FOOD CORPORATION OF INDIA versus NEW INDIA ASSURANCE CO. LTD. AND ORS. ETC. ETC.

Citation: [1994] 1 S.C.R. 939 · Decided: 15-02-1994 · Supreme Court of India · Bench: R.M. SAHAI, S.P. BHARUCHA, N. VENKATACHALA

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

FOOD CORPORATION OF INDIA 
A 
...l. 
v. 
NEW INDIA ASSURANCE CO. LTD. AND ORS. ETC. ETC. 
-· 
FEBRUARY 15, 1994 
[R.M. SAHAI, S.P. BHARUCHA AND N. VENKATACHALA, JJ.) 
B 
Contract Act, 1872: Sections 23 and 28-Fidelity Insurance Guaran-
_., 
tee-Clause restricting the rights of appellant to make its claim within six 
months-Demand mad&-Re/ationship of creditor and debtor established-
Suits for recovery filed after expiry of six months-JVhether bamd by limita- c 
tion--Held: Agreement curtailing the statutory period of Limitation is void. 
Word5 and Phrases: 'Fidelity'-'Fidelity Insurance Guarantee'-Mean-
ingof 
Appellant-Corporation entered into an agreement with some Rice D 
Millers. On the strength of the agreement the appellant, as principal, 
appointed the Rice Millers for procuring, hulling and supplying rice on 
certain conditions. To assure the appellant of their compliance, the rice 
-
millers obtained a Fidelity Insurance Guarantee in favour of the appellant 
from an Insurance company. Under this guarantee, the Insurance Com-
E 
pany undertook to indemnify and keep indemnified the appellant in money 
against any loss caused to or suffered by it due to any breach of terms and 
condition!"> by the miller, of their agreement with the appellant. It was also 
provided therein that the appellant could recover all the dues against the 
-~ 
millers, directly from the Insurance company. The guarantee also con-
tained a recital to the effect that the appellant will lose all its rights under F 
the said guarantee after the expiry of a period of six months from the date 
of termination of the contract . 
... , 
In course of its dealing with the millers the appellant, later on, 
suffered loss due to the negligence of the millers and it had to get the paddy G 
hulled from other millers. For this loss the appellant placed its demands 
with the concerned insurance companies, by w~y of demands well within 
-( 
the stipulated period of six months. However, those demands were not 
made good by the respondents. 
The appellant, finding no other alternative, filed suits for recovery H 
939 
940 
SUPREME COURT REPORTS 
[1994) 1 S.C.R. 
A 
against the respondents in the Civil Courts. The respondents contested the 
suits on the ground that the appellant had flied the suits in question after 
the expiry of the stipulated period of six months from the date of termina-
tion of contract. The Trial Court decreed the suits in favour of the 
appellant and held that even though it was mentioned in the guarantee 
B 
c 
agreement that the appellant would lose all the claims as against the 
Insurance Companies if it was not claimed within six months as aforesaid 
but non-filing of the suit within six months did not mean that the suit was 
barred by limitation. It was further held that if law of limitation allows a 
person to recover the amount within three years, the parties could not 
agree to reduce the period of limitation. 
Against these orders two sets of Appeals were preferred before the 
High Court. One set was filed by the Rice Millers and the other was filed 
by the respective insurance Companies. The High Court dismissed the 
appeals filed by the Rice Millers and allow,~d the appeals filed by the 
insurance companies. The High Court took the view that the terms of 
D Fidelity Insurance guarantee extinguished the rights of the appellant, 
under the bond, to make any claim after the expiry of six months period 
from the date of termination of contracts entered into between the appel-
lant anrl the Rice Millers. It also held that a clause in the Fidelity 
Insurance guarantee to the effect that no claim would be entertained after 
E 
six months, was not contrary to sec. 28 of the Contract Act nor was against 
the Public Policy under sec. 23 of the Contract Act. Hence these appeals. 
F 
G 
It was the contention of the appellant Corporation that the High 
Court misread the clause in the contract of Fidelity Insurance Guarantee 
and equated the period within which claim or demand agains,t the in-
surance Company was allowed to be made, with the period within which a 
suit against the insurance company had to be filed. 
Allowing the appeals, this Court 
HELD: By the Court: 
Though there is a clause in the Fidelity Insurance Guarantee 
>-
restricting the rights of the appellant-corporation to make its claims 
within six months, the suits filed by the appellant-corporation after the 
expiry of the said period of six months, are not barred by li

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