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Law of Limitation in Contracts: Relevance, Exceptions and Law of Limitation to Government Contracts

This paper seeks to first find out what Law of Limitation is and its relevance is to the Indian Contract Act. It will then cover what the Law of Limitation entails and how it has been understood by courts till now. The paper will then delve into government contracts and the limitation imposed therein, the stark difference between the time period of an ordinary contract and a government contract, reasons for the same and recent developments on it.

Law Of Limitation

Does the Indian Contract Act mention Law of Limitation?
Yes, Section 25 of The Indian Contract Act, 1872 states that any agreement without consideration shall be void.[1] One of the exceptions to the said rule is �a promise to pay debt barred by imitation law�.[2] The law of limitation is guided by two Latin maxims -interest reipublicae ut sit finis litium, which means that there should be a limit to litigation in the interest of the state, and non-dormeientibus jura subveniunt, which means that the law will help only people who are aware of their rights and not those who sleep over it.[3] The law of limitation places a limitation on the time period till which a case can be filed. If the time period has lapsed, no court can decide the case on its merits and has to dismiss the suit in front of them. [4]

The first Limitation Act in India was introduced in 1859, the current governing legislation is The Limitation Act of 1963. The need for such a law has been covered in the 89th Report of the Law Commission of India. It says that the law of limitation is based on the tenets of justice, convenience and diligence. An individual shouldn't be in the fear of a possible lawsuit for an infinite period of time.[5]

Does the Law of Limitation infringe upon an individual's contractual rights?
No. The restrictions placed by such a law only restricts the remedy, and not the right itself. The same was observed in Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay[6], wherein the court said that the right isn't dowsed, it has only become unenforceable in the court of law.[7] The concerned party can resort to other measure such as blacklisting the debtor and/or complaining to the RBI, this ensures that the creditor is less likely to receive any more credit from other creditors.

The court had observed in Siraj-Ul-Haq Khan v. The Sunni Central Board of Waqf U.P.[8], that even though the rules of the Limitation law maybe arbitrary to a certain extent and may pose hardships to the party, equitable consideration is inconsequential and should not be considered while deciding the case, it emphasized on following the strict meaning of the law.[9]

Certain provisions of the Law such as S. 14,18 and 19 provide for exclusions of certain time periods while computing the time period for establishing the limitation. The time period wherein a civil proceeding is going on, an injunction is in place, the day on which the decree has been ordered etc. is excluded while computing the limitation.[10] The court in Noharlal Verma v. Distt. Coop. Central Bank Ltd.[11] put an obligation on itself to consider the limitation even if the parties chose not to use it as a defense, it emphasized that limitation went to the root of the matter, and no court had the authority to entertain the plea on basis of merits once it was barred by limitation.[12]

Government Contracts

A contract in which one of the parties in the Central or State Government, or their agents or authorised representatives, is known as a government contract.[13] In State of Bihar v Majeed[14], it was observed that government contracts are also covered by the Indian Contract Act. Despite that there is a slight difference between a normal contract and a government contract.[15]

Government contracts are also governed by Article 299 of the Constitution of India which gives the President and the Governors to make contracts and execute them on behalf of the state. It also states that they shall not be personally liable for any contract that they make.[16] One more thing that differentiates the government contracts from any other contracts is the stark difference in their periods of limitations, while the period of limitation for ordinary contracts is 3 years only, it is 30 years for a government contract under Article 112 of the law.[17]

Why do government contracts enjoy such a huge time period for limitation?
The reason for the same maybe found in the Latin maxim maxim nulla tempus occurit regi, which implies that the crown is not affected by time and is beyond it.

The above was challenged as being violative of Article 14 of the Indian Constitution in Nav Rattanmal And Others vs The State of Rajasthan[18]. The court rejected the appeal on two grounds. The first being that since the government officials are neither incentivized nor disincentivized with the contract in place, they might be not be as vigilant as an ordinary individual and may not be diligent enough to bring the case to the court's notice in due time.

Red-tapism and bureaucratic inefficiencies also prolong the time it takes the government to file a suit. The second being that government contracts are steered by public welfare, which should be quintessential and the government should be excused for any inordinate delays.

The court in State of Madhya Pradesh v Bherulal[19], came up with novel propositions countering the ones given in Nav Rattanmal. First, it emphasized on the technological advances made since Nav Rattanmal and said that government has more resources at hand, information has been digitalised etc and secondly, the excuse of bureaucratic inefficiencies cannot be accepted, the bureaucracy must be held liable for their role and hence rejected the reasoning of the court in Nav Rattanmal.

While the propositions made by the court in Bherulal may not be easy to replicate and realistic, it certainly seems to be progressive by showing a way forward and advocates for a reduced limitation period for government contracts.[20]

All laws are manifestation of the time in which they are introduced. The reasons behind bringing the Law of Limitations are quite appreciable and one must commend the impact it has had on the legal system. But all laws must evolve with time. The judgment of Bherulal shows for the need for the Parliament to revisit the limitation period of government contracts. The Law Commission in 2005 did come up with its 193rd report concerning the Articles 25 and 27 of the Limitation Act.[21] It may be a good time to have the Law Commission to revisit the limitation period in government contracts.

  1. The Indian Contract Act, 1872
  2. The Limitation Act, 1963
  3. The Constitution of India, 1949
  1. Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 328
  2. Siraj-Ul-Haq Khan v. The Sunni Central Board of Waqf U.P. AIR 1954 All 88
  3. Noharlal Verma v. Distt. Coop. Central Bank Ltd (2008) 14 SCC 445
  4. State of Bihar v Majeed AIR 1954 SC 786
  5. Nav Rattanmal And Others vs The State of Rajasthan AIR 1961 SC 1704
  6. State of Madhya Pradesh v Bherulal Special Leave Petition (C) Diary No.9217 OF 2020
  1. Bhat S., Government and Quasi Contracts. in Sairam Bhat (ed), Introduction to the Law of Contract (Distance Education Department National Law School of India University 2019)
  1. Rathore G., Overview: Indian Limitation Act, 1963' (The Law Mentor Blog, 9 May 2020)
  2. Shroff K., 'Exclusions From Limitation: Some oft used exclusions to save limitation' (The SCC Online Blog, 19 May)
  3. Megha M., 'Limits of the Limitation Law and IBC' (Vinod Kothari Consultants Blog, 9 February 2020)
  4. Gopalakrishnan V, 'Government Contracts' (Legal Services India)
  5. Mathew J, 'Introduction to the law of Limitation' (Vaidha Blog)
  1. S 25, The Indian Contract Act 1872
  2. Ibid n1.
  3. Gunjan Rathore, Overview: Indian Limitation Act, 1963 (The Law Mentor Blog, 9 May 2020) accessed 15 May 2021
  4. Karl Shroff, 'Exclusions From Limitation: Some oft used exclusions to save limitation' (The SCC Online Blog, 19 May) accessed 15 May 2021
  5. Mittal Megha, 'Limits of the Limitation Law and IBC' (Vinod Kothari Consultants Blog, 9 February 2020) accessed 15 May 2021
  6. AIR 1958 SC 328
  7. ibid n6
  8. AIR 1954 All 88
  9. Ibid n4
  10. S 14, 18, 19 The Limitation Act 1963
  11. (2008) 14 SCC 445
  12. Ibid n4
  13. Sairam Bhat, Government and Quasi Contracts. in Sairam Bhat (ed), Introduction to the Law of Contract (Distance Education Department National Law School of India University 2019) 126
  14. AIR 1954 SC 786
  15. Veena Gopalakrishnan, 'Government Contracts' (Legal Services India) accessed 15 May 2021
  16. Article 299, The Constitution of India 1949
  17. Article 112, Schedule Part IX, The Limitation Act 1963
  18. AIR 1961 SC 1704
  19. Special Leave Petition (C) Diary No.9217 OF 2020
  20. Jerrin Mathew, 'Introduction to the law of Limitation' (Vaidha Blog) accessed 15 May 2021
  21. Law Commission, Transnational Litigation: Conflict of Laws � Law of Limitation (Law Com No 193, 2005)

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