Restoring the Faith in International Contracts In India: Specific Relief Amendment, 2018                                                                                                                                                                    

-Gunjan Chhabra

Partner, Arbitration and Dispute Resolution

The world has become a global village of commerce. In the long drawn court battles which any commercial entity faces, the winner of interim injunctions often tends to be the practical winner in a court case. The Specific Relief Act, 1963 (the Act) is a tool of varied importance in the Indian scenario, including in temporary injunctions.

The Specific Relief Act, 1963 has recently undergone an overhaul in the Specific Relief (Amendment) Act, 2018(“Amendment Act”), which has recently been published in the official gazette on 1stof August, 2018. It had all begun with the formulation of the Expert Committee Report on Specific Relief Act, 1963 which had submitted its report in May, 2016[1]. This Article discusses the key changes made by virtue of the Amendment Act[2].

Nature of the Relief of Specific Performance

One of the main aims of Amendment Act as suggested by the Report was to change the nature of Specific Performance as a relief. The Amendment Act aims to change the approach of Courts from damages being the rule and Specific Performance being the exception, to Specific Performance being the rule and damages being the exception. This modification sought to be brought seems to stem from the fact that parties to a contract ought not to be permitted from escaping their contractual obligations simply by a payment of damages.

It is a welcome change considering the fact that many times parties find it difficult to prove all the damages they might suffer as a result of non-performance of the contract. The Indian law[3]is strict and exact in award of compensation and sometimes damages may not be an adequate relief of non-performance. It was earlier very difficult to get a direction from Court for specific Performance in circumstances when the contract provided for Liquidated Damages. This and several other reasons are a cause for changing the approach of Courts to Specific Performance.

Specific Performance of contracts changed from Discretionary to Mandatory Relief

In order to change the approach towards Specific Performance, a key change which has been brought about by the Amendment Act is to make Specific Performance mandatory rather than discretionary. Earlier, the language of Section 10 of the Act provided that, “Specific Performance of contract may, in the discretion of the Court, be enforced…”. Now the language of Section 10 has been changed by the Amendment Act to read, “The Specific Performance of a contract shall be enforced by the Court…”. A Similar change has been brought about in Section 11. Therefore, in the circumstances mandated by the Act, enforcement of the contract has become mandatory by the Court.

 

Damages no longer a bench-mark for non-grant of Specific Performance

The un-amended Act provided that Contracts could be specifically enforced only if there existed no standard for ascertaining the actual damage caused by non-performance, or if compensation for non-performance would not be an adequate relief[4]. However, this provision has been completely done away with. Now damages need not be looked into for the Court to see whether Specific Performance can be granted or not, and especially so, in view of the relief becoming mandatory. Similarly, the relevant modifications have been made in Section 14 by deleting the earlier Section 14 sub-section (a) and also with the deletion of the earlier Section 16(a).

Failing to “AVER” readiness and willingness to perform, no longer a death knell

Earlier, in absence of a specific pleading of readiness and willingness to perform, the suit would often be held to be not maintainable[5]. If the Plaintiff had failed to aver in the plaint that he was, and is, ready and willing to perform his part of the contract, he had failed to disclose his cause of action for the relief of specific performance and his plaint was liable to be rejected under Order 7 Rule 11 of the Code of Civil Procedure, 1908[6]. However, this position was seeing a gradual and marked shift with passing time. Judicial precedents were slowly tilting towards a more liberal interpretation of the provision[7].

What the amendment has done is to delete the words “aver and” and to retain the words “prove”. This means that even if the Plaintiff might have failed to specifically plead readiness and willingness, but he is able to prove the fact with the help of circumstances such as a prior notice to this effect, then his Plaint would be very much maintainable.

Grounds of Section 20, no longer available for refusal of Specific Performance 

The old Section 20 of the un-amended Act provided for the relief of Specific Performance to be refused if the contract gave the Plaintiff an unfair advantage, performance of the contract would involve some hardship on the Defendant, enforcement of the contract would make it inequitable for the Defendant. The entire old Section 20 has now been scrapped and the relief of Substituted Performance has been introduced in Section 20 now.

New relief of Substituted Performance of Contract

Section 20 has been substituted by way of the Amendment Act to provide for substituted performance of Contract. The party who has suffered from breach of the contract, now has the option of substituted performance through a third party and to recover such expenses nd costs actually incurred by him. In order to avail of the Substituted Performance, Plaintiff needs to give a 30-day prior notice to the Defendant. Moreover, availing of substituted performance, makes Plaintiff eligible to claim such costs but ineligible to claim specific performance of the original contract. Appropriate modification has been made by substituting Section 14 Sub-Section (a) to make specific performance unenforceable for contracts for which substituted performance has been availed. Similar modification has been brought about by introduction of new Section 16(a).

Special Category of Infrastructure Contracts

The Report provided various reasons of why Public Works Contracts are on a different footing than normal contracts as they mostly involve elements of public interest. The Report also advised that the Court should refrain from interfering or interrupting such contracts. The Impact this had on the Amendment Act was, that it has now introduced Section 20A in the Act, which prohibits Courts from granting injunction in an “Infrastructure Contract” if it causes delay or impediment in the completion of projects. Concomitant provision is made in Section 41(ha) as well. The term infrastructure contract has been defined in the Schedule and involves categories of projects including Transport, Energy, Water and Sanitation, Communication and Social and Commercial Infrastructure.

The Amendment Act also provides for Special Courts to be set up to try suits under the Act in regard to infrastructure contracts[8].

Specific Time Limit of Twelve Months for disposing of cases under the Act 

The Amendment Act has also introduced Section 20C in the Act to provide a period of Twelve Months, extended by a maximum period of Six Months for disposing off cases filed under this Act.

Denouement

The main aim of the Amendment Act seems to be to improve the ease of doing business in India. Foreign Investors who would be vary of dipping their toes in the Indian Market for fear of parties escaping performance obligations in the garb of being optional, will now have much more faith in the assurance of performance. This is especially so in view of Specific Enforcement of Courts now being mandatory rather than discretionary. This simply means that the Court in almost all circumstances would order for parties to honour their commitments under contracts.

Another key feature of this Amendment is the introduction of substituted performance. This is another attractive modification in the Indian law which would invite Foreign Parties to the Indian Market as they can fearlessly get contracts performed through a substitute and still claim the entire costs from the breaching party.

All in all, the Amendment surely seems to be a step in the right direction aimed at facilitating the world’s faith in Indian commerce and Industry and more in the Indian Justice delivery system.

[1]Hereinafter referred to as “Report”; The full report can be accessed at,<https://drive.google.com/file/d/0B-ZUXtJuPbi3ak0wbENVdUdjQTZWcTNQSW5vNWpUSWVNYnc0/view>.

[2]A ready reckoner of in a tabular form of all the modifications made is available at this link: <https://bit.ly/2uudeyn>

[3]Section 73 of the Indian Contract Act, 1872.

[4]Section 10 of the un-amended Act.

[5]Section 16(c) of the un-amended Act.

[6]Ouseph Varghese v. Joseph Aley (1970)1SCR921

[7]Sant Lal v. Shyam Dhawan AIR 1986Del275; Ramesh Chandra Chandiok v. Chuni Lal Sabharwal, (1971)2SCR573; P. Purshottam Reddy v. Pratap Steels Ltd; AIR 2002 SC 771

[8]Section 20B of the Amended Act.

Uncategorized

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclaimer

The Bar Council of India does not permit advertisement or solicitation by advocates in any form or manner. By accessing this website (www.adwlegal.co.in) you acknowledge and confirm that you are seeking information relating to Adwitya Legal LLP of your own accord and that there has been no form of solicitation, advertisement or inducement by Adwitya Legal LLP or its members. The content of this website is for informational purposes only and should not be interpreted as soliciting or advertisement. No material/information provided on this website should be construed as legal advice. Adwitya Legal LLP shall not be liable for the consequences of any action taken by relying on the material/information provided on this website.
The contents of this website are the intellectual property of Adwitya Legal LLP.