Specific Relief act india, Summaries of Law

Download Specific Relief act india and more Summaries Law in PDF only on Docsity! THE SPECIFIC RELIEF ACT, 1963 The Specific Relief Act, 1963 was came into force on 1st March 1964. The Parliament enacted the Act by repealing the Specific Relief Act, 1877. The Act is based on the principle of equity and is used for granting specific relief for enforcing civil rights. It has no application in enforcing penal laws. The Specific Relief Act, 1877 contained the principles of equity, justice and good conscience. The need for a new statute suited for the new requirements lead to the enactment of the Act of 1963. The Bill of the new Act was drafted on the basis of the 9 th Report of the Law Commission of India. From the preamble of the Act, it is clear that the Act was not an exhaustive one. It only deals with certain kinds of specific reliefs and there are other reliefs about which the Act was silent and are used by the courts. The Act is a procedural law and provides a network of reliefs. The plaintiff, under the Act gets his relief in specific. The reliefs contained in the Act include, Recovery of Possession of Property, Specific Performance of Contracts, Rectification of Instruments, Rescission of Contracts, Cancellation of Instruments, Declarative Relief, and Preventive Reliefs ( Injunctions) The Specific Relief (Amendment) Act, 2018 introduces a paradigm shift in the prevalent law regarding contractual enforcement in India, shifting the focus from the previous default remedy of award of damages for breach of contract to enforcing specific performance of contracts. Acknowledging the need for greater certainty in contractual enforcement and timebound adjudication of rights of contesting parties, the Specific Relief (Amendment) Act, 2018 (Amendment Act), amending the Specific Relief Act, 1963 (Principal Act), was recently passed by both Houses of Parliament. It received Presidential assent on 1 August 2018, but its provisions are yet to be brought into effect. The Amendment Act reduces the wide discretion previously conferred on courts to grant specific performance. It also introduces a new remedy of 'substituted performance' for breach of a contract, recognising the right of a non-defaulting party to have the contract performed either through himself or a third party, at the cost of the defaulting party. The amendments are aimed at realigning the existing provisions to enable ease of doing business in India, while continuing to provide stronger contractual enforcement and strengthen investor protection. Key Amendments Introduced (a) Specific Performance no longer discretionary The relief of specific performance evolved as a discretionary remedy granted by English courts of equity in cases where either the common law courts could not provide a remedy, or the remedy was inadequate. In India, the Principal Act was enacted embodying this same outlook towards specific performance. Prior to the amendment, the Principal Act gave courts a discretionary power to grant specific performance of a contract under two circumstances i.e., where (a) monetary compensation for breach of contract was inadequate; or (b) the extent of damage caused by the breach could not be ascertained. Consequently, grant of specific relief for breach of contract was more of an exception, with courts granting damages as a general rule. A major change introduced by the Amendment Act, is that it now makes it mandatory for courts to enforce specific performance of contracts, except for certain types of contracts where performance is not specifically enforceable. The discretion granted to courts previously while granting the remedy of specific performance including the two circumstances under which specific performance could be granted (as discussed above) have been removed. This change is aimed at providing greater protection of contractual expectations by ensuring that a non-defaulting party can obtain the performance he bargained for. With specific performance as the new rule, the likelihood of a judicial order mandating specific performance may well act as a deterrent for defaulting parties. This amendment may also discourage errant parties who may deem it more viable to breach a contract than perform it, as the cost of damages may still be less than the cost of the performance. The previous condition requiring a party to specifically aver in the pleadings 'readiness and willingness' to perform the contract, which often lead to a pedantic reading by courts, has also been done away with. A party is now only required to prove 'readiness and willingness' to perform the contract. (b) Reduction in category of contracts not specifically enforceable In line with the shift to a pro-performance regime, the newly substituted Section 14 has reduced the categories of contracts that are not specifically enforceable. Notably, (i) contracts where non-performance could be monetarily compensated; (ii) contracts running into minute details or dependent on the volition of the parties; and (iii) contracts which from their nature are such that the court cannot enforce specific performance of material terms, have been deleted. The amended Section 14 now recognises only 4 categories of contracts that cannot be specifically enforced, i.e., (i) contract where a party has obtained 'substituted performance' under Section 20; (ii) contract involving performance of a continuous duty which cannot be supervised by courts; (iii) contract so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of material terms; and (iv) contract of a determinable nature. 1. The introduction of the remedy of substituted performance. Although the duty of mitigating the loss suffered was always cast on the party that suffered a breach, this provision can be seen to be a statutory recognition of the said duty, although framed as an option available to a party who has suffered breach. 2. A new Section 20A to the principal Act provides that for infrastructure project contracts, the court shall not grant an injunction in any suit, where it would cause hindrance or delay in the continuance or completion of the infrastructure project. The Amendment Act itself does not provide any guidance on whether the amendments would operate prospectively or retrospectively. A “savings clause” or a “transitory provision” is conspicuous by its absence. A similar controversy in the context of the 2015 amendments to the Arbitration and Conciliation Act, 1996 is still unsettled, in so far as the Arbitration and Conciliation (Amendment) Bill, 2018 is pending approval with the Parliament[2]. Let’s examine the extent and magnitude of the controversy on the basis of some well settled legal principles. Background and Nature of Amendments An important element in the examination of whether the Amendment Act is prospective or retrospective in its application is to understand the objectives behind the amendments. The Amendment Act is based on the recommendations contained in a Report submitted by an Expert Committee to the Government of India in 2016.[3] Giving primacy to specific relief is based on the intent to ensure enforcement of the moral obligation to honour one’s promises, deter a promisor from committing a breach thus affecting contractual behavior and enable a promisee to choose a remedy of his choice. It is recognised that a decree for compensation does not compensate fully, as proving losses with certainty is difficult. Therefore, the Amendment Act removes all restrictions and makes specific performance a general remedy available to a party who wishes to claim it.[4] What emerges is that the amendments do not purport to be either declaratory or clarificatory. The amendments seek to bring about a substantive change in the law by stating, for the first time, that the remedy of specific performance when sought for breach of contract, would no longer be exceptional or discretionary and would be available to a party as a matter of right. The amendments do away with the discretion of the courts to grant specific performance of contracts. This is clearly a substantive change in law that is remedial in nature. Remedial statutes are necessarily regarded as prospective unlike declaratory or clarificatory statutes, which are considered retrospective. Therefore, from this perspective, the Amendment Act would need to be construed as not having retrospective effect. The amendments are in line with the UNDROIT Principles of International Commercial Contracts and attempt to make India a business-savvy jurisdiction by improving its position on the enforceability of contracts. The key highlights of the Bill are discussed below: The ‘Rule’ rather than the ‘Exception’ Section 10 of the Bill substitutes the words “may, in the discussion of the court” with “shall be enforced by the court”. This amendment makes the relief for specific performance a statutory remedy instead of an equitable discretionary remedy. The primacy given to the relief for damages over specific performances has been removed. The Bill has dispensed with the settled grounds that specific performance can only be granted when either the damage cannot be ascertained or when monetary compensation is not adequate. Moving forward, the Courts no longer have the discretion and must grant specific performance unless expressly barred by the provisions stated in the Specific Relief Act, 1963 (“Act”) i.e. Sections 11(2), 14 and16. Engagements of experts Section 14 of the Bill empowers the Court to engage one or more experts to assist and report on issues arising out of a suit for specific performance. The opinions of such experts shall form a part of the suit record and parties may, subject to Court’s permission, examine the expert in open Court on any matter referred to him or mentioned in his report. The practice of engaging experts has seen exponential growth in the institutional/commercial arbitration sector. The said growth is mainly attributable to the regulated and institutionalized manner in which experts are on-boarded to testify on important issues arising out of a conflict. The Courts may have to direct the concerned government(s) to formulate rules specifying, modalities such as minimum qualifications/experience, making of declarations specifying the availability of an expert and conflict of interests, if any. The inclusion of Limited Liability Partnerships (“LLP”) The newly inserted Sections 15(fa) and 19(ca) provide that an LLP which is created out of one LLP amalgamating with another can sue or be sued in a suit for a specific performance. By way of this amendment, the Bill has introduced a new category of entities who are entitled to claim specific performance of contract i.e. amalgamated LLPs Introducing the concept of “Substituted Performance” Section 20 of the Bill entitles a party that is affected due to the non-performance of another party, to get the contract performed by a third party or its own agency. This is subject to the affected party issuing a written notice, of not less than thirty (30) days, calling upon the party in breach to perform the contract within such time as specified in the notice. The party suffering the breach is entitled to recover the cost and the expenses for the substituted performance by the third party or through its own agency from the party committing the breach. The proposed amendment is likely to deter the occurrence of the breach in a contract. Further, the notice period of 30 days may result in parties choosing to perform or renegotiate the contract thereby not only restoring relationships but also reducing litigation. Special Civil Courts and Timelines Section 20B of the Bill mandates that the State government(s) in consultation with the Chief Justice of the concerned High court to establish Special Civil Courts to try cases under this Act. Further, Section 20C stipulates a maximum period of twelve (12) months to dispose off suits filed under the Act. This can be further extended by a maximum period of six (6) months and that too after recording reasons for doing so. When a party exercises his right to get substituted performance, he forfeits his right to get specific performance of the contract enforced through Court. He may still claim compensation from the party in breach. Performance of a Continuous Duty Section 14(b) now states that a contract cannot be specifically enforced “the performance of which involves the performance of a continuous duty which the court cannot supervise.” An equivalent provision was also there as Section 14(d) of the [old] Act. The fundamental principle behind this Clause is that the court cannot stop its normal functions for the purpose of giving effect to the terms of a contract. Earlier under the Specific Relief Act, 1877, the continuous duty which the court could not supervise was considered over a period of 3 years which was later omitted under the Act and thus at present there is no restriction on the time limit for the performance of a continuous duty. Examples of contracts which could come under the purview of Section 14(b) are contracts of appointment of employees for continuous service, maintenance contracts, contracts for transportation of heavy and large material on consortium basis may also be affected by difficulty of supervision. In Her Highness Maharani Shantidevi P Gaikwadv. Savjibhai Haribhai Patel (2001 5 SCC 101), residential houses for the weaker sections of the society were required to be constructed. The plaintiff and the defendant got into the respective agreement regarding the construction. But later, the defendant declared that the agreement and the affidavit-cum-declaration are illegal and thus the plaintiff and defendant are incompetent to get into the contractual obligations. Aggrieved, the plaintiff had filed a decree for specific performance of the agreement which was granted by both the trial court and the High Court. Later when the defendants had sought redressal from the Supreme Court, the appeal was granted, and the Supreme Court held that keeping in mind the nature of the scheme and the facts and circumstances of the case, the performance of this contract would involve continuous supervision which is not possible. It further stated that “… it is extremely difficult, if not impossible, to continuously supervise and monitor the construction and thereafter allotment of such houses.” In the case of Urmila and Co. Pvt. Ltd. v. J.M. Baxi and Co. (AIR 1986 Del 336), a contract was signed that involved the transportation of over dimensional cargo from Kandala Port to Guna for installation of the project for National Fertilizer Limited. The parties had to decide whether a particular bridge should be bypassed or strengthened, there were contradictory opinions regarding the same. The plaintiff pleaded for an interim injunction restraining the defendant from proceeding with the contract. However, the court dismissed the application and while doing so stated that”Specific performance cannot be granted in view of Clauses (b) and (d). The present contract is such as involves the performance of a continuous duty which the court cannot supervise. The parties have to take decision daily as to how the work of as transportationof a particular machinery will be executed. They will also have to continuously decide to whether a particular bridge should be bypassed or strengthened. In fact, the entire execution of the work will depend upon the consistent co-operation of the parties. The court cannot supervise the day to day affairs. Further if the contract exists, it consists of numerous details and its execution depends upon the personal qualification and volition of the parties. As already mentioned, it will be for the parties to decide from time to time as to how problems regarding transportation coming before them will be solved and as to how civil work connected therewith will be performed.” When Specific Performance is Decreed Courts may be ready to enforce a contract requiring continuous supervision, if the contract sufficiently defines the scope and the ambit of the work that is required to be conducted. In K.M. Jaina Beeviv. M.K. Govindaswami(AIR 1967 Mad 369), the plaintiff agreed to vacate the premises on the condition that on the completion of the building, vacated for reconstruction, the plaintiff will be given a lease of a portion of the premises rebuilt. On the landlord’s refusal to complete the contract, the plaintiff sued the landlord for specific performance. By the time of the suit, the building was built and at the time of the hearing of the appeal in the High Court of Madras the construction of the building was complete. Thus, the High Court of Madras held that the suit could be allowed. What is significant is the expression “continuous” referred to in Section 14(b). Inferring what lies within the scope of the Court’s supervision and what doesn’t, varies according to the facts and circumstances of each case. Judicial interpretation shows that a Court may order the doing of something which has to be done once and for all so that the Court can see it to its conclusion, but Indian Courts have been disinclined to grant specific performance in cases where the matter involved a prolonged process under the guidance and surveillance of the Court. Section 14 (c) : Contracts Involving Personal Qualification Cannot be Specifically Enforced The following contracts cannot be specifically enforced, namely: ”A contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms.” Please note that the word ”material terms” means the essential purpose of the contract. Purpose can be: teaching, singing, writing a book etc. Contracts involving personal skills/qualifications of a person cannot be specifically enforced vide judicial process, the only choice for the aggrieved party is to settle for and be content with the award of damages. A provision equivalent to Section 14(c) was also there in the old Act as Section 14(1)(b) and Indian Courts had interpreted what the terms personal qualifications would mean. The Supreme Court of India in Jitendranath Biswas vs. Empire of India and Ceylone Tea Company (AIR 1990 SC 255) observed that, ”An employee of a Private Company whose services are terminated cannot seek the relief of reinstatement and back wages in a Civil Suit as a contract of employment for personal service could not be specifically enforced. At the most he could seek the relief of damages.” As to contract of personal service involving the relationship of master and servant, Halsbury lays down “A judgement for specific performance of a contract for personal work or services is not pronounced, either at the suit of the employer or the employee. The court does not seek to compel persons against their will to maintain continuous personal and confidential relations.” The aforesaid para was quoted with approval by the Hon’ble Supreme Court in Nandganj Sihori Sugar vs. Badi Nath Dixit (AIR 1991SC 1525). The Supreme Court of India in Percept D Mark (India) Pvt. Ltd. vs. Zaheer Khan (AIR 2006 SC 3426)and the Delhi High Court in Infinity Optimal Solutions Pvt Ltd. vs. Vijender Singh (CS(OS) 1807/2009)observed that contracts for personal services are dependent on mutual trust and confidence and specific performance of such contracts were held to be barred under Section 14 (1) of the Specific Relief Act, 1963. The High Court of Kerala in R. Nitya vs. Dhanlaxmi Bank Limited & Ors. (O.P. (C) No. 355 of 2015(O))held that a contract of personal service cannot be specifically enforced under Section 14 (1) (b) of the Specific Relief Act, 1963. This stand was reiterated by The High Court of Himachal Pradesh in Rohit Kumar vs.Tata Tele Services Limited and Ors. (RSA No. 596/2012)wherein the Courtnoted that where the relationship between the parties as employer and employee is contractual, right to enforce the contract of service depending on personal volition of an employer, is prohibited in terms Section 14 (1) (b) of the Specific Relief Act, 1963. With respect to private contracts of personal service, it is settled law that contracts of personal service are not enforceable as is evident from the perusal of Section 14 (1) (b) of the Specific Relief Act, 1963. The court further held that contracts of personal service were not enforceable as was evident from Section 14 (1) (b) of the Specific Relief Act, 1963. In light of various judgements and judicial pronouncements it has been observed that a court will not make an order to specifically enforce a contract of personal service. Please note that when rendering of personal service under a contract is dependent upon the volition of the parties or where the acts stipulated required special knowledge, skill, ability, experience or the exercise of judgement, discretion integrity and like personal qualities in short, whenever a performance according to the spirit of the contract rests on the individual will and capacity of the contracting party, a court cannot direct specific performance of those duties for or on behalf of the contracting party