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Specific Performance & Substituted Performance of Contract

Amendments to the Specific Relief Act

Introduction

It is common knowledge, that in the event of breach of terms of a contract, the aggrieved party may approach a judicial forum, seeking compensation from the party-in-breach. In this case, the compensation sought by the aggrieved party is known as “damages”. An aggrieved party may also seek directions from the Courts, against the party-in-breach, to perform its obligations under the contract. In this case, the aggrieved party is said to have sought ‘specific performance’ of the contract.

Proceedings seeking ‘specific performance’ of contracts in India, are governed by the Specific Relief Act, 1963 (“Specific Relief Act”), which was last amended in 2018. This article is a snapshot on the effects of a couple of significant amendments.

Specific Performance as a right – What has changed?

Traditionally, Indian Courts have been reluctant to grant specific performance of a contract. This was an obvious outcome of the language of the Specific Relief Act, as it stood, till the last amendment. Simply put, it was left, nearly entirely, to the discretion of the Courts, to grant specific performance. Contracts would only be as enforced (i) in the absence of a standard to ascertain ‘actual damage’; or (ii) when monetary compensation would be an inadequate remedy to the aggrieved party. The phraseology of the law, combined with long standing judicial precedent, left very little room for the Courts to enforce a contract in the sense that parties would be directed to do what they promised to do.

This position has, effectively, been overturned since the latest amendment.[1] The Courts are now bound to enforce a contract, unless specifically prevented by the Specific Act. [2]

For instance, presently, even if monetary compensation is an adequate relief, the Courts are now empowered, nay required, to enforce a contract against the party-in-breach.

Notably, the amendment to the Specific Relief Act is part of sweeping changes introduced in the legislative landscape in India, revealing the clear intent to empower the Courts to act swiftly and decisively.[3]

Substituted Performance[4]

After the 2018 amendment, parties suffering on account of breach of terms of a contract now have an express remedy under the Specific Relief Act. In the past, such aggrieved parties would be left in a lurch, pursuant to such breach of terms and would have to undertake the cumbersome and convoluted exercise of proving a claim for damages. All this, while simultaneously taking the necessary steps to complete the project at hand. That is, a party suffering from such breach was invariably left with protracted litigation and an unfinished project on its hands. A double blow indeed! Needless to state, the party breaking the promise, would have no qualms in breaching terms of a contract at the slightest inconvenience, secure in the knowledge, that any action against it, would only follow much later.

In an attempt to rectify this inequity, the Specific Relief Act now provides, that the party-in-breach can be granted a thirty-day notice period to continue its obligations under the contract, failing which, the aggrieved party will be free to engage a third party or its own agency to push the project over the finishing line by adopting the “substituted performance” method. Costs incurred on account of engaging a third party or its own agency, can then be claimed from the party-in-breach.

In this context, also relevant to note is that the “substituted performance” right can be excluded by contract. Therefore, while entering into a contract, parties can expressly exclude the applicability of this provision.

The Allahabad High Court, in a judgment passed in 2019, has affirmed that the amendments made to the Specific Relief Act in 2018, have done away with the discretion available with the Courts and also discussed the concept of substituted performance[5].

Conclusion

The amendments to the Specific Relief Act mentioned above are significant and, in a manner change the face of the jurisprudence around specific performance, particularly in respect of the Courts’ discretion being taken away. It will be interesting to see with time as Courts interpret this provision and apply it to facts of cases before them.

As for substituted performance, it is a wholesome concept which has rightly found its own space in the statute. Earlier, while the concept was subsumed in “mitigation of damages” or provided for by express clauses in certain contracts, inclusion of the same as a right in the Specific Relief Act is a step in the right direction.

Commercial transactions in India have to overcome a number of hurdles, whether it be administrative, procedural or legal. The authors hope that the changes that are being ushered in, will renew the faith of global business in India and further the ease of doing business in India. The authors also hope that such legislative changes such as these will catalyse economic growth and stability in India coupled with ease of dispute resolution.

[1] Section 10 of the Specific Relief Act, 1962, pursuant to amendment in 2018.

[2] B Santoshamma vs. D. Sarala, 2020 SCC OnLine SC 756.

[3] Such as the Commercial Courts Act, 2015, the Insolvency and Bankruptcy Code, 2016 etc.

[4] Section 20 of the Specific Relief Act, 1962, pursuant to amendment in 2018

[5] Mukesh Singh and Ors. vs. Saurabh Chaudhary and Ors., 2019 (6) ADJ718

Satyasrikant Vutha

Senior Associate

Smiti Tewari

Associate Partner

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