. The second respondent, relying on East & West Steamship Co, Georgetown, Madras v S K Ranalingam Chettiar 1960 AIR 1058, argued that ‘discharge of liability' had taken place when there was no response to the demand within 90 days of the demand and proceedings were not initiated within 365 days from delivery.

Held: Application allowed and award set aside.

The judge framed the issues before him as follows:

1. Whether the amendments have retrospective effect?
2. If the amendments do not have retrospective effect, whether the claims are barred by limitation?
3. Whether the arbitrator has power to declare any part of the contract as void under s 28?
4. Whether the arbitrator had acted with bias?

As to the first issue, the court, referring to a series of Indian cases including Thyssen Stahlunion Gmbh vs Steel Authority of India Ltd (1999) 9 SCC 334 and Commissioner of Income Tax (Central)-I, New Delhi Vs. Vatika Township Private, Civil Appeal No 8750 of 2014, found that the courts have consistently taken the view that the amendments to s 28 apply prospectively and not retrospectively. Unless such a construction appears very clearly from the Act or arises by necessary and distinct implication, it is presumed not to be retrospective. A perusal of the Law Commission report indicates that it was not the legislature’s intent for the amendments to have retrospective effect. Since the time to assert a right under cl 10.2 was extinguished prior to the amendments, they would not affect the right accrued in the applicant’s favour prior to such amendment having come into effect.

Having found that the amendments did not apply, the court went on to consider the second issue. The court relying on National Insurance Co Ltd v Sujir Ganesh Nayak & Co (1997) 4 SCC 366 found that an agreement seeking to curtail the limitation period and prescribing a shorter period than under law would be void as offending the original s 28. Agreements which do not limit the time for enforcement of the right but which provide for the forfeiture of the right itself if no action is commenced within the stipulated period would not fall within s 28. Curtailment of the limitation period is not permissible, but extinction of the right itself, unless exercised within a specified time, is permissible. The court also referred to Reliance Industries Limited v P & O Containers Ltd (2005) AIR Bom 65, where the court there interpreted art 3.6 of the Hague Rules which the respondents raised to argue that damage claims under a bill of lading was time-barred. The court held that s 28 did not void art 3.6’s application since the phrase ‘discharged from all liability’ in art 3.6 indicated a total extinction of liability. It also paid heed to the Rules’ international character and observed that courts should be slow to interpret the phrase to produce results varying in different countries and causing uncertainty for both shipper and shipowner.

The court went on to review cases considering the position under the amended s 28. In Indusind Bank Ltd v Union of India, Appeal No 258 of 2008, the court considered whether the amended s 28 voided a term in a bank guarantee requiring claims to be lodged before a stipulated date. Section 28(b) provides that both a curtailment of limitation period and an extinction of a right if brought outside a stipulated period which is less than the relevant limitation period under law are void. However, a term requiring a party to assert its right or bring a claim within certain time will not be affected by the amended section.

As to the third issue, the court found that the arbitrator had exceeded his jurisdiction by declaring cl 10.2 void under the amended s 28 and committed patent illegality on the face of the award. The arbitrator could not declare any part of the agreement as void and to sever it from other parts of the agreement and the second respondent did not pray for such declaration.

As to the fourth issue, the court found that since the applicant failed to raise the issue of bias before the arbitrator under ss 12, 13 and 16 of the Arbitration Act within the time prescribed, it cannot raise such plea for the first time when setting aside the award.