In light of Union Government’s ‘Make in India’ initiative, and to propel the ease of doing business in India, the Ministry of Law and Justice constituted an expert committee, around the end of January, 2016, to review and suggest amendments to the Specific Relief Act, 1963 (“Act”). The Expert Committee, headed by Mr. Anand Desai, Managing Partner, DSK Legal, New Delhi, on June 20, 2016, submitted its “Report” to Union Law and Justice Minister recommending modifications to the said Act. The detailed report should be available in the public domain soon.

BACKGROUND

Infrastructure and development projects have seen a surge in litigation with a number of petitions being filed in the Supreme Court and various High Courts, most citing ecological reasons. As a result, these projects, which largely involve huge investments, are met with uncertainty.

The existing legal framework is also seen as hindering investors from investing in India. India has been notoriously low on the doing business ratings, particularly when it comes to ease of enforcing contracts.

Specific performance of contracts is a discretionary remedy whilst monetary compensation for breach is the norm for remedying non-performance of contracts. Consequently, in the event a breach of contract is to be litigated, the non-defaulting party is often left with protracted litigation and no methodology to enforce a contract.

In view of the above, the Union Government was of the opinion that amendment of the 50-year old Act was in order, to further the cause of making India an investment friendly country.

THE LAW AS IT STANDS

The Act empowers the Courts to direct the performance of contracts, when there is a breach of the contract.

Section 10 of the Act entitles the Court to grant specific performance of a contract only when it is of the opinion that the actual damage caused to the aggrieved party cannot be ascertained or in case when the Court thinks that monetary compensation for the breach would not suffice the damage caused by the aggrieved party.

Section 20 read with section 10 of the Act further affirms that the relief of specific performance is subject to the Court being convinced that monetary damages cannot serve as a fitting compensation for the loss suffered. The grant of this relief is the discretion of the Court, and cannot be claimed as a matter of right.[1]

In addition to the above, Courts are empowered to grant injunctions enjoining a party from breaching a contract or benefitting thereupon. In essence, a civil court may grant a perpetual injunction preventing a party from breaching a contract and compel performance of the requisite acts for the purpose.[2]

CHANGES RECOMMENDED

The Expert Committee was constituted to review the Act keeping in mind the “present scenario involving contract based infrastructure development, public private partnerships and other public projects involving huge investments and enforceability of such contracts.”[3] Additionally, the Committee was also required to review the Act and suggest changes “so that specific performance is granted as a general rule and grant of compensation of damages for non-performance remains as an exception” together with suggesting amendments to do away with the discretionary powers of the courts[4].

In its Report submitted to the Ministry of Law and Justice, the Expert Committee suggested the following modifications to the Act:

1. Relief of specific performance should be made as the general rule of remedy for breach of contract and monetary compensation to be made as an alternate remedy.

2. For the purpose of streamlining the interpretation of the Courts in matters of public works, Centre should provide guidelines to the courts and tribunals to limit the Court’s discretionary powers while granting performance and injunctive reliefs.

3. In cases of contracts, excluding government contracts, the Act should be modified to address the right of third parties as well.

4. Inclusion of provisions addressing unconscionable contracts, unfair contracts, reciprocity in contracts etc. and implied terms in a contract in the Act.

5. Furthermore, the Committee saw the need to address the Public Utility Contracts as a separate class of contracts. The Committee was also of the opinion that in order for the public work to progress without interruption, the Courts’ intervention in such contracts should be kept to a minimum. Subsequently the public works can then be managed through a monitoring system and regulatory mechanisms.

TO CONCLUDE

The modifications suggested by the Expert Committee aspire to considerably boost foreign investment in the infrastructure and development sector. They aim at bringing about certainty as to the fate of the infrastructure and developmental works by standardizing the relief for non-performance.

The report also provides for unconscionable and unfair contracts. Although the erstwhile Monopolies and Restrictive Trade Practises Act, 1969 addressed the issue pertaining to unfair trade practices, however, currently pursuant to the revocation of the MRTP Act, this issue is only covered under the Consumer Protection Act, 1986 which is limited to retail end users. Enactment of the recommended amendments would help fill the lacuna in respect of unfair contracts (not being consumer contracts). In the United Kingdom, the statute law relating to unfair contracts is primarily regulated by the Unfair Contract Terms Act, 1977 which mainly resists wide application of the disclaimers of liability and reasonableness of various covenants in a contract. At present, there is no statute in India which correlates to the Unfair Contract Terms Act, 1977. The amendment of the Act addressing the issue of unfair contracts will be a welcome change in this regard.

On the flip side, if enacted, parties could be compelled to perform the contracts even if certain obligations under the contract are not fulfilled. Further, diminished powers of the judiciary in respect of these contracts may not be all the more fair to a party who is wronged in such cases.

Though the Committee has in its report recommended broad modifications to the Act, it will be interesting to see if to what extent will these recommendations are adopted and enacted.

– Archana Balasubramanian / Ketaki Shah

[1] Bishwanath Prasad Verma v. Bhagwat Pandey, AIR 1982 Pat 219

[2] Section 38 and 39 of the Act.

[3] PIB Press Release dated January 28, 2016 – Expert Committee Set up to Review the Specific Relief Act, 1963

[4] Office Order No. F. No. 11 (2)/2015-Leg.III from the Legislative Department of Ministry of Law and Justice dated January 28, 2016.