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Petitioner: SARGODHA CENTRAL CO-OPERATIVE BANK LTD. AND Another VS Respondent: NEW JUDGMENT
Court Name: Sindh High Court Judge(s): Ajmal Mian, B. G. N. Kazi Title:SARGODHA CENTRAL CO-OPERATIVE BANK LTD. AND Another vs NEW
JUDGMENT
Reported As: PLD 1982 Karachi 627 Result: Appeal dismissed Judgment JUDGMENT AJMAL MIAN, J.-This appeal is directed against the judgment and decree dated 25-8-1981 passed by Dorab Patel, J. (as he then was) in Suit No. 154/1965 dismissing the suit of the appellants/plaintiffs inter alia on the ground that the respondent/defendant were not liable in terms of clause 19 of the Policy of the Contract of Insurance after the expiration of 12 months from the happening of the loss, which occurred on 23-5-1962. However, on merits the learned Single Judge found that the appellants had suffered loss to the extent of Rs. 2,20,766,50 as per survey report of the surveyor appointed by the respondent. The appellants being aggrieved by the above judgment and decree have filed the above appeal. 2. In support of the above appeal Mr. Mansoorul Arfin the learned counsel for the appellants has urged the following contentions (i) That clause 19 of the Insurance Policy in fact curtails the period of limitation for filing of a suit and, therefore, it is hit by sections 23 and 28 of the Contract Act. (ii) That the respondent had not raised any pica to the effect that appellant No. 2 Choudhry Muhammad Hussain was a benamidar for his brother Choudhry Wali Muhammad in the written statement and therefore, the learned Single Judge erred in permitting the respondent to adduce evidence on the above plea; (iii) That even otherwise the respondents failed to discharge the burden of proving that appellant No. 2 was a benamidar for his brother. (iv) That the policy in question being- a composite policy covering two separate interests of appellants Nos. 1 & 2, the alleged fraud on the part of appellant No. 2 could not have prejudiced
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appellant No. 1's interest. (b) On the other hand Mr. Rahimtoola, learned counsel for the respondent has made the following submissions (i) That clause 19 of the Insurance Policy does not in fact curtail the period of limitation for filing of a suit but the same provides the agree--ment between the parties that on the expiry of one year, the respondent shall stand discharged from their liability under the Insurance Policy, which was in consonance with the long list of decisions of the High Courts of pre-Partitioned India, which view has been maintained in India even after Partition of India. (ii) That the respondent in their written statement had pleaded sufficient facts entitling them to raise the plea of benami. (iii) That the respondents were able to discharge the burden of proof of the above plea by bringing on record sufficient evidence. (iv) That the suit was filed and proceeded on the basis of that appellants Nos, 1 and 2's interest was joint and not on the basis that the two appellants had distinct interest, and, therefore, this plea cannot be examined at the appellate stage. 3.-(a) Reverting to the first contention of Mr. Mansoorul Arifin that in fact clause 19 of the Insurance Policy curtails the period of limitation for filing of a suit, and, therefore, it is hit by sections 23 and 28 of the Contract Act, it will be pertinent to refer to the above section. Section 23 of the Contract Act defines consideration and objects which are lawful. It provides that the consideration or object of an agreement is lawful unless it is forbidden by law or is of such a nature that, if permitted it would defeat the provisions of any law or is fraudulent or involves or implies injury to the person or property of another, or the Court regards it as immoral or opposed to public policy. It further provides that in such cases (i.e. in the cases referred to hereinabove) the consideration or object of an agreement is said to be unlawful and that every agreement of which the object of consideration is unlawful is void. Whereas section 28 provided that every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceeding in the ordinary tribunals or which limits the time within which he may thus enforce his right is void to that extent, Exceptions I and 11 provided to above section save the award of the arbitration agreement etc. (b) Mr. Mansoorul Arfin, learned counsel for the appellants has candidly conceded that all the rulings of Indo-Pak Sub-Continent commencing from 1912 onwards relating to insurance policies are against the appellants. However, he submitted that the cases in which identical clause to clause No. 19 in question were the subject matters of interpretation were decided on the basis of the cases in which the relevant clauses of the insurance policies were couched in different language. His further submission was a Division Bench of the erstwhile High Court of West Pakistan, Peshawar Bench has taken a contrary view in respect of a contract relating to the supply of goods. It may be pertinent to refer to the cases referred to by both the learned counsel of the parties, namely, the cases of Hirabhai Nare--tamdas v. The Manufacturers Life Insurance Company 14BLR741the case of Baroda Spinning & Weaving Company Limited v. Satyanarayan Marine & Fire Insurance Co. Ltd. AIR1914Bom,225, the case of Gindharl Lal Hanoman Bux v. Eagle Star &British Dominn Insurance Co. Ltd. AIR 1924 Cal. 186the case of G. Rainey and another v. Burmah Fire arid Marine Insurance Co. Ltd. AIR 1926 Rang. 3the case of A. N. Ghese v. Reliance Insurance Co. And another AIR 1934 Rang. 15the case of Daud Tar Muhammad brothers v. Queensland Insurance Co. Ltd. AIR 1949 Cal. 390the case of Rubi General Insurance Co. Ltd. v. Bharat Bank Ltd. And others AIR 1950 E. Punj. 352, the case of Pearl Insurance Co. v. Atmaram AIR 1960 Punj. 236the case of Islamic Republic of Pakistan v. Nozardfn Khattak & Sons PLD 1969 Pesh. 313 (i) In our view it will be appropriate to deal with the above Peshawar case of 1969 first as according to Mr. Mansoorul Arlin a D. B. Of the erstwhile High Court of West Pakistan, Peshawar Bench, had
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taken a different view than the view found favour with the learned Judges in the above other cited cases. In the above Peshawar case the facts were that the plaintiff/respondent were approved contractors for the army supply. They submitted tender for the supply of firewood to certain Army Units. The tender was converted into the agreement which was for a period of one year commencing from 1st April, 1956 to 31st March, 1957. During the course of the performance of the above contract certain disputes arose as to the quality and quantity and because of this the Officer Commanding, the Station Supply Depot started procurement of supply of firewood, under clause 7 of the agreement as risk purchases at much higher rates than the control rates, the plaintiff conveyed their protest to the Commander concerned, but with no avail. Ultimately on 19-1- 1957 the Commander concerned rescinded the contract and, thereafter, recovered the cost of risk purchases from the plaintiff's other contracts. Thereupon, the plaintiff filed suit for recovery of the various amounts. The above suit was resisted by the defendant/appellant inter alia it was pleaded that the plaintiff had no cause of action. However, the learned Senior Sub-Judge decreed the suit to the extent of Rs. 25,381.-8-6. The appellant/defendant aggrieved by the aforesaid judgment and decree filed the appeal which was heard by a Bench. It was urged before the High Court that in view of clause 33(1) of the Contract read with section 3 of the Limitation Act the suit of the plaintiff was barred. It was also urged that the aforesaid plea being a pure question of law could be raised first time in the appeal. Clause 33(i) of the Contract provided as follows :- "33(i). I/We hereby agree that the Governor-General in Pakistan shall be discharged from all liabilities under this contract or in relation to the subject-matter thereof unless an arbitration or suit, where such suit lies, is commenced within three months from the expiry of the contract period mentioned in clause (i) hereof or any extension thereof." It may be noticed that the above clauses provided that the Governor-- General in Pakistan shall be discharged from all his liabilities under the contract or in relation to the subject-matter thereof unless arbitration suit (where such suit lies) is commenced within three months from the expiry of the contract period mentioned in clause (i) or any explanation thereof. It was urged by the learned counsel for the appellants/defendants in the aforesaid case that since the suit contract was for a period commencing from 1st April, 1966 up to 31st March, 1957, the suit could have been commenced within 3 months 'from the expiry, of the contract period in addition to a period of 2 months of the notice under section 80, C. P. C. And that as the suit was filed on 26-11- 1957, it was barred by 8 months. The above contention was repelled by the D. B. And upon relying the case of Nathemal Ramdas v. B. D. Ram Sarup & Co. AIR 1932 Lah. 169the case of Ehrael and another v. Rubairam AIR 1925 Pash. 502 and the case of Gobardhandas v. Daud Dayal AIR 1932 All. 273, it was held that by, the agreement to the extent of limiting the time within which rights could be enforced contained in the aforesaid clause 33(i), was void and that the plaintiff under the Limitation Act had the right to institute a suit within 3 ye4rs from the date when the contract was rescinded or was to be completed. It is true that in the above case a clause which purported to discharge the defendant from his liability after the expiration of 3 months if a suit was not filed or arbitration not commenced was held void to that extent. However, it was urged by Mr. Rahimtola that since in the above case the subject-matter of the suit/appeal was a contract of supply of goods and not a contract of insurance, the principle enunciated in the above case cannot be pressed into service in the instant case. It was further urged by him that the other cases referred to hereinabove deal with the insurance policies and, therefore, on all the fours they are applicable to the instant case. (ii) Reverting to 14 B L R 741, it may be observed that in the above case the insurance policy relating to life contained a clause to the effect that "No suit shall be brought against the company in connection with the said policy later than one year after the time when cause of action accrues". In
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the aforesaid case a suit was filed on the insurance policy after the above period of one year but within 3 years as was provided by Article 86 of the First Schedule to the Limitation Act. It was contended by the plaintiff that the condition curtailing the period of limitation was void under section 28 of the Contract Act. However, the above contention was rejected by 0. B. Of Bombay High Court comprising of Sir Narain G. Chand Varkar, Acting Chief Justice and Mr. Justice Batchalor and it was held that the condition was valid as the parties agreed thereby in substance that if no suit was brought within a year, neither party should be regarded as having any right against other. (iii) With reference to AIR 1914 Born. 225, it may be stated that the subject matter in the above case was a claim arising out of a fire insurance policy, which contained a clause to the effect that if claim is rejected and a suit is not commenced within 3 months after rejection all benefit would be forfeited. The suit was filed after the expiry of the above period and it was urged by the plaintiff that the above clause, namely, clause 12 was hit by section 28. Beaman, J. Held that in view of the case of Hirabhai v. Manufacturers Life Insurance Co., referred to hereinabove, he was bound to hold that the above clause was not hit by section 28. Against the above judgment and decree, the appeal was heard by a D. B. Comprising of Scott, C. J. And Batchelor, J. Whereas Scott, C. J. Doubted the correctness of the above decision given in the case of Hirabhai as the clause was worded in such a way that in fact it purported to curtail the period of limitation for filing a suit, but in view of the difference in the wordings employed in the clause which was the subject-matter before Scott, C. J., he came to the conclusion that the aforesaid clause was not hit by section 28 of the Contract Act. Whereas Batchelor, J. While concurring with the conclusion arrived at by Scott, C. J. Pointed out distinction between curtailment of the period of limitation for filing of a suit and the agreement of the party to get his right forfeited by the expiry of certain period. It may be advantageous to reproduce hereinbelow the relevant passage; "The question is whether the agreement in Cl. 12 of the conditions is void under this section. As I understood the argument for the appellants, the learned Advocate-General, while admitting what has;' often been decided, that the Indian Limitation Act operates in such a case as this not to extinguish rights but only to bar remedies, contended that for the purposes of this appeal we should look rather to the substantial effect intended by the section than to the precise form of words which legislature has used. The argument was that, however valid and important in law the distinction between the barring of a remedy and the extinguishment of a right, yet to the man of business it is much the same thing whether his right be gone or the remedy for enforcing that right be barred, and it was urged that in substance and effect there was no appreciable distinction between saying `I agree that upon the expiry of three,, months after the rejection of my claim, my rights shall be forfeited,' as is said here, and saying `as to the time within which I may enforce my right, I agree to limit it to the period of three months, after the rejection of my claim.' and this letter covenant would undoubtedly be void under the section. In my opinion, however, the distinction, which beyond question exists, is vital in the construction of the section. As I understand the matter, what the plaintiff was forbidden to do was to limit the time within which he was to enforce his rights; what he has done is to limit the time within which he is to have any rights to enforce; and that appears to me to be a very different thing. This seems to have been the view which was tacitly accepted by the Calcutta High Court in the South British Fire and Marine Insurance Co. v. Brojo Nath Shaha, though it must be admitted that that decision is of no direct assistance, since the question of the effect of section 28, Contract Act, or such agreement was not expressly considered." (iv) Reverting to AIR 1924 Cal. 186, it may be observed that in the above case also the subject matter of the suit were the two fire insurance policies. In the above case also the suit was filed after the expiry of the period mentioned in clause 13 of the insurance policies. Clause 13 provided as follows;
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"If the claim be made and rejected and an action or suit be, not commenced within 3 months after such rejection or in case of arbitra--tion taking place in pursuance of the 18th condition of this policy within 3.Months after the arbitrator or arbitrators or Umpire shall have made their award, all benefit under this policy shall be forfeited." A D. B. Of the Calcutta High Court while construing the above clause held that the same did not infringe the provision of section 28 of the Contract Act. Reliance was placed inter alia on the above two Bombay cases. (v) Referring to AIR 1926 Rang. 3, it may be stated that in the above case the subject-matter was again fire insurance policy. In the aforesaid case the suit was filed after the expiry of the period provided for in clause 12 of the insurance policy which provided: that if a claim be made and rejected, an action or suit is not commenced within 3 months after such rejection or in case of arbitration taking place in pursuance of the 17th condition of the policy, within 3 months after the arbitrator or arbitrators or umpire shall have made their award, `all benefit under this policy shall be forfeited'. It was held by a D. B. Of the Rangoon High Court in that the above clause did not violate section of the Contract It was also observed that a man made contract to the effect that on the happening of certain event, he shall lose all his rights, which covenant does not constitute curtailment of the period of limitation. (vi) Reverting to AIR 1934 Rang. 15, it may be stated that in the above case also the subject-matter was a policy of fire insurance containing identical clause, which is in the instant case, providing that in no case whatsoever shall be company liable for any loss or remedy after the expiration of 12 months from the happening of the loss or damage unless the claim is the subject-matter of pending action or arbitration. Lech, J. Held that the above clause did not contravene section 28 of the Contract Act or Article 85 of the Ist Schedule to the Limitation Act and that the same was enforceable. Reliance was placed on the earlier case of Rangoon High Court as well as on the case of the Bombay and Calcutta High Courts referred to hereinabove, namely, AIR 1926 Rang. 3, AIR 1914 Bom. 225 and AIR 1924 Cal. 186. (vii) With reference to AIR 1949 Cal. 392, it may be observed that in the above case as well the subject-matter was fire insurance policy containing identical clause which is the subject-matter of the instant appeal. It was urged by the plaintiff in the suit that the above clause was hit by section 23, but Me Nair, J. Held that the clause was not void and that it did not operate so as to defeat the provision of law of limitation. It was further held that the plaintiff was not limiting as to the time within which he might bring a suit, but the restriction was on the time during which the company would accept liability for loss. (viii) Reverting to AIR 1950 East Pun. 312, it will suffice to observe in the aforesaid case also the subject-matter was a fine insurance policy containing identical clause. It was held by Kapore, J. That the above condition was not void. (ix) With reference to AIR 1960 Pun. 236, it may be observed that in the above case the question for consideration before the Full Bench of the Punjab High Court at Delhi was, whether section 36(b) of the Displaced Persons (Debts Adjustment) Act, 1951 gave fresh right to a plaintiff to file a suit on an insurance policy containing the identical clause limiting the liability of the Insurance Company within a period of one year. It was held that the effect of above section 36(b) was to nullify the effect of the above aforesaid clause of the Insurance Policy. In the above case most of the case law on the subject was referred to and discussed and the Court proceeded on the assumption that a clause in a fire insurance policy limiting the period of liability of a Company was not hit by section 23 or 28 of the Contract Act. It may be advanta--geous to refer to paras. 5 and 6 of the above judgment which read as follows; "5. It appears that the law in England is that a limitation of the period within which action can be brought after loss is valid notwithstanding that it gives a shorter period than the Limitation Act,
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1939 vide MacGillivary on Insurance Law Fourth Edition, page 1794, It may, however, be mentioned that it is difficult to draw any assistance from the law as it prevails in that country. There is no bar thereto parties curtailing the period of limitation in the absence of any provision analogous to section 28 ofjhe Contract Act. (6) In the United States of America a similar condition in a policy against the maintenance of any action to recover a claim unless commenced within twelve months after the loss has been held to be valid. Riddlesharger v. Hartford Fire Ins. Co. Ltd. (1872) 19 Law Edn. 257. With regard to the policy of the statute of limitation it was stated that it was to encourage promptitude in the prosecution of remedies. Such statutes prescribe what is supposed to be a reason--able period for this purpose, but "there is nothing in their language or object which inhabits parties from stipulating for a shorter period within which to assert their respective claims. It is clearly for the interest of insurance companies that the extent of losses sustained by them should be speedily ascertained and it is equally for the interest of the assured that the losses, should be speedily adjusted and paid". This reasoning is similar to the one adopted in some of the decisions mentioned before and Kapore, J. In AIR 1950 E P 352 has observed at page 353 that there seems to be a great deal of sense in it particularly in the case of fire insurance or insurance. Against accident where the liability to the extent of damage caused, when the matters are fresh, can be measured with a certain amount of accuracy. Lapse of time in such cases may result in all kinds of claims which are not capable of determination with any amount of exactitude and when memories of man may become rather hazy." 4. (a) From the above-cited and discussed cases, it is evident that in India during pre-Partition as well as post-Partition days the various High Courts have consistently held that a clause limiting the period of an insurance company's liability is not hit by sections 23 or 28 of the Contract Act and is legal and enforceable. It may be pertinent to observe that in the instant case clause 19 of the insurance policy does not provide that no suit can be filed for any loss or damages after the expiration of 12 months, but what has been provided is that "in no case whatsoever shall the company be liable for any loss or damage after the expiration of 12 months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration". If the wordings of the above clause would have been in the former form, we would have no hesitation to hold that it is hit by section 28 of the Contract Act. But since it is not so, we are not inclined to hold that it contravenes section 28. In our view, the distinction pointed out by Batchelor, J. In the aforesaid Bombay case, namely Baroda Spinning & Weaving Co. Ltd. seem. To be correct, namely, that if a clause imposes an embargo on the filing of an action after the expiry of a lesser period than what has been provided for in the Limitation Act, it would be hit by section 28 of the Contract Act, but if a clause provides a limit within which the plaintiff would have` any right to enforce, it would not be hit by the aforesaid section of the Contract Act. In our view the case of Mirabhai v. Manufacturers Line Insurance Co. was not correctly decided as admittedly the clause of the insurance policy, which was the subject-matter of the above case was directly in violation of the provisions of section 28 of the Contract Act by providing that no suit shall be brought against the company in connection with the policy later than one year after the time when the cause of action accrues. Since as we have pointed out here in above that the language employed in the insurance policy in the instant case is different from the above Bombay case and is identical to the cases, reported in AIR 1934 Rang. 3, AIR 1949 Cal. 390 and AIR 1950 E P 352, we are inclined to follow the latter decision. It may be observed that in our view there is a distinction between providing that no suit or action can be brought after the expiry of one year or any other lesser period than provided for in the Limitation Act on the one hand the clause providing that the company shall not be liable for any loss or damage after the expiration of 12 months from the happening of loss or damage unless the claim is subject of a pending legal action or an arbitration.
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(b) Since the High Courts in India have for about 70 years have con--sistently taken the view that a clause in the insurance policy limiting liability of the insurance company for a certain period does not hit section 23 of the Contract Act in our view, it will not be just and proper to upset the above view after the expiry of such a long period. It may be pertinent to refer to the case of Mehr Allahditta and another v. Muhammad All an another PLD 1972 SC 59in which a Full Bench of the Supreme Court while considering the question of procedural defect in a pre-emption suit, namely, whether a pre-emptor will lose his right to claim the pre-emption if in a suit to enforce his right he joins with him a stranger, it was held that since the case of Sharaf and another v. Pirbux and another 83 P R 1893, held the field for the last 78 years and has been followed without dissent by the Courts in Punjab, on the principle of "stare decisis", it is not desirable to change this view unless it is so held that it cannot…
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