[ Sayak Banerjee ]
The author is a 2nd year student of NLU, Jodhpur.
The Specific Relief (Amendment) Act, 2018( the Act), published in the official gazette on 1stAugust, 2018 amends the Principal Act, the Specific Relief Act, 1963. The Act came with multitude of changes relating to the enforcement of contracts in India. The said Act was passed without discussing the importance of its impact in both Houses of Parliament, disregarding the scope of this Amendment impacting not only contractual obligations of businesses but also of common people. The Amendment was passed without taking the opinions of other stakeholders, judges, advocates, businessmen, alike. With the amendment coming hastily, the objective sought to be achieved was preventing any hindrances to infrastructure projects. It can also be seen as a genuine effort by India to climb the ranks in World Bank’s Ease of Doing Business Index. But in achieving the said objectives, the Parliament forgot that the Act applicable to everyone personally also.
The most important change has been brought in Chapter II of the Specific Relief Act, 1963, dealing with specific enforcement of contracts. Within the Chapter, the Act has introduced the concept of ‘substituted performance.’[[i]] This essentially means that on breach of contract, the party who has been affected by such breach, has the option of substituted performance through third parties or by his own agency, the cost of which is to be borne by the defaulting party.
This cost cannot burden the party who has been affected by such breach gives a 30 day notice obligating the defaulting party to fulfil the obligations of the contract. If there is failure on part of the defaulting party to perform after receiving the said notice, then the affected party has the option of substituted performance. It needs to be noted that if the party exercises the option of substituted performance he forfeits the right to sue for specific performance, though the parties are not precluded from obtaining compensation from the defaulting party.
Section 11 of the Act has removed the discretion of court by replacing “may, in the discretion of the court, be enforced” with “shall be enforced by the court,” thereby making specific performance a statutory remedy, subjected to preclusion due to the limited grounds mentioned in the statute.[ii]
Prior to the amendment, Section 14 allowed specific performance wherein compensation was not provided as adequate relief. The amendment has done away with this requirement, ensuring the generality of specific performance as a remedy in the statute. One of the grounds mentioned now in Section 14, is substituted performance. In addition, specific performance is precluded from being granted as a relief to a person, if substituted performance has been availed, notwithstanding, that Section 20(3) already provided for preclusion to avail specific performance when substituted performance has been availed.
A conundrum therefore, arises on considering substituted performance as option available to the parties, on one hand, the Court is implicitly enforcing the contract through substituted performance. And on the other hand, the substituted performance as a ground for contracts cannot be specifically enforced in Sections 14 and 16. This shows redundancy on the part of the lawmakers, but the main question remains unanswered whether substituted performance is equivalent to enforcing the contract, because if that is not the case, then why is the option under Section 20 available to the parties.
A cross-jurisdictional analysis reveals that UK gives third parties the right to enforce contractual terms, and availability of specific performance as a remedy.[[iii]] The concept of substituted performance as specific performance was introduced in UK through the case of Liberty Merican Ltd. v. Cuddy Civil Engineering Ltd., wherein in place of defaulting performance bonds, Court directed the defaulting party to deposit a sum of money as substituted performance.[[iv]] In Canada, as per Article 1602 of the Quebec Civil Code, a promisee can avail the right of substituted performance provided the promisor is notified, allowing the promisee to get the contract performed at the expense of the promisor.[[v]]
When we consider contractual remedies, damages do not help in mitigating the losses that arise from expenses that are indirectly incurred in getting the contract performed. Moreover, injunctions are a way by which the status quo is protected, but specific performance in the form of substituted performance helps in bringing the changed relationship between the parties that was originally intended to be brought, and allows the aggrieved party to restore to the position it would have been in had the breach not occurred. Therefore, it is the most effective alternative to the event of breach, in comparison to injunctions and compensations.
[[i]]Specific Relief (Amendment) Act, 1963 No. 18 of 2018, s 20.
[[ii]]Specific Relief (Amendment) Act, 1963 No.18 of 2018, s 11.
[[iii]]Contracts (Rights of Third Parties) Act 1999, s 1(5).
[[iv]]Liberty Merican Ltd. v. Cuddy Civil Engineering Ltd. [2013] EWHC 4110 (TCC).
[[v]]Civil Code of Quebec CCQ-1991, Article 1602, Chapter VI.