Effects of The Specific Relief (Amendment) Bill, 2017 on the Law of Remedies for Breach of Contract

[Radhika Indapurkar is a lawyer based in Mumbai]

Section 10 of the Specific Relief Act, 1963 (the “Act”) provides the courts with a discretion to enforce specific performance of contracts (a) in which there exist no standards to ascertain the actual damage caused by non-performance of such contracts, or (b) wherein the act agreed to be done is such that monetary compensation for non-performance would not afford adequate relief to the party suffering breach. Further, by way of explanation, section 10 creates a rebuttable presumption that breach of contract for transfer of immovable property cannot be adequately relieved by monetary compensation, whereas breach of contract for transfer of movable property may be relieved by monetary compensation, except inter alia, when the subject matter of the contract is not an ordinary article of commerce, or is of special value to the buyer, or consists of goods which are not readily obtainable in the market. Thus, the Act in its present form gives a discretionary power to the courts to award specific performance only in exceptional cases, with monetary compensation being the norm.

Thus, the law, while providing for specific performance of breach of contracts for immovable properties assumes that every immoveable property is so distinct and unique, that no amount of monetary compensation can cure the breach of contract for its transfer. On the other hand, the law relating to breach of contract for transfer of moveable property generally assumes that such breach can be adequately cured by monetary compensation, unless the contrary is proved to the satisfaction of the court.

The present post seeks to analyse the impact of the Specific Relief (Amendment) Bill, 2017 (the “Bill”) on the aforementioned position of law relating to breach of contracts. The Bill was passed by the Lok Sabha on March 15, 2018.

It may be noted that the existing Indian position as described above is aligned with the common law position on remedies for breach of contract. However, courts in various countries such as Canada, Australia and New Zealand have sought to question the special status granted to contracts for transfer of immovable property. Among the first of such cases is the decision of the Canadian Supreme Court in Semelhago v Paramadevan (reported in [1996] 2 SCR 415). In Semelhago, it was opined that “it cannot be assumed that damages for breach of contract for the purchase and sale of real estate will be an inadequate remedy in all cases”. The decision in Semelhago implies that specific performance should “not be granted as a matter of course absent evidence that the property is unique to the extent that its substitute would not be readily available”. As such, it has been argued by some that if the immovable property in question is not unique, the only adequate remedy for breach of contract should be damages. Specific performance could, however, be awarded if the plaintiff satisfies the court about the uniqueness of the immoveable property in question. The consequences of this decision are twofold. First, the court will have to exercise its discretion to determine whether the property in question is so unique that specific performance is the only adequate remedy for a breach of its contract. Second, the decision raises pertinent doubts about the special status granted to the contracts for transfer of immovable property.

It is argued that the Bill seeks to bring about a position similar to that in Semelhago, as far as the uniformity in remedies for breach of contract (irrespective of the type of property) is concerned.

The proposed amendment to section 10 stipulates that the specific performance of a contract shall be enforced by the court subject to provisions contained in sections 11(2), 14 and 16 of the Act.

Section 11(2): This provision stipulates that a contract entered into by a trustee in excess of its powers cannot be specifically enforced.

Section 16: Under this provision, specific performance may be barred in cases wherein the party claiming specific performance has itself failed in performance of the contract. Further, specific performance may not be awarded if the party claiming breach fails to establish before the court that it could not perform its part due to the prevention or waiver of such performance by the counter party.

Section 14: This provision lays down certain types of contracts which cannot be specifically enforced. These are: (a) contracts wherein a continuous duty is required to be performed which the courts cannot supervise; (b) contracts wherein performance is dependent on personal qualifications of one of the parties such that material terms of the contract cannot be enforced; and (c) contracts which are determinable in nature. The Bill also provides that a contract cannot be specifically enforced if the party that has suffered breach has sought the remedy of substituted performance. Substituted performance, it may be noted, is a third kind of remedy for breach of contract contemplated by the Bill. This remedy implies that a person who has suffered breach of contract may opt for “substituted performance” of the contract through a third party or through its own agents. Therefore, a party that has obtained such remedy of substituted performance shall be barred from seeking the remedy of specific performance.

In addition to the above, section 14(1)(a) of the Act expressly bars the award of specific performance to remedy the breach of contracts which could be adequately relieved by monetary compensation. By way of the proposed amendment, this condition is sought to be removed. This implies that upon the enactment of the amendment, courts will no longer be required to determine whether the breach of a certain contract is curable by monetary compensation. All that a court must enquire into is whether the contract falls into any of the conditions mentioned in sections 11(2), 16 or 14. If the answer is in the affirmative, specific performance cannot be enforced. If not, the court shall order specific performance of the contract.

This brings us to a comparison between the Indian position (post amendment) with that of the Canadian position. Firstly, pursuant to Semelhago, Canadian courts now have wider discretionary powers to determine whether a certain property is so unique that a breach of contract relating to such property requires the award of specific performance. That is, if the plaintiff successfully establishes before the court that the property in question (whether immovable or movable) is so special that a breach of contract for its transfer cannot normally be cured by damages, the court would award specific performance. In contrast, the Bill seeks to limit the discretionary power of the court in determining the adequacy of relief for breach of contracts. It provides that except in certain exceptional circumstances (i.e., those stipulated in sections 11(2), 14 and 16), specific performance of contract in case of breach shall be the norm.

Secondly, the decision in Semelhago as also the proposed amendment in Indian law, question the reasoning for separate remedies for breach of contract of immovable and movable properties. In Semelhago, the court questioned the uniqueness of immovable property and opined that unless the property in question is not unique in the eyes of the court, exceptional remedy is not required. Similarly, the Bill seeks to amend section 10 of the Act which provides for different remedies for breach of different types of contract. Thus, both Canadian and Indian positions question the distinction between immovable and movable property as regards breach of contract.

It is submitted that in the economic realities of today, creating a distinction in the remedy for breach of contract on “uniqueness” of property in question seems illogical. Furthermore, what is unique to one person may not be unique for another. Determining uniqueness increasingly becomes a question of evidence and discretion. The law therefore needs to be more objective.

Assuming that all immovable property is unique also seems to be misplaced. For example, consider a plot of land in a special economic zone, which is similar to one hundred other plots in the same zone. The presumption of uniqueness of such a plot merely because it is immovable property is unfounded.

Similarly, leaving it to the court to decide whether the breach of a certain contract is curable by monetary compensation as opposed to specific performance may lead to greater inconsistencies in the law. Therefore, it is submitted that the Bill by aiming to bring greater uniformity and objectivity in the law on remedies for breach of contract, is a welcome change in Indian contract jurisprudence.

– Radhika Indapurkar

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