The Government of India in its continuous efforts of improving the parameters for 'ease of doing business in India' has undertaken to amend the Specific Relief Act, 1963 ("Act"). The Specific Relief (Amendment) Act, 2018 ("Amendment Act"), which attempts to radically change the Act, has been passed by both the houses of Parliament and has also received the Presidential assent on August 01, 2018. Most of the amendments in the Amendment Act are premised on the recommendations of an Expert Committee set up for examining the Act in the context of delays of several infrastructure projects and the changed scenario involving contract-based infrastructure development, public private partnership and other public projects involving huge investments. The Amendment Act primarily drives towards changing the approach from damages being the rule and specific performance being the exception as under the Act to specific performance being the rule and damages being the alternate remedy. In this article we have analyzed some of the principal changes and the possible effect it is likely to have going forward.
The Act laid the remedial law in case of breach of a contract which are specifically enforceable. The mutually exclusive remedies provided under the Act is to either require the defaulting party to perform the obligations as under the terms of the contract, or, require the defaulting party to offer monetary compensation in place of performing contractual obligations. More often than not, payment of damages and monetary compensation was the end result.
In view of the constant pile-up of delayed infrastructure projects resulting from ongoing disputes between the contracting parties, enforcement of contractual laws needed to be made more stringent. The Amendment Act has introduced changes which take away the wide discretion granted to courts for granting specific performance under the Act and obliges the courts to grant specific relief as a rule. It has also introduced the remedy of substituted performance, whereby the promisee is entitled to deploy a third party to substitute the defaulting party, for specific performance of contractual obligations, the cost of which will be reimbursed by the defaulting party. Introduction of specific timelines and special courts for dealing with matters relating to specific performance under infrastructure projects further lends certainty to developers and contractors with respect to the outcome. The Amendment Act thus aims to bring about simple and speedy enforcement of contractual obligations.
Features of the Amendment Act
- Specific Performance: The Amendment Act has removed the concept of the court's discretionary power in granting specific relief entirely. The amended Section 10 states that specific performance of a contract shall be enforced by the court subject to the limited grounds of refusal defined in other provisions of the Amendment Act. The Act was based on the premise that specific performance could not be granted or enforced in a situation where monetary compensation was an adequate relief. The Amendment Act has replaced Section 14 and has limited the grounds under which specific performance can be refused such as the contract so dependent on personal qualifications of the parties that court cannot possibly enforce specific performance on material terms etc. As the courts no longer have the discretion to decide upon granting specific relief, there is far more certainty that the parties will be successful in obtaining specific relief (Section 10 and 14 of the Amendment Act).
Performance: In the past, Indian courts have awarded
substituted performance as a remedy but there was no express
provision in the Act. By way of the Amendment Act, there is now a
more uniform process by which this remedy can be availed. It
mandates that a notice be served on the defaulting party, giving
him time of thirty (30) days to begin acting upon the contractual
obligations. If the defaulting party/ promisor does not act upon it
during the notice period the aggrieved party/promisee can remedy
the same by carrying out risk purchase, for which the promisor can
appoint a third party to fulfil the terms of the contract at the
expense of the promisor (Section 20 of the Amendment Act). The
intent being exact fulfilment of an obligation (specific
performance) and to make good the loss suffered by the promisee.
The remedy of substituted performance must be availed in addition
to right to claim damages and shall not be an alternative remedy.
The Amendment Act also lays down an elaborate and exhaustive
procedure, by which these remedies can be availed.
Earlier, upon a breach of contract, a party could, in appropriate circumstances, have the contract performed through another party. In such circumstances, there would be a claim of compensation under S. 73 of the Indian Contract Act, 1872 which required the party obtaining substituted performance to ensure that cost mitigation measures are taken, and that compensation would relate only to foreseeable costs. The introduction of a specific provision, allowing recovery of costs, pursuant to substituted performance, would reduce the risks and uncertainty around the ability to claim complete costs of substituted performance.
- No Injunction for infrastructure projects: Injunction has been a custom since the implementation of the Act. Many infrastructure projects have been held up for years on account of delay in timely completion of projects. Delay and exorbitant escalation costs have often rendered the contracts unexecuted. No injunction can be granted by the court in a suit under the Amendment Act involving a contract relating to an infrastructure project if such injunction would cause delay or impediment in the progress or completion of the infrastructure project (Section 20 (A) (1) of the Amendment Act).
- Special Courts: This amendment was built in consultation with the State Governments. The Amendment Act provides for mechanism to designate certain civil courts as special courts, after consulting with Chief Justice of the state high courts, to deal with infrastructure cases. The courts are under the obligation to dispose of the cases within a year from date of receipt of summons by the defendant. It is extendable for a period of next six months upon the courts ponderance. This would ensure expedient adjudication of disputes which is a precondition for development and growth (Section 20 B and 20 C of the Amendment Act).
- Appointment of experts: The courts have been given discretionary powers to engage and seek the opinion of experts on any issue as it may deem fit and proper. Such opinion or report will form part of the records of the suit and the court. The experts can be subjected to examination by the parties in open court with the permission of the court. The costs, fees or expenses of the expert shall be payable by the parties in the proportion determined by the court (Section 14 A (1) of the Amendment Act).
India ranks 164th in the World Bank rankings for 'enforcing contracts' and at 100 for 'ease of doing business'. While the changes reflect the Government's intent to reduce bottle-necks plaguing the infrastructure sector and improve these rankings, this Amendment Act is also likely to reduce litigations and/or expedite the disposal of cases. On the flip side, completely taking away the court's discretion in granting specific performance may create strange situations where the courts will have to order specific performance irrespective of the incumbent facts and circumstances, which may create unreasonable hardships for the promisor. The Amendment Act also does not specify whether the amendments will be applicable based on the date a contract is signed, is breached or at the time of seeking the relief. Some of these, we believe will get addressed in the course of implementation of the Amendment Act by the courts through judicial pronouncements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.