SPECIFIC RELIEF UNDER CONTRACTS
India finally has a new provision for granting specific relief under contract with a suitable amendment w.e.f. 1st October, 2018 with The Specific Relief (Amendment) Act, 2017.
The Specific Relief Act 1963 (“the Act”) sets out the remedies available to parties whose contractual or civil rights have been hampered. The Act comes into play when an actual damage for non-performance of a contractual obligation cannot be measured or the monetary compensation would not suffice.
The Party affected can move to the court for directing the other Party to fulfil the obligations or requirements under the contract.
The Act provides for a Specific performance of a contract in absence of monetary relief, which makes it an Alternative remedy. Till now the courts had a discretionary power, whether to grant such relief of specific performance or not. This used to increase the uncertainty of contracts and contractual reliefs.
As part of the ‘Ease of Doing Business’ initiative of the Government of India and increased difficulties in the performance and execution of contract based on infrastructure developments, public-private partnerships and other public projects, involving huge investments, the strong need for the change in the existing legislation arose.
Hence, the Bill seeks to make the Specific Relief Act a Rule rather than an Exception to the General Rule, subject to certain limitations.
The Specific Relief (Amendment) Bill, 2017 (“the Bill”) was introduced by the Minister of Law and Justice, Mr Ravi Shankar Prasad on 22nd December 2017 and was passed by the Lok Sabha on 15th March 2018.
The Bill received ascent of President of India on 1st August, 2018.
It has come into force with effect from 1st October, 2018.
HIGHLIGHTS OF THE AMENDMENT
Section 6 of the Act talks about the suit which can be filed when any person has been dispossessed of an immovable property without his consent.
In Section 6(1) of the Specific Relief Act, 1963 (hereinafter referred to as the “principal act”), after the words “he or any person” the words “through whom he has been in possession or any person” shall be inserted.
Comment: Through the insertion of the words in the amendment, the provision now grants an additional remedy to the owner of the property in case of dispossession by a third party.
Section 10 of the Act talks about the cases in which the specific performance of a contract is enforceable.
Section 10 of the principal act has been substituted and now it states that the specific performance will now be enforced by the court subject to Section 11(2), 14 and 16.
The substituted Section 10 is “Specific Performance of Contracts”
“The specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of section 11, section 14 and section 16.”
Comment: The amendment in Section 10 has now reduced the discretionary jurisdiction of the Court in granting specific performance of contract. The amendment now seeks to mandate every Court to grant specific performance of contract as a general rule rather than making it an exception.
Earlier the Courts, due to the discretionary power, would opt for granting damages instead of Specific performance but the amendment seeks to change to change that power by making Specific performance a mandate.
Section 11 relates to contracts where the act agreed to be done is in the performance of a trust.
Section 11(1) is sought to be amended to substitute the phrase “contract may, in the discretion of the court” with “contract shall”.
After the amendment, Section 11(1) will read: “Except as otherwise provided in this Act, specific performance of a contract shall be enforced when the act agreed to be done is in the performance wholly or partly or a trust.”
Comment: Through this amendment the legislature has now put a compulsion on the performance of the contract which was earlier “discretion” left on the Court.
For example: A holds certain stock in trust for B. In a situation if A disposes those stock wrongfully then the law provides for an obligation on A to restore the same quantity to B and B can enforce the remedy of specific performance on A for this Obligation.
Section 14 of the Act lays down the types of contracts which cannot be specifically enforceable.
The amendment seeks to substitute Section 14 as under:
“Section 14: Contracts not specifically enforceable
1. The following contracts cannot be specifically enforced, namely:—
(a) Where a party to the contract has obtained substituted performance of contract in accordance with the provisions of section 20;
(b) A contract, the performance of which involves the performance of a continuous duty which the court cannot supervise;
(c) A contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms; and
(d) A contract which is in its nature determinable.”
Comment: The amendment overall aims to make specific performance a mandate.
Through this amendment, mainly Section 14(1)(a) would be substituted which would states that when for the breach of the contract the parties have obtained a substituted performance (under substituted Section 20 as per the amendment) then the contract will no more be specifically enforceable. The other clauses of Section 14, such as (b), (c) and (d) already existed in the previous act.
Section 14A has been inserted which now gives the power to the Court to engage experts whenever necessary.
“Section 14A: Power of Courts to engage experts
(1) Without prejudice to the generality of the provisions contained in the Code of Civil Procedure, 1908, in any suit under this Act, where the court considers it necessary to get expert opinion to assist it on any specific issue involved in the suit, it may engage one or more experts and direct to report to it on such issue and may secure attendance of the expert for providing evidence, including production of documents on the issue.
(2) The court may require or direct any person to give relevant information to the expert or to produce, or to provide access to, any relevant documents, goods or other property for his inspection.
(3) The opinion or report given by the expert shall form part of the record of the suit; and the court, or with the permission of the court any of the parties to the suit, may examine the expert personally in open court on any of the matters referred to him or mentioned in his opinion or report, or as to his opinion or report, or as to the manner in which he has made the inspection.
(4) The expert shall be entitled to such fee, cost or expense as the court may fix, which shall be payable by the parties in such proportion, and at such time, as the court may direct.”
Comment: Through the insertion of Section 14A the Courts will now have the power to appoint an expert to give its opinion on the specific issue and such opinion received will form a part of the record of the suits.
Section 15 of the Act talks about who can obtain a specific performance of the contract.
The Amendment after Clause (f), inserts a Clause (fa) which reads as follows;
“(fa) when a limited liability partnership has entered into a contract and subsequently becomes amalgamated with another limited liability partnership, the new limited liability partnership which arises out of the amalgamation.”
Comment: It is a settled law that Contracts or performances there under cannot be enforced by anyone except for the Parties to the contract.
Exceptions to the general rule always exist. There are certain categories of people who are entitled to enforce specific performance of contract, in spite of not being a party to the contract.
One such addition to the exceptions is a newly formed Limited Liability Partnership. Through this amendment now the limited liability partnerships which have been formed with the amalgamation of two different limited liability partnership firms, can now obtain a specific performance on a contract on which breach has been done. Thus, the scope of the Section has been widened and thus now more people can obtain such orders and the contracts can be fulfilled.
Section 16 deals with cases where specific performance of a contract cannot be enforced in favour of a person.
Section 16(a) which stated that “who would not be entitled to recover compensation for breach” has been substituted to “who has obtained substituted performance of contract under section 20”
In Section 16(c) the words “who fails to aver and prove” has been substituted to “who fails to prove”
In Explanation (ii) to clause (c) the words “must aver” has been substituted to “must prove”.
Now Section 16(c) along with the Explanation will be read as:
“Section 16(c) who fails to prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms of the performance of which has been prevented or waived by the defendant.
Explanation for the purpose of clause (c):
(ii) The plaintiff must prove performance of, or readiness and willingness to perform, the contract according to its true construction.
Comment: The major amendment in this section is that the persons who have now obtained a substituted performance of contract under Section 20 of the Amendment Act cannot obtain or enforce the specific performance of a contract.
Also due to the omission of the word “aver” from section 16(c), the parties here now only need to prove that they are ready and willing to perform the contract, now the parties need not plead that they are ready and willing to perform the contract. Thus the amendment has now removed the burden on the party to plead before the Court its readiness and willingness to perform the contract.
Section 19 of the Act talks about against whom can the specific performance of the contract be enforced.
The Amendment in Section 19, after clause (c), seeks to insert a clause (ca);
“(ca) when a limited liability partnership has entered into a contract and subsequently becomes amalgamated with another limited liability partnership, the new limited liability partnership which arises out of the amalgamation.”
Comment: Under Section 15, after the amendment a limited liability partnership can obtain a specific performance of a contract. Similarly, now through the amendment in this Section, the persons mentioned under Section 15 can enforce a specific performance of a contract against all the persons mentioned in Section 19 including the limited liability partnership which arose out of any amalgamation.
The heading just above Section 20 which was “Discretion and Powers of Court” has now been substituted to “Substituted Performance of Court”.
Section 20 which before the amendment used to talk about the Discretion of the Court in regard to the decreeing of the specific performance will now be substituted to “Substituted Performance of Contract”.
New Section 20 read as below:
“(1) Without prejudice to the generality of the provisions contained in the Indian Contract Act, 1872, and, except as otherwise agreed upon by the parties, where the contract is broken due to non-performance of promise by any party, the party who suffers by such breach shall have the option of substituted performance through a third party or by his own agency, and, recover the expenses and other costs actually incurred, spent or suffered by him, from the party committing such breach.
(2) No substituted performance of contract under sub-section (1) shall be undertaken unless the party who suffers such breach has given a notice in writing, of not less than thirty days, to the party in breach calling upon him to perform the contract within such time as specified in the notice, and on his refusal or failure to do so, he may get the same performed by a third party or by his own agency:
Provided that the party who suffers such breach shall not be entitled to recover the expenses and costs under sub-section (1) unless he has got the contract performed through a third party or by his own agency.
(3) Where the party suffering breach of contract has got the contract performed through a third party or by his own agency after giving notice under sub-section (1), he shall not be entitled to claim relief of specific performance against the party in breach.
(4) Nothing in this section shall prevent the party who has suffered breach of contract from claiming compensation from the party in breach.”
Comment: The substitution of this Section 20 has provided the person with a remedy to substitute the performance of the contract through a third party, who has suffered due to the breach of the contract by the other party. However, recovery of the expenses and costs of such performance of the contract will be recovered from the breaching party, subject to the performance of the contract by a third party.
Also the rights of the third party have been looked upon through this amendment. There have been instances where it can be seen clearly that the contract was for the benefit of the third party, but the third party could not receive any compensation to the loss suffered by them through the breach of the contract.
The Amendment now makes it clear that any party who has suffered because of the breach of contract can avail the remedy of substituted performance. Thus, this remedy is not limited to the parties to the contract but it reaches out to anyone who has suffered due to the breach of the contract.
The Breached Party after opting for substituted performance will not be then entitled to claim relief of specific performance against the breaching party.
Through the amendment Section 20A was inserted which states the Special Provisions for Infrastructure Projects.
“Section 20A:(1) No injunction shall be granted by a court in a suit under this Act involving a contract relating to an infrastructure project specified in the Schedule, where granting injunction would cause impediment or delay in the progress or completion of such infrastructure project.
Explanation.—for the purposes of this section, section 20B and clause (ha) of section 41, the expression “infrastructure project” means the category of projects and infrastructure Sub-Sectors specified in the Schedule.
(2) The Central Government may, depending upon the requirement for development of infrastructure projects, and if it considers necessary or expedient to do so, by notification in the Official Gazette, amend the Schedule relating to any Category of projects or Infrastructure Sub-Sectors.
(3) Every notification issued under this Act by the Central Government shall be laid, as soon as may be after it is issued, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification or both Houses agree that the notification should not be made, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that notification.
Comment: This amendment is based on the principle that any public work must progress without interruption. The role of judges in this implementation is to restrict their interference to the minimum, so that projects of public works will not be delayed or impeded. This will help the public work projects to finish easily without any interference.
In the Amendment Section 20B was inserted to establish Special Courts for the contracts related to infrastructure projects.
“Section 20B: The State Government, in consultation with the Chief Justice of the High Court, shall designate, by notification published in the Official Gazette, one or more Civil Courts as Special Courts, within the local limits of the area to exercise jurisdiction and to try a suit under this Act in respect of contracts relating to infrastructure projects.”
Comment: Through this amendment, now there will be Special Courts for the suits related to infrastructure projects which will now result in speedy disposal of cases.
In the Amendment, Section 20C was inserted which gave a time limit for the disposal of cases.
“Section 20C: Notwithstanding anything contained in the Code of Civil Procedure, 1908, a suit filed under the provisions of this Act shall be disposed of by the court within a period of twelve months from the date of service of summons to the defendant.
Provided that the said period may be extended for a further period not exceeding six months in aggregate after recording reasons in writing for such extension by the court.”.
Comment: The Section focuses on the time limit which the Courts have to dispose off the case filed under the Act.
The main objective behind this section is speedy disposal of cases, for instance if the Court has ordered for the specific performance of the contract the party would have already suffered the loss and thus it would not be of any benefit to the party due to the time taken in disposing the matter. Thus in order to benefit the party at loss this section has been added.
The section provides for the power to give compensation in certain cases.
In the Amendment, in Section 21 (1), the words “either in addition to, or in substitution of” has been substituted to “in addition to”.
Comment: In a suit for specific performance of a contract, the amendment seeks to provide for an additional right to claim for compensation as well. Similarly under Section 20 of the Act, the amendment allows the person to claim for compensation even if he has opted for substitution of Performance.
Section 25 talks about which law would be applicable to the preceding sections where the settlements pertaining to certain awards need to be executed.
In the Amendment, the words “the Arbitration Act, 1940”, has been substituted to “the Arbitration and Conciliation Act, 1996”.
Section 41 of the Act talks about when an injunction can be refused.
In the Amendment, after Clause (h), the following Clause “ha” shall be inserted.
“Section 41 (ha) if it would impede or delay the progress or completion of any infrastructure project or interfere with the continued provision of relevant facility related thereto or services being the subject matter of such project.”
Comment: The amendment in this section adds to its list that the court can refuse to provide the injunction when it would impede or delay the infrastructure project. This amendment has been in consonance with Section 20A. The legislature through this amendment has given prime importance to the infrastructure projects as due to these suits and injunctions the projects remain incomplete and it affects the general public. Thus restrictions have been laid down with regards to the infrastructure projects.
In furtherance to amendment to Section 41, a Schedule has been inserted which lists down the categories of projects and infrastructure sub-projects which are to be covered by Section 20A and Section 41(ha). Thus the restrictions and provisions mentioned in Section 20A and 41(ha) will be applicable to all the things mentioned in the Schedule.
The Amendments are a definite step towards mitigating the uncertainties relating to execution of contracts in the country, though introduced and considered much after the need for the same arose.
The major change being discretionary power of the Court has been done way while granting the remedy of Specific Performance under the Specific Relief Act.
Secondly with the amendment in Section 10, the Courts discretion to order specific performance has been taken away now the Court have to provide for specific performance of the contract under Section 11.
Also the Court can now provide for the specific performance of the contract subject to the provisions of Section 14 and 16 which also have been amended.
Thus, the Courts power has been limited to the lists enumerated in Section 14 and 16 regarding which contracts can be specifically enforceable and which against whom such contracts can be specifically be enforceable to perform.