What was the core issue in National Insurance v. Sujir Ganesh Nayak?

Whether a 12-month policy clause that extinguished liability unless the claim was pending amounted to an unlawful restraint under Section 28 of the Indian Contract Act.

How did the Supreme Court treat the clause?

The clause was valid. It did not restrain legal proceedings; it provided that policy liability would end after 12 months unless a suit or arbitration was already pending.

Does such a clause shorten limitation periods?

No. It does not cut down statutory limitation. It only limits the insurer’s contractual liability beyond 12 months unless action is pending.

Why was Section 28(b) not violated?

Because the term did not absolutely restrict enforcement or extinguish rights in a way that barred access to court; it regulated the insurer’s liability under the policy after a defined time.

national-insurance-v-sujir-ganesh-nayak-limitation-clause-not-restraint

National Insurance v. Sujir Ganesh Nayak (Section 28 ICA & Insurance Time Bar)

Contract / Insurance Supreme Court of India 1997 Citation: AIR 1997 SC 2049 Bench: SC Reading time: ~5 min

Author: Gulzar Hashmi | India | Published on 26 Oct 2025

```

Quick Summary

An exporter had fire policies with “riot/strike” cover. After a strike, it claimed losses. The insurer pointed to a clause: no liability after 12 months unless a suit/arbitration was already pending. The Supreme Court held: this clause is valid and not a restraint of trade under Section 28 ICA. It does not cut down the statutory limitation; it limits contractual liability after 12 months.

Issues

Does a 12-month “no liability unless action pending” clause offend Section 28 ICA as a restraint?
Is the clause an unlawful curtailment of the right to sue or simply a policy condition?

Rules

Section 28(b) ICA: Agreements that extinguish rights or discharge liability after a specified period so as to restrict enforcement are void to that extent.
However, a term that regulates policy liability (not access to court) can be valid if it doesn’t absolutely prohibit legal action.

Tip: Ask—does the clause bar court access, or just end the insurer’s contractual liability after a defined time?

Facts (Timeline)

Timeline of events — National Insurance v. Sujir Ganesh Nayak

5 Jan 1976 & 2 May 1977: Two fire policies (Rs. 6,00,000 & Rs. 1,20,000), with riot/strike clauses.

26 Mar 1977: Workers went on strike; movement restricted; goods risked deterioration.

28 Apr 1977: Insured notified insurer about strike and risk.

10 May & 22 Sep 1977: Insurer said the loss not covered.

17 Aug & 25 Aug 1977: Insured sought advance/payment for losses.

Legal notice; 2 Jun 1980: Suit for recovery filed.

Trial Court: Claim time-barred; not covered.

High Court: Reversed—held damage covered.

Supreme Court: Considered validity of the 12-month liability clause.

Arguments

Respondent (Assured)

Clause restrains enforcement; void under Section 28(b).
It effectively shortens the time to sue.

Appellant (Insurer)

Clause regulates liability; does not bar access to court.
Parties freely agreed; statutory limitation remains intact.

Judgment (Held)

The Supreme Court upheld the validity of the 12-month clause. It is not a restraint of trade. It does not stop a party from suing; it ends the insurer’s contractual liability after 12 months unless action/arbitration is already pending.

Clause valid under Section 28 ICA as interpreted.
No curtailment of statutory limitation periods.

Ratio Decidendi

A policy term that extinguishes contractual liability after a defined period, unless proceedings are pending, is not an unlawful restraint where it does not bar access to court or shorten statutory limitation; it simply sets the temporal scope of the insurer’s promise.

Why It Matters

Confirms enforceability of claim-notification/liability cut-off clauses in insurance.
Distinguishes between regulating liability and restricting legal remedies.
Signals to insureds: act within policy time frames or risk losing contractual benefits.

Key Takeaways

12-month “no liability unless action pending” clause is valid.
It does not cut statutory limitation; it shapes policy liability.
Section 28(b) voids only terms that restrict enforcement in substance.

Mnemonic + 3-Step Hook

Mnemonic: “TIMELY POLICY”

Time cap in policy,
Insurer’s liability ends,
Mere regulation—
Enforcement not barred,
LY—Limitation Years untouched.

3-Step Exam Hook

Does the clause end liability or block courts?
Does statutory limitation still run normally?
If yes to both, clause likely valid under §28.

IRAC Outline

Issue

Is a 12-month “no liability unless action pending” clause void as restraint under Section 28 ICA?

Rule

§28(b) voids terms that restrict enforcement by extinguishing rights. Clauses that only regulate policy liability period can be valid.

Application

The clause did not stop suit; it ended the insurer’s contractual promise after 12 months unless action was pending.

Conclusion

Clause valid; not a restraint of trade; policy liability properly limited.

Glossary

Restraint under §28 ICA: Contractual term that in substance curtails the right to enforce through courts/arbitration.
Liability Cut-off Clause: A policy term ending the insurer’s liability after a specified period unless action is pending.
Limitation Period: Statutory time within which a suit must be filed; separate from contractual liability duration.