This article is written by Amarnath Simha, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here he discusses “How Does 2018 Amendment To Specific Relief Act Impact Contract Enforcement”?.
The Specific Relief Act, 1963 (Act for short) was amended by the Specific Relief (Amendment) Act, 2018 (Amending Act for short) (http://www.egazette.nic.in/writereaddata/2018/187919.pdf) which came into effect from 01.10.2018 (http://egazette.nic.in/WriteReadData/2018/189830.pdf).
Background to the Amendment
1.1 The Ministry of Law and Justice constituted an Expert Committee on 28.01.2016 consisting of six members including the Additional Secretary, Ministry of Law and Justice as the Member Secretary of the Expert Committee. The Expert Committee was constituted for the purpose of making suggestions for amending the Specific Relief Act, 1963. The Expert Committee deliberated and submitted a report containing its recommendations to the Minister of Law and Justice on 26.05.2016 (http://practicalacademic.blogspot.com/2018/05/download-expert-committee-report-on.html).
Report of the Committee
The report is consisting of eight chapters with the Chapter I being the Introduction. Chapter I contains the terms of reference which are stated hereunder in brief:
- To review the Act from the point of view of enforceability of contracts in the context of tremendous developments and the present changed scenario involving contract based infrastructure projects, PPPs and other public projects involving huge investments;
- To study the remedies so that specific performance is granted as a general rule and the grant of compensation or damages as an exception;
- To examine and suggest amendments to ensure that discretionary relief is done away with.
Chapter III: Analysis of the Provisions of the Act
- At paragraph 11 of the report, it is observed that the changes in some provisions of the Act will improve the ease of doing business, and will encourage parties to perform their contracts. Primarily, the recommendations enable any party to the contract to seek whichever remedy he chooses. Hence, specific performance or injunction will be available by choice, and will no longer be exceptional or discretionary.
- At paragraph 11.7 of the report, amendments were proposed that the Section 10 must be amended to make the specific performance a regular relief and not just an exceptional one. It was also proposed that the grounds for refusal of the relief must be merged into one Section i.e., Section 14 instead of the grounds being diverse in Section 14 and 20. The new relief of compensation pursuant to substituted performance was also to be created.
- Paragraph 11.9 of the report deals with refusal of the remedies and states that the relief can be refused under the new Section 14, 16 and 41.
Chapter IV: Discretion of Courts
- At paragraph 12.1.1, it is observed in the report that the there is a lack of certainty for those asking for this remedy, and creates the need for limiting the discretion. At paragraph 12.1.2, it was proposed that the grounds on which specific performance may be withheld should be clearly delineated in the statute. It was further observed that once the plaintiff successfully meets the conditions for obtaining specific performance, the relief must be granted unless the defendant can prove that the case falls squarely within the negative grounds or exceptions.
- At paragraph 12.2.4 of the report, the exceptions which are to be allowed for enforcement are mentioned. Some of them are as under:
(a) Hardship on the defendant which he did not foresee, whereas its non-performance would involve no such hardship on the plaintiff. It was observed that when it is unreasonably burdensome for the contract to be enforced, then the contract need not be enforced and that was something out of the ordinary.
(b) The terms of the contract or conduct of the parties at the time of entering the contract give the plaintiff an unfair advantage over the defendant.
Chapter VII: Amendments required to address certain contracts
The report states that the committee considered whether an amendment to the Act was required to address unconscionable contracts, unfair contracts, reciprocity in contracts etc., The committee concluded that the current provisions in the Act deal with these issues adequately, and no amendment was required. At paragraph 17.10.2, it was concluded that Section 20(1) of the unamended Act specifically grant wide discretion to the court whilst decreeing specific performance and hence no separate provision was required as the current provisions of Section 20(1) were proposed to be incorporated into Section 14 as grounds for refusal of relief.
Chapter VIII: Recommendations for amendment
- Chapter VIII of the Expert Committee report contained the recommendations for Amendment with brief explanations (pages 92-107). All the Sections were considered and in respect of a few sections, recommendations for the amendment were made. Only a few of those recommendations with regard to the specific performance are considered herein.
- Section 10 was to be substituted by Section 10 (1), (2) and (3). Section 10(1) was to be as follows:
Notwithstanding anything contained in any other law for the time being in force, a party to a contract, or any person so entitled under Section 15, shall be entitled to specific performance of a contract or injunction, unless such relief can be refused under Sections 14, 16 or 41.
- Section 14 (1) to be substituted. Some of its important recommendations were:-
- Where the party or person seeking specific performance can reasonably obtain substituted performance from another source on comparable terms, including price and time.
- The provisions of Section 20(2) of the unamended act were to be incorporated into Section 14(1) except for Section 20(2)© which dealt with the enforcement being inequitable. In the explanation 1: to Section 20 (2), along with mere inadequacy of consideration, any rise or fall in prices or market value or any change in circumstances after entering into the contract were also included.
Differences between Expert Committee Recommendations and Actual Amendment Carried out in Respect of Specific Enforcement
Expert Committee recommendations
The recommendations to include Sections 20(2) (a) and (b) along with the explanations thereof
The recommendations have not been followed and there are no provisions in amended Act relating to the provisions of Section 20(2) of the unamended Act.
The court shall not refuse specific performance of a contract for the construction of any building or the execution of any other work on land if:
…subject to conditions…
The whole of Section 14(2) and (3) has been discarded and the recommendations are not followed.
Effect of these Differences
The Expert Committee in Chapter VII of its report had extensively dealt with the need for dealing with unfair or unconscionable terms and had felt that Section 20 specifically deals with it and it was recommended to incorporate the provisions of Section 20 within Section 14. While doing so, it had referred to provisions of the law in various countries including United Kingdom, United States, Australia, Canada and New Zealand, and had also at various other places in the report referred to Uncitral and Singapore provisions. In Paragraph 17.10.1, the Expert Committee had considered whether to specifically cover unfair or unconscionable terms, a separate legislation on the lines of the Unfair Contract Terms Act, 1977 prevalent in the UK and Singapore had to be recommended or not. Ultimately, it stated in paragraph 17.10.2, that due to incorporation of the current provisions of Section 20 into Section 14 as grounds for refusal of relief, a separate legislation was not necessary.
However, by virtue of the amendment, the provisions of Section 20 of the unamended Act have been completely been disregarded. There seems to be no reason as to why that recommendation was not followed. The only implication would be that the Legislature and the Executive in general and the Ministry of Law and Justice, in particular, want even the contracts containing unfair and/or unconscionable terms to be specifically enforceable as a matter of routine. Since the courts cannot attribute this intention to the Legislature, the courts will now have to consider the whole of the ‘specific performance’ relief from the pre-statutory law as to this equitable relief. Even if this intention is attributed to the legislature and sought to be honoured, it would be facing one more contention. Since the Legislature is attributed the knowledge of the entire existing law and the effect of its amendments, the courts will be forced to consider the question as to whether the legislature’s intention of making even the contracts with unfair and/or unconscionable terms enforceable supersedes the basic conscience of justice which could ultimately be attributed to Article 21 of the Constitution of India. Hence, instead of giving statutory guidelines for the refusal of the relief of specific performance, the amendment has only made it vaguer than it could ever have been. This will only to more confusion in the years to come till it gets settled by an authoritative judgment of the Hon’ble Supreme Court. Hence, the whole objective of the amendment has been made to a nought as far as the provisions regarding the specific performance is concerned.
Criticism of one of the members of the Expert Committee as to the Amending Act
- Mrs. Nilima Bhadbhade, one of the members of the Expert Committee, has criticised the amending Act (https://barandbench.com/specific-relief-amendment-act-hurried-legislation/). Some of the excerpts from that article are produced herein.
- The entire discussion in both Houses has overlooked the fact that the same amendment, and the Specific Relief Act as amended, is not restricted to business contracts, but applies to the common man and his personal contracts. The Amendment grossly violates his expectations of fairness and justice in enforcement of contractual remedies.
- The amending Act has not adopted all recommendations of the Committee relating to the changed approach of remedies and has disregarded recommendations that ensured fairness in the procedure. The amendment has become a patchwork of some contradictory and inconsistent provisions. The amendment has been rushed without consultation with the main stakeholders who administer this Act: advocates and judges.
- Hence, if the member of the Expert Committee, based on which the amending Act has been passed, criticises the amending Act, then it definitely deserves a relook. This amending Act has brought in more problems than it intended to solve.
The terms of reference to the Expert Committee itself contained requirements to suggest changes to make specific performance to be granted as a general rule and that the discretionary relief is done away with. The manner in which the expert committee recommendations have been ignored only shows that the report was only a pretence and nothing more. There is no reason or rhyme available on the internet as to why many of its provisions have been ignored. The discussions in the house of the Lok Sabha which took place on 15.03.2018 show no material to verify that the legislature has actually applied its mind in this regard (http://loksabhaph.nic.in/Debates/textofdebate.aspx?tab=1&lsno=16 at pages 662-668, internal page 65 onwards). Except for amendments moved from one member from Kerala i.e., Mr. N K Premachandran, there seems to be no discussion whatsoever on this issue. Hence, the amending Act requires a relook immediately and comprehensively and till then the old Act has to be followed.
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