The Contingent Foundations Of Finality: A Critical Analysis Of The Enforcement Period Framework For Bank Guarantees Under Section 28 Of The Indian Contract Act, 1872
- IJLLR Journal
- 9 minutes ago
- 2 min read
Rachit Shukla, SVKM’S NMIMS Kirit P Mehta School of Law, Bengaluru
ABSTRACT
Indian banking law has a complicated relationship with time. How long can a bank be held liable under a guarantee? Who gets to decide when that liability ends? These questions have produced decades of judicial back-and- forth, legislative fixes, and commercial frustration, and Section 28 of the Indian Contract Act, 1872 sits right at the middle of it.
The provision was meant to stop powerful contracting parties from writing legal remedies out of their contracts. Simple enough. But when you apply it to bank guarantees, things get messy fast.
This paper follows the whole arc. It starts with the pre-1997 judicial distinction between extinguishing rights and barring remedies, a distinction that looked neat on paper but was deeply unfair in practice. Then comes the 1997 amendment, which killed that distinction but created fresh headaches for banks. Then the 2013 insertion of Exception 3, which was Parliament’s attempt to give banks some commercial room to breathe without completely dismantling what the 1997 reform built.
The centrepiece of the analysis is the Delhi High Court’s 2021 decision in Larsen & Toubro Ltd. v. Punjab National Bank, which drew what is now the leading distinction between validity periods, claim periods, and enforcement periods. The paper looks carefully at what that decision got right, and at something that hasn’t received enough attention: the Court’s interpretation rested heavily on the fact that both parties agreed with each other. That’s not a great foundation for a precedent of this importance.
The argument, ultimately, is that the current framework works well enough in practice but is more precarious than it looks. It’s built on interpretive choices that are still contestable, and on a selective legislative intervention that raises real questions about where Section 28 goes from here.
