Amendment to Section 28 of the Indian Contract Act: Impact on Bank Contracts

Prelude to the Amendment

Prior to the amendment of section 28 of the Indian Contract Act, 1872, by the Banking Laws, this section held that a contract in writing by which a bank or financial institution stipulated a term in favor of itself could not be considered illegal.

Contentions and Exceptions

The Petitioner in a recent case argued that an erroneous interpretation of section 28 by the Respondent bank led to an incorrect application of the law. Section 28 of the Contract Act aims to render void agreements, including those involving banks, in certain circumstances. However, Exception 3 to Section 28 was introduced to address such issues.

The amendment to section 28 ensures that banks and financial institutions can include terms in their contracts that safeguard their interests while adhering to the principles of the Contract Act. This amendment provides clarity and protection for both parties involved in banking transactions.

Conclusion

The amendment to section 28 of the Indian Contract Act has significant implications for bank contracts. It allows banks to include protective terms in their agreements while ensuring that these terms are not considered illegal. This amendment also provides clarity and protection for both banks and their customers, fostering a more balanced and equitable banking environment.