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THE SPECIFIC RELIEF ACT, 1963
The Specific Relief Act, 1963 was came into force on 1st^ March 1964. The Parliament enacted the Act by repealing the Specific Relief Act, 1877. The Act is based on the principle of equity and is used for granting specific relief for enforcing civil rights. It has no application in enforcing penal laws. The Specific Relief Act, 1877 contained the principles of equity, justice and good conscience. The need for a new statute suited for the new requirements lead to the enactment of the Act of 1963. The Bill of the new Act was drafted on the basis of the 9th^ Report of the Law Commission of India. From the preamble of the Act, it is clear that the Act was not an exhaustive one. It only deals with certain kinds of specific reliefs and there are other reliefs about which the Act was silent and are used by the courts. The Act is a procedural law and provides a network of reliefs. The plaintiff, under the Act gets his relief in specific. The reliefs contained in the Act include, Recovery of Possession of Property, Specific Performance of Contracts, Rectification of Instruments, Rescission of Contracts, Cancellation of Instruments, Declarative Relief, and Preventive Reliefs ( Injunctions) The Specific Relief (Amendment) Act, 2018 introduces a paradigm shift in the prevalent law regarding contractual enforcement in India, shifting the focus from the previous default remedy of award of damages for breach of contract to enforcing specific performance of contracts. Acknowledging the need for greater certainty in contractual enforcement and timebound adjudication of rights of contesting parties, the Specific Relief (Amendment) Act, 2018 ( Amendment Act ), amending the Specific Relief Act, 1963 ( Principal Act ), was recently passed by both Houses of Parliament. It received Presidential assent on 1 August 2018, but its provisions are yet to be brought into effect. The Amendment Act reduces the wide discretion previously conferred on courts to grant specific performance. It also introduces a new remedy of 'substituted performance' for breach of a contract, recognising the right of a non-defaulting party to have the contract performed either through himself or a third party, at the cost of the defaulting party. The amendments are aimed
at realigning the existing provisions to enable ease of doing business in India, while continuing to provide stronger contractual enforcement and strengthen investor protection.
Key Amendments Introduced
(a) Specific Performance no longer discretionary
The relief of specific performance evolved as a discretionary remedy granted by English courts of equity in cases where either the common law courts could not provide a remedy, or the remedy was inadequate. In India, the Principal Act was enacted embodying this same outlook towards specific performance. Prior to the amendment, the Principal Act gave courts a discretionary power to grant specific performance of a contract under two circumstances i.e., where (a) monetary compensation for breach of contract was inadequate; or (b) the extent of damage caused by the breach could not be ascertained. Consequently, grant of specific relief for breach of contract was more of an exception, with courts granting damages as a general rule. A major change introduced by the Amendment Act, is that it now makes it mandatory for courts to enforce specific performance of contracts, except for certain types of contracts where performance is not specifically enforceable. The discretion granted to courts previously while granting the remedy of specific performance including the two circumstances under which specific performance could be granted (as discussed above) have been removed. This change is aimed at providing greater protection of contractual expectations by ensuring that a non-defaulting party can obtain the performance he bargained for. With specific performance as the new rule, the likelihood of a judicial order mandating specific performance may well act as a deterrent for defaulting parties. This amendment may also discourage errant parties who may deem it more viable to breach a contract than perform it, as the cost of damages may still be less than the cost of the performance. The previous condition requiring a party to specifically aver in the pleadings 'readiness and willingness' to perform the contract, which often lead to a pedantic reading by courts, has also been done away with. A party is now only required to prove 'readiness and willingness' to perform the contract.
(b) Reduction in category of contracts not specifically enforceable
In line with the shift to a pro-performance regime, the newly substituted Section 14 has reduced the categories of contracts that are not specifically enforceable. Notably, (i) contracts where non-performance could be monetarily compensated; (ii) contracts running into minute details or dependent on the volition of the parties; and (iii) contracts which from their nature are such that the court cannot enforce specific performance of material terms, have been deleted. The amended Section 14 now recognises only 4 categories of contracts that cannot be specifically enforced, i.e., (i) contract where a party has obtained 'substituted performance' under Section 20; (ii) contract involving performance of a continuous duty which cannot be supervised by courts; (iii) contract so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of material terms; and (iv) contract of a determinable nature.
The special recognition accorded to infrastructure projects stems from the sentiment that public infrastructure work should continue without interruption or delay and therefore seeks to abolish the indiscriminate practice of granting injunctions on public utility projects.
(f) Timebound adjudication
The Amendment Act provides an ambitious timeline of 12 months from the date of service of summons on the defendant for the disposal of a suit for specific performance. This period can be further extended by 6 months by the court. The Amendment Act signals a welcome departure from granting specific performance as an exceptional equitable remedy to statutorily mandating that contracts must now be specifically enforced. The amendments are designed to protect contractual rights while lending greater certainty in enforcement of contracts by reducing the element of court discretion. Historically, public utility projects in India have been plagued with delays on account of court mandated injunctions, interminable court processes and restrictions on use of third party agencies for completing projects. The special treatment given to public utility projects under the Amendment Act will therefore not only help promote growth benefiting the public but also protect investor sentiment. That said, as with any significant legislative overhauling, the impact of the Amendment Act is largely predicated on its successful implementation, keeping in mind the renewed objectives of the Principal Act.
Specific Relief (Amendment) Act,
2018: Prospective or Retrospective?
The Specific Relief (Amendment) Act, 2018 ( Amendment Act ) was recently
passed by both Houses of Parliament and subsequently received Presidential
assent on 1 August 2018. Notification of the coming into force of the different
provisions introduced by the Amendment Act is presently awaited.
The Specific Relief Act, 1963 ( Act ) codifies the law in relation to grant of the
relief of specific performance[1] including injunctions.Under the Act, the
remedy of specific performance was not available to a party as a matter of
right, but its grant was based on the discretion of the court. The Amendment
Act has brought about a substantive change in the substratum and ethos of
the Act. As per the Amendment Act, the courts are bound to enforce the
specific performance of a contract as a rule, subject to limited exceptions.
The other major changes include:
1. The introduction of the remedy of substituted performance. Although the
duty of mitigating the loss suffered was always cast on the party that
suffered a breach, this provision can be seen to be a statutory
recognition of the said duty, although framed as an option available to a
party who has suffered breach.
2. A new Section 20A to the principal Act provides that for infrastructure
project contracts, the court shall not grant an injunction in any suit, where
it would cause hindrance or delay in the continuance or completion of the
infrastructure project.
The Amendment Act itself does not provide any guidance on whether the
amendments would operate prospectively or retrospectively. A “savings
clause” or a “transitory provision” is conspicuous by its absence. A similar
controversy in the context of the 2015 amendments to the Arbitration and
Conciliation Act, 1996 is still unsettled, in so far as the Arbitration and
Conciliation (Amendment) Bill, 2018 is pending approval with the
Parliament[2].
Let’s examine the extent and magnitude of the controversy on the basis of
some well settled legal principles.
Background and Nature of Amendments
An important element in the examination of whether the Amendment Act is
prospective or retrospective in its application is to understand the objectives
behind the amendments.
The Amendment Act is based on the recommendations contained in a Report
submitted by an Expert Committee to the Government of India in 2016.[3]
Giving primacy to specific relief is based on the intent to ensure enforcement
of the moral obligation to honour one’s promises, deter a promisor from
committing a breach thus affecting contractual behavior and enable a
promisee to choose a remedy of his choice. It is recognised that a decree for
compensation does not compensate fully, as proving losses with certainty is
difficult. Therefore, the Amendment Act removes all restrictions and makes
specific performance a general remedy available to a party who wishes to
claim it.[4]
What emerges is that the amendments do not purport to be either declaratory
or clarificatory. The amendments seek to bring about a substantive change in
the law by stating, for the first time, that the remedy of specific performance
The practice of engaging experts has seen exponential growth in the institutional/commercial arbitration sector. The said growth is mainly attributable to the regulated and institutionalized manner in which experts are on-boarded to testify on important issues arising out of a conflict. The Courts may have to direct the concerned government(s) to formulate rules specifying, modalities such as minimum qualifications/experience, making of declarations specifying the availability of an expert and conflict of interests, if any. The inclusion of Limited Liability Partnerships (“LLP”) The newly inserted Sections 15(fa) and 19(ca) provide that an LLP which is created out of one LLP amalgamating with another can sue or be sued in a suit for a specific performance. By way of this amendment, the Bill has introduced a new category of entities who are entitled to claim specific performance of contract i.e. amalgamated LLPs Introducing the concept of “Substituted Performance” Section 20 of the Bill entitles a party that is affected due to the non-performance of another party, to get the contract performed by a third party or its own agency. This is subject to the affected party issuing a written notice, of not less than thirty (30) days, calling upon the party in breach to perform the contract within such time as specified in the notice. The party suffering the breach is entitled to recover the cost and the expenses for the substituted performance by the third party or through its own agency from the party committing the breach. The proposed amendment is likely to deter the occurrence of the breach in a contract. Further, the notice period of 30 days may result in parties choosing to perform or renegotiate the contract thereby not only restoring relationships but also reducing litigation. Special Civil Courts and Timelines Section 20B of the Bill mandates that the State government(s) in consultation with the Chief Justice of the concerned High court to establish Special Civil Courts to try cases under this Act. Further, Section 20C stipulates a maximum period of twelve (12) months to dispose off suits filed under the Act. This can be further extended by a maximum period of six (6) months and that too after recording reasons for doing so.
The establishment of Special Civil Court would come as a much-needed respite to the existing civil courts that are already choked with pendency. As regards the timeline of twelve (12) months is concerned, the potential conflict with the timelines prescribed under the Commercial Courts Act, 2015 may have to be clarified. Special Provisions for Infrastructure Projects Section 20A of the Bill provides that no injunction shall be granted by a Court in matters relating to infrastructure projects (as specified in the schedule) where granting an injunction would cause an impediment to or delay in the completion of the project. This amendment aims not only to improve the current investor sentiment but is also intended towards public interest. This crystallizes the perception that public works/ infrastructure projects inherently have an element of public interest affixed to them and ought not to be stayed at the instance of one party. Thinking ‘substance’ over ‘form’ The amendment to Section 16(c) dispenses with the plaintiff’s requirement to make a specific averment reflecting his readiness and willingness to perform the contract. It would suffice if the averment in substance and spirit indicate a willingness on the part of the plaintiff to perform its part of the contract. Conclusion De hors its minor glitches that are subject to clarification, the amendments to the Specific Relief Act, 1963 have finally given some meaningful purport to the relief of specific performance, which was, for the longest time subject to the whims of the judicial discretion. Apart from the President’s assent, what is also keenly awaited are certain important clarifications. Apart from those stated above, the date of applicability of the proposed amended law is unclear, i.e. whether it shall be applicable w.e.f the date on which the contract was signed, date of breach or the date on which proceedings are instituted. Be that as it may, the Bill is certainly poised to bolster contract enforcement and restore the confidence-deficit in commercial litigations as an effective mode of dispute resolution. The Specific Relief (Amendment) Act, 2018 (“ AmendmentAct “), which has brought significant amendments to the Specific Relief Act, 1963 (“ Act “) was notified on August 1, 2018 and has become effective therefrom. While the Amendment Act has introduced various changes, one of
When a party exercises his right to get substituted performance, he forfeits his right to get specific performance of the contract enforced through Court. He may still claim compensation from the party in breach. Performance of a Continuous Duty Section 14(b) now states that a contract cannot be specifically enforced “ the performance of which involves the performance of a continuous duty which the court cannot supervise .” An equivalent provision was also there as Section 14(d) of the [old] Act. The fundamental principle behind this Clause is that the court cannot stop its normal functions for the purpose of giving effect to the terms of a contract. Earlier under the Specific Relief Act, 1877, the continuous duty which the court could not supervise was considered over a period of 3 years which was later omitted under the Act and thus at present there is no restriction on the time limit for the performance of a continuous duty. Examples of contracts which could come under the purview of Section 14(b) are contracts of appointment of employees for continuous service, maintenance contracts, contracts for transportation of heavy and large material on consortium basis may also be affected by difficulty of supervision. In Her Highness Maharani Shantidevi P Gaikwad v. Savjibhai Haribhai Patel (2001 5 SCC 101) , residential houses for the weaker sections of the society were required to be constructed. The plaintiff and the defendant got into the respective agreement regarding the construction. But later, the defendant declared that the agreement and the affidavit-cum-declaration are illegal and thus the plaintiff and defendant are incompetent to get into the contractual obligations. Aggrieved, the plaintiff had filed a decree for specific performance of the agreement which was granted by both the trial court and the High Court. Later when the defendants had sought redressal from the Supreme Court, the appeal was granted, and the Supreme Court held that keeping in mind the nature of the scheme and the facts and circumstances of the case, the performance of this contract would involve continuous supervision which is not possible. It further stated that “… it is extremely difficult, if not impossible, to continuously supervise and monitor the construction and thereafter allotment of such houses .” In the case of Urmila and Co. Pvt. Ltd. v. J.M. Baxi and Co. (AIR 1986 Del 336), a contract was signed that involved the transportation of over dimensional cargo from Kandala Port to Guna for installation of the project for National Fertilizer Limited. The parties had to decide whether a particular bridge should be bypassed or strengthened, there were contradictory opinions regarding the same. The plaintiff pleaded for an interim injunction restraining the defendant from proceeding with the contract. However, the court dismissed the application and while doing so stated that” Specific performance cannot be granted in view of Clauses (b) and (d). The present contract is such as involves the performance of a continuous duty which the court cannot supervise. The parties have to take decision daily as to how the work of as transportationof a
particular machinery will be executed. They will also have to continuously decide to whether a particular bridge should be bypassed or strengthened. In fact, the entire execution of the work will depend upon the consistent co-operation of the parties. The court cannot supervise the day to day affairs. Further if the contract exists, it consists of numerous details and its execution depends upon the personal qualification and volition of the parties. As already mentioned, it will be for the parties to decide from time to time as to how problems regarding transportation coming before them will be solved and as to how civil work connected therewith will be performed. ” When Specific Performance is Decreed Courts may be ready to enforce a contract requiring continuous supervision, if the contract sufficiently defines the scope and the ambit of the work that is required to be conducted. In K.M. Jaina Beevi v. M.K. Govindaswami(AIR 1967 Mad 369) , the plaintiff agreed to vacate the premises on the condition that on the completion of the building, vacated for reconstruction, the plaintiff will be given a lease of a portion of the premises rebuilt. On the landlord’s refusal to complete the contract, the plaintiff sued the landlord for specific performance. By the time of the suit, the building was built and at the time of the hearing of the appeal in the High Court of Madras the construction of the building was complete. Thus, the High Court of Madras held that the suit could be allowed. What is significant is the expression “continuous” referred to in Section 14(b). Inferring what lies within the scope of the Court’s supervision and what doesn’t, varies according to the facts and circumstances of each case. Judicial interpretation shows that a Court may order the doing of something which has to be done once and for all so that the Court can see it to its conclusion, but Indian Courts have been disinclined to grant specific performance in cases where the matter involved a prolonged process under the guidance and surveillance of the Court. Section 14 (c) : Contracts Involving Personal Qualification Cannot be Specifically Enforced The following contracts cannot be specifically enforced, namely: ”A contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms .” Please note that the word ”material terms” means the essential purpose of the contract. Purpose can be: teaching, singing, writing a book etc. Contracts involving personal skills/qualifications of a person cannot be specifically enforced vide judicial process, the only choice for the aggrieved party is to settle for and be content with the award of damages.
Specific Performance of Contracts – Contracts that are Determinable in Nature Section 14 (d) of the Amendment Act is equivalent to an earlier provision ( Section 14 (c) of the Act ) present in the old act. Both provisions provide that a contract that is determinable in nature cannot be specifically enforced. Commercial contracts dictate business relations between the counterparts and specify their respective rights and obligations. These contracts also determine the exit mechanism or the grounds on which the parties can terminate the contract. Section 14 (d) of the Amendment Act states that a contract which is determinable in nature cannot be specifically enforceable. It therefore becomes important to understand which contracts are determinable in nature and hence not specifically enforceable. Apex Court Decisions The Supreme Court of India first deliberated on the interpretation of ‘determinable contracts’ in Indian Oil Corporation Ltd. vs. Amritsar Gas Services and Ors. in 1991 (1991 SCC (1) 533), wherein it held that a distributorship agreement which included a clause that provided for termination on the occurrence of specific events or termination by either party by giving thirty days’ notice without any reason would be determinable in nature. The Supreme Court further stated that specific performance of the distributorship agreement would be contrary to the mandate in Section 14(1) of the Act and the agreement could not be enforced. The Supreme Court in this case only awarded compensation for the loss of earnings for the notice period. The Supreme Court reiterated in 2001 in the case of Her Highness Maharani Shantidevi P. Gaikwad vs. Savjibai Haribai Patel and Ors. (AIR 2001 SC 1462) that an agreement that could be unilaterally terminated by a party would be determinable in nature and therefore, the agreement could not be specifically enforced. Interpretations of Other Courts The concept of the term “determinable” has been subject to several judicial interpretations by different High Courts. It was in the case of Rajasthan Breweries Ltd. vs The Stroh Brewery Company (AIR 2000 Delhi 450) that that the concept of determinable was extensively deliberated. In this case, the Delhi High Court equated the facts of the case as being identical to the Amritsar Gas Services case and ruled that there is no manner of doubt that the contracts by their nature are determinable. While interpreting the term determinable under Section 14(1)(c), the Court also stated that even in the absence of specific clause authorizing and enabling either party toterminate the agreement in the event of happening of the events specified therein, from the very nature of the agreement, which is private commercial transaction, the same could be terminated even without assigning any reason by serving a reasonablenotice. At the most, in case ultimately it is found that termination was bad in law orcontrary to the terms of the agreement or
of any understanding between the partiesor for any other reason, the remedy of the appellants would be to seek compensationfor wrongful termination but not a claim for specific performance of the agreements. The Delhi High Court in Turnaround Logistics (P) Ltd. vs. Jet Airways (India) Ltd. and Ors. in 2006 (MANU/DE/8741/2006) that the word ‘determinable’ means a contract which can be put to an end. The Delhi High court further held that the plaintiff is not entitled for any relief in respect of an agreement/business dealing which is determinable and which has been determined. Even if the determination is not in accordance with the terms and conditions, it will only entitle a party for damages and not specific performance of the agreement. In 2012, the Bombay High Court in Spice Digital Ltd. vs. Vistaas Digital Media Pvt. Ltd ( (114) BOMLR 3696) relied on the Supreme Court’s decision in Amritsar Gas Service as well as the Delhi Courts Rajasthan Breweries decision and stated that the contract which in its nature is determinable, cannot be specifically enforced. Furthermore, it was held by the Court that the prima facie finding of the arbitral tribunal that the contract is determinable and thus no specific performance of such contract can be enforced in view of section 14(1)(c) of the Act warrants no interference at this stage. These decisions of the High Courts however are much wider than that of the Apex Court and can be interpreted to mean that that the mere existence of a termination clause in a commercial contract could lead to the contract being held as “determinable” and, hence, not specifically enforceable. The position of courts regarding determinable contracts has remained largely unchanged over the years. Earlier under the Act, Indian Courts had the discretion to decide whether to provide specific performance. As a result, Indian Courts often awarded damages for breach of contract as a general rule and granted specific performance as an exception. One of the most significant amendments in the Amendment Act is that it does away with the wider discretion of Courts to grant specific performance and to make specific performance of contracts a general rule subject to certain limited grounds. It will be interesting to note the decisions of Courts with respect to the specific performance subsequent to the enforcement of the Amendment Act.
