[Grishma Shah is a student of Government Law College, Mumbai presently studying in the 3rd Year of the 3-year law course.
Earlier posts on specific aspects of the topic covered by this post are available here and here]
Introduction
On December 15, 2017, the Union Cabinet approved the recommended changes to the Specific Relief Act, 1963 (“Act”) after 54 years, with a view to facilitating simple and easy enforcement of contracts. The Act deals with the fulfilment of a contractual obligation and provides for specific performance of a contract where the amount of monetary relief is undeterminable or inadequate. As part of the ‘Ease of Doing Business’ initiative of the Government of India and the increased difficulties in the performance and execution of contract based infrastructure developments, public-private partnerships and other public projects, involving huge investments, the strong need for the change in the existent legislation arose.
The Proposed Changes
The Expert Committee (“Committee”) constituted by the Government submitted the changes for due consideration to the Ministry of Law of Justice, pursuant to which, the Lok Sabha passed the Specific Relief (Amendment) Bill, 2018 (“Amendment Bill”). While examining the Act, the crucial points of consideration and the proposed amendments are elaborated upon below.
Making Changes in the Act so that Specific Performance is Contracted as a General Rule.
In the earlier scenario, the Act was bound by the principle that the relief was to be given after giving due consideration to the ascertainability of compensation and damages in monetary terms. Thus, the general rule was that the party was entitled to specific performance only if the amount of compensation was not adequate relief.[1] Thus, in practical terms, this released the defaulting party from the performance of the unperformed part of the contract and the party not in default was left to bear the repercussions of the unperformed contract. The Committee had suggested that funding compensation or damages for non-performance must be endured as an exception. Moreover, the Act restricted the performance of a part of the contract unless the court could ensure the execution of the whole contract.[2] By way of an amendment to section 10 of the Act, this difficulty is now obliterated as specific performance has become the rule and easy execution and performance of the contracts is now possible which in turn shall also expedite the entire process of claiming relief.
Discretion Given to Courts and Committees
The erstwhile Act confers very wide, discretionary powers on the courts. This includes the discretion exercised for specific performance of contracts,[3] grant of relief or costs[4] and injunctions.[5] The Act fails to streamline and prescribe a proper procedure and conduct to be followed by the courts in granting relief. There is a need to exercise such discretion in accordance with the same specified standard for the harmonization of the manner of exercise of such discretionary powers by all Courts. The Amendment Bill attempts to lay down specific guidelines to exercise such discretion, principally by making specific performance the norm and providing for expenses and costs incurred due to any breach, thus doing away with the issues of long drawn litigations and unnecessary delays. This move shall also aid in reducing the reluctance of foreign companies to invest in the country. The amendment also aims at reducing the role of courts to the minimum, so that public works projects are not impeded or stalled. Further, section 14A of the Amendment Bill also allows courts to appoint experts for obtaining their opinion on any issues that may arise in a suit.
Rights of Third Parties
The Act does not clearly state and set out the rights of third parties and when such third parties could exercise their rights to enforce the contract. The change in the Act was considered essential to ensure that the same was at par with the position under the Indian Contract Act,1872, wherein the consideration for the promise need not move from the promisee, but can move from any other person as well.[6] Indian courts have been frequently faced with situations where a contract is clearly intended for the benefit of a third party, but they have still been reluctant to enforce the contract at the instance of such third parties. Some relief has been granted in a very few cases by straining the law and importing some doctrine of equity or some special consideration of agency, trust, assignment or statute.[7] By elaborating on the rights of third parties by amending section 20 of the Act, the obsolete concept of not providing relief to third parties is now eliminated. Section 20 of the Amendment Bill now propounds that incase of breach of contract due to non-performance of promise by any of the parties, it would be open to the party suffering the breach to obtain substituted performance.
Separate Class for Public Contracts
The Amendment Bill intends to classify different public contracts as a distinct class by recognizing the characteristic public attention and the significance to be addressed in the parent Act. The same was originally sought to be achieved by implementation of a monitoring system and supervisory mechanism. By way of section 20A and the Schedule of the Amendment Bill, the courts are now restrained from granting injunctions in cases of contracts relating to infrastructure projects. 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.
For instance, in the contract for the construction of a 500 kilometre highway wherein 400 kilometres were duly completed, and subsequently the contractor becomes bankrupt, various implications arise under the old Act. Amidst the issues of long drawn litigation, interference of the courts and specific performance not being the general rule, the significantly valuable asset would practically be rendered useless. Moreover, by virtue of the ascertainable nature of the contract, the old Act disallowed the claim of specific relief.
Sections 20, 20A and 41(ha) of the Amendment Bill seek to eliminate such bottlenecks by now making performance the general rule, providing freedom to contract with third parties, obtain substituted performance and laying down various guidelines in such cases of public utility contracts. The amendment will also attempt to effectively curtail the stalling of public works projects. The relief in case of a default is intended to be such, that if the opposite party is unable to fulfill its obligations, the Amendment Bill would facilitate and provide for a remedy that ultimately leads to the completion of the pending project, especially in the case of public utility services such as roads, ports etc.
Conclusion
The World Bank’s Ease of Doing Business global report places India at the 164th position on the enforcing contracts indicator[8]. The time taken to enforce a contract in India is close to four years (1,445 days), according to the World Bank. 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.
– Grishma Shah
[1] Section 10 of the Act.
[2] Abdul Haq v. Mahommad Khan, AIR 1924 Pat 81.
[3] Section 10 of the Act.
[4] Section 21 of the Act.
[5] Section 37 of the Act.
[6] Chinnaya Rau v. Ramaya, (1882) I.L.R. 4 Mad. 137.
[7] 147th Report of the Law Commission of India on the Act.
[8] http://www.doingbusiness.org/data/exploreeconomies/india