"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, April 9, 2018

Specific Performance as the Default Remedy in India? The Specific Relief (Amendment) Bill, 2018

We did a small post on the Specific Relief (Amendment) Bill, 2018 on 28 March 2018.  The Bill has been passed by Lok Sabha on 15.03.2018 (as usual, without discussions). This post is in continuance of the said post on the topic and discusses the proposed amendments to the Specific Relief Act, 1963 making specific performance as the default remedy and damages as the exception.

Proposed Amendment

The Statement of Objects and Reasons to the 2018 Bill states, among other things, that the Specific Relief Act, 1963 confers wide discretionary powers on courts to decree specific performance due to which awarding damages is the general rule and granting specific performance is the exception, that by enacting the 2018 Bill it is proposed to do away with the discretion so as to make specific performance as the default/ general remedy and that the alternative remedy of performance through third party would be the exception. The relevant portions of the Statement of Objects and Reasons for the 2018 Bill are extracted below:

"[The 1963 Act] also confers wide discretionary powers upon the courts to decree specific performance and to refuse injunction, etc. As a result of wide discretionary powers, the courts in majority of cases award damages as a general rule and grant specific performance as an exception... In view of the above, it is proposed to do away with the wider discretion of courts to grant specific performance and to make specific performance of contract a general rule than exception subject to certain limited grounds. Further, it is proposed to provide for substituted performance of contracts, where a contract is broken, the party who suffers would be entitled to get the contract performed by a third party or by his own agency and to recover expenses and costs, including compensation from the party who failed to perform his part of contract. This would be an alternative remedy at the option of the party who suffers the broken contract."

For the aforesaid purposes, the following amendments are proposed to be made in the Specific Relief Act, 1963:

Section 10 of the existing 1963, which enumerates cases where, and conditions in which, specific performance of contract is enforceable, is sought to be replaced with the following provision: “10. The specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of section 11, section 14 and section 16.”

Section 11 relates to contracts where the act agreed to be done is in the performance of a trust. Section  11(1) is sought to be amended to substitute the phrase “contract may, in the discretion of the court” with "contract shall". After the amendment, Section 11(1) will read: "11... (1) Except as otherwise provided in this Act, specific performance of a contract shall be enforced when the act agreed to be done is in the performance wholly or partly or a trust."

Section 14 is sought to be replaced with the following:

14. The following contracts cannot be specifically enforced, namely:— 
(a) where a party to the contract has obtained substituted performance of contract in accordance with the provisions of section 20; 
(b) a contract, the performance of which involves the performance of a continuous duty which the court cannot supervise; 
(c) a contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms; and 
(d) a contract which is in its nature determinable."

Except for ground 14(a) above, the rest of the grounds are available in the existing Section 14. The new Section 14 proposed does away with few of the existing grounds viz., contracts where compensation for breach is an adequate remedy, and contracts running into minute or numerous details. The new ground sought to be amended, that is, contracts where the victim of breach has obtained substituted performance is the subject of the amendment proposed to Section 20 of the 1963 Act.

The existing sub-heading for Sections 20 to 24 of the 1963 Act, "Discretion and Powers of Court" is sought to be replaced with the sub-heading “Substituted performance of contracts, etc.”. The existing Section 20 titled "Discretion as to decreeing specific performance" is sought to be replaced with a section on Substituted Performance. The new section proposed reads as under:

20. Substituted performance of contract- (1) Without prejudice to the generality of the provisions contained in the Indian Contract Act, 1872, and, except as otherwise agreed upon by the parties, where the contract is broken due to non-performance of promise by any party, the party who suffers by such breach shall have the option of substituted performance through a third party or by his own agency, and, recover the expenses and other costs actually incurred, spent or suffered by him, from the party committing such breach. 
(2) No substituted performance of contract under sub-section (1) shall be undertaken unless the party who suffers such breach has given a notice in writing, of not less than thirty days, to the party in breach calling upon him to perform the contract within such time as specified in the notice, and on his refusal or failure to do so, he may get the same performed by a third party or by his own agency: 
Provided that the party who suffers such breach shall not be entitled to recover the expenses and costs under sub-section (1) unless he has got the contract performed through a third party or by his own agency. 
(3) Where the party suffering breach of contract has got the contract performed through a third party or by his own agency after giving notice under sub-section (1), he shall not be entitled to claim relief of specific performance against the party in breach. 
(4) Nothing in this section shall prevent the party who has suffered breach of contract from claiming compensation from the party in breach."

Section 16 deals with cases where specific performance of a contract cannot be enforced in favour of a person. Section 16(a), which "(a) who would not be entitled to recover compensation for breach" is proposed to be replaced with "(a) who has obtained substituted performance of contract under section 20" in line with the aforesaid amendments.

Section 16(c) provides that specific performance cannot be enforced in favour of a person who fails to aver in the pleadings and prove that he has performed or always has been reading and willing to perform the essential terms of the contract which are to be performed by him. The requirement of averment is sought to be removed. The same change is proposed in Explanation (ii) to Section 16(c). After the amendment, Section 16(c) with its explanations will look like this:

"Specific performance of a contract cannot be enforced in favour of a person-
...
(c) who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant. 
Explanation.—For the purposes of clause (c),—
(i) where a contract involves the payment of money, it is not essential for the plaintiff to actually tender to the defendant or to deposit in court any money except when so directed by the court;
(ii) the plaintiff must aver prove performance of, or readiness and willingness to perform, the contract according to its true construction
."

Comments 

The proposed set of amendments seek to do away with the general rule in contract law that damages will be the default remedy and specific performance will be the exception. In our earlier post, we had suggested that the amendments sought to be made are far-reaching. We reiterate the view because the Bill seeks to alter the legal position which has been in vogue for more than 200 years (see, for instance, Harnett v Yielding (1805)). Although Scots law and certain civil law jurisdictions have specific performance as a default remedy, damages as the default remedy is the near universal rule in common law jurisdictions. The present amendments seek to alter this approach in India.

We will look at the theoretical arguments for and against the above-discussed proposal in the 2018 Bill in another post.  

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