The Specific Relief (Amendment) Act, 2018

Introduction / Background

The Specific Relief (Amendment) Bill, 2017 was introduced in Lok Sabha by the Minister of Law and Justice, Mr. Ravi Shankar Prasad on December 22, 2017.

The Bill seeks to amend the Specific Relief Act, 1963. The amendments have been suggested pursuant to the recommendations in the Expert Committee’s Report on Specific Relief Act, 1963 dated May 26, 2016 (“Expert Committee Report”).

The Specific Relief (Amendment) Act, 2018 (“Amendment”), received the assent of the President on August 01, 2018, to further amend the Specific Relief Act, 1963 (“Original Act”).

The Act sets out the remedies available to parties whose contractual or civil rights have been violated. The Act sets out two main remedies to a party whose contract has not been performed:

  • the party may ask the court to compel performance of the contract (specific performance); or
  • the party may seek monetary compensation instead of performance.

The Original Act defined specific performance as a limited right and the courts permitted specific performance of the contract, where monetary compensation/damages did not form an adequate remedy and when monetary compensation could not be easily ascertained, subject to court’s discretion. The present Amendment to the Original Act removes these conditions and permits specific performance by courts as a general rule.

Highlights of the Specific Relief (Amendment) Act, 2018

  1. Section 10 – Specific Performance in respect of contracts;
  2. Section 14 – Contracts that cannot be specifically enforceable;
  3. Section 14 A – Engagement of experts by Court to get opinion on any specific issue involved in the suit;
  4. Section 20 – Substituted Performance of Contract by a third party as an exception to specific performance; and
  5. Section 20B – Set up Special Courts for dealing exclusively with suits relating to infrastructure claims.

Discretionary power of courts

Specific performance being an equitable remedy, was granted only in exceptional circumstances, where the loss could not be adequately compensated in the form of damages. Under Section 20 of the Original Act, courts had discretion in granting the remedy of specific relief. Courts were not bound to grant specific relief merely because it was lawful to do so. Therefore, specific relief was granted only in exceptional circumstances. The Amendment has turned the law on its head by ensuring that contracts except as specified should be specifically enforced by the courts.

The Act contains a list of persons (i) who may seek specific performance and (ii) against whom specific performance may be sought. This list includes: (i) a party to the contract; or (ii) a company resulting from the amalgamation of two existing companies. The Amendment also adds a new entity to the list of parties. It now includes a limited liability partnership (LLP) formed from the amalgamation of two existing LLPs, one of which may have entered into a contract before the amalgamation.

With the Amendment, specific performance now must be granted by courts unless the claim for relief is barred under limited grounds prescribed in the statute.

Substituted Performance

Earlier, upon a breach of contract, a party could, in appropriate circumstances, have the contract performed through another party. Section 73 of the Indian Contracts Act, 1872 (“Contract Act”) deals with the consequences of breach of contracts. In such circumstances, there would be a claim of compensation and it would require the party obtaining substituted performance to ensure that the cost mitigation measures are taken and that the compensation would relate only to foreseeable costs. The Amendment states that a party by obtaining substituted performance forfeits their right to get specific performance of contract enforced through Court.

Under Section 20 of the Amendment, if a contract is broken due to non-performance of a promise by a party, then the affected party (i.e. a party whose contract has not been performed by the other party) has the option of availing substituted performance through a third party or through its own agency (“Substituted Performance”). The affected party must give a written notice of at least 30 (thirty) days before obtaining such Substituted Performance. The party suffering the breach is entitled to recover the costs and expenses for the Substituted Performance from the party committing the breach.

Special provisions for infrastructure projects

Under the Act, courts can grant preventive relief (injunctions) to parties. The amended Act has inserted a new Section 20A which prohibits granting injunctions in contracts related to infrastructure projects, if such injunction would cause delay or impediment in the progress or completion of the infrastructure project. These projects can be categorized under the following infrastructure sectors and their sub-sectors: (i) transport; (ii) energy; (iii) water and sanitation (iv) communication (such as telecommunication); and (v) social and commercial infrastructure such as affordable housing and the Central government may amend the list through notification.

The Amendment has also suggested the designation of “Special Courts” under Section 20B by the State Government in consultation with the Chief Justice of the High Court. These Special Courts will deal with suits in relation to infrastructure projects. Special Courts for suits pertaining to infrastructural projects are to be designated for expeditious disposal of suits, given the element of public interest in such suits.

Fixed timelines

A suit filed under the Specific Relief Act would have to be disposed of by the court within 12 (twelve) months from the date of service of summons to the defendant. This period can be extended by 6 (six) months after the recording of written reasons by the court. The fixed timelines have been prescribed to reduce delays and ensure expeditious disposal of suits by courts.

Hiring of Experts

The amended Act inserts a new provision (Section 14A of the Act) for engaging technical experts in suits where expert opinion may be needed. Although parties can provide expert evidence to support their cases, a court-appointed expert would may be more independent and impartial. The court will determine the terms of payment of such expert. The payment will be borne by both the parties.

Recovery of possession

The Original Act permits the following persons to file a suit for recovery of possession of immovable property: (i) a person put out of possession (dispossessed person); and (ii) any person claiming through such dispossessed person. The amended Act additionally permits a person through whom the dispossessed got possession of the immovable property, to file a suit for recovery.

Key concepts that have remain unchanged

The Amendment, however, does not make any changes in important provisions of the Original Act such as specific performance of part of contract (Section 12) and Personal Bars to relief under specific performance of contract (Section 16). Had the Amendment sought changes to these provisions as well, the implementation and interpretation of the amended provisions would have been easier to attain the objectives of the Amendment.

Impact of the Amendment

The impact of the Amendment will be seen through the evolution of the amended law through judicial pronouncements.

Industries like construction and infrastructure are likely to benefit the most, where often damages do not adequately compensate a breach of contract. In future, the Amendment would compel the parties to include specific clauses identifying the procedure of achieving Substituted Performance and/or agreeing to avoid seeking of specific performance. The aggrieved party will have a legal remedy (and a right) to attain performance of the contract at the cost of the party committing the breach. Further, being able to avail Substituted Performance allows the aggrieved party to be restored to the position it would have been in had the breach not occurred, which may be the most effective alternative available in the event of a breach. All these principles are broadly covered under Section 73 of the Contract Act in any case.

There is now bound to be an inherent contradiction in the application of Section 73 of the Contract Act and the Specific Relief Act as amended.

Conclusion

The amendments to the Specific Relief Act have been introduced with the objective of reducing the number of litigation and to give seriousness to contracts i.e. performance of the contractual obligations by parties with the introduction of the concepts of Substituted Performance and the imposition of time limits for disposal of cases.

Altering the nature of specific relief from an exceptional rule to a general rule is we understand expected to ensure contractual enforcement. With this amendment, the judiciary will be forced to ensure that contracts are enforced and not just award damages for breach. Given the duration of time in India (even with the time limit of 12 months on conducting such litigation), it would be  wonder if the execution i.e. performance of the contract would still hold relevance to the parties.

This is of course being done so that India moves up in the ease of doing business ratings, however the effect of it might be counter-productive and burden courts excessively. Consequential amendments to the Indian Contract Act, 1872 should have been made to ensure harmonious interpretation of the breach and default provisions in both the amended Act and the Contract Act.


Charulata (Associate) and Shikha Shukla (Associate Trainee)


 

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