This article is written by Dhruv Dikshit, a student of LC-II, University of Delhi.
India’s economy is in a developing phase and the growth rate keeps on increasing. Everyday new businesses are started and joint ventures are forged by the dozen in a variety of different ways and stakes are very high as such investments are multimillion dollar investments made by business overlords, or are in terms of procurement of goods or services, etc.
A variety of business relationships are created daily through commercial contracts, which not only specify the duties and obligations of the parties to the contract, but also an opt out mechanism for the termination of contracts.
Termination of Contract
The courts do not go through the futile ceremony of ordering the execution of performance of a contract, which is terminable or revocable at the will of the executant. Therefore, determinable contracts derive their jurisdiction from the termination clause drafted within the contract. There are three types of termination clauses. Firstly, a contract can be terminated because of a certain action or omission on behalf of one of the parties which had been the essential condition on which the contract was hinged. Secondly, termination of a contract can be done for the sake of convenience as the enforcement of such a contract becomes counterproductive to one of the parties. And thirdly, the termination of a contract can happen in case the performance of the act on which the contract was contingent has exceeded the prescribed time limit. Moreover, while a termination clause can be drafted in several ways, broadly speaking, termination could occur without any specific cause i.e. without providing any reason at the option of either party.
Specific Performance of Contracts
The law defines prohibitions and remedial measures in case the said prohibitions are not adhered to and thereby, seeking equality in all cases. The said remedies include specific performance of the contract, damages for breach of contract, injunction to a party to not commit a breach of the contract. Specific performance is the primary remedy in case a breach of contract occurs and it means that the performance of a contractual duty can be enforced in cases where awarding damages is not the adequate remedy. A contract is an agreement between parties comprising a bunch of duties and obligations that the law will enforce. Though the Act defines and amends the law relating to certain kinds of specific reliefs, it appears to be exhaustive in dealing with specific performance of contracts. As to whether or not specific performance is to be granted and as to whether or not any injunction is granted depends upon on the commercial intention of the agreement, the conduct of the parties, and other relevant considerations. Furthermore, section 10 of the Act lists certain black and white circumstances where the specific performance of any contract, in the discretion of the court, can be enforced. Despite the said enumeration of the cases in which specific performance is a certainty, the act makes it unequivocally clear that the relief of specific is a discretionary relief which means the dispensation of the said relief entirely depends whether the circumstances are apt or not. Therefore it is possible that even though the contract falls in the category of contracts specifically enforceable, the court may refuse the relief on the basis of facts and circumstances of the case, conduct of parties, etc.
What are determinable contracts?
The word determinable used in clause (c) of subsection (1) of section 14 of the Specific Relief Act of 1963 lays down that a contract is determinable if it can be put to an end. The implication being that all contracts that can be voided in one way or another fall within the ambit of determinable contracts.
Clause (c) of subsection (1) of Section 14 enumerates situations where the court cannot order specific performance of the contract. Sections 10 and 14 (1) (c) when read together, imply that there is more scope of refusal of specific enforcement rather than allowing it. Furthermore, according to section 41(e) of the Act, an injunction cannot be granted to restrain a party from committing breach of a contract that cannot be specifically enforced. Therefore, an analytical reading of the above mentioned sections of the act establish that a contract cannot be specifically enforced which is in its nature is determinable and injunctions are not to be granted on breach of contract.
In the case of Indian Oil Corporation Ltd v. Amritsar Gas Service and Ors.1991, the apex court has opined on the definition of determinable contracts and their scope and ambit. In this case, the disputed contract was a distributorship agreement which had a clause drafted within for termination on the occurrence of a specified event and also contained a clause for terminating the agreement without providing any reason by giving a prior notice of 30 days.
The court held that a distributorship agreement which contained a clause gave the right to either party to terminate the said agreement with 30 days prior notice, and without assigning any reason, was “determinable” in nature and, hence, could not be specifically enforced. The only relief that could be granted was compensation for the loss of earnings for the notice period. In other words, a party to the distributorship agreement could not obtain specific performance of the contract as a remedy because the contract was “determinable”.
However, In the case of Crompton Greaves Ltd v. Hyundai Electronics 1998, the contract in dispute was a joint venture agreement in which a clause was rafted which bestowed the right to terminate the agreement if certain government approvals were not processed within the prescribed time limit. The presence of this clause prompted the court to conclusively establish that the agreement was determinable and the relief of specific performance was denied.
In another case, Rajasthan Breweries v. Stroh Breweries (2000), the contract was regarding the provision of technical skills and under the agreement Stroh Breweries had the right to terminate the agreement in case a specified event’s occurrence takes place. The contract was held to be determinable and an injunction restraining the respondent from terminating the agreement was denied.
In its 2006 decision of Turnaround Logistics (Pvt.) Ltd v. Jet Airways (India) Ltd, the Delhi high court held an agency contract to be determinable, stating that the term “determinable contract” means a contract that can be put to an end and, thus, all revocable deeds and voidable contracts would fall within this term.
A close analysis of these verdicts is suggestive of the fact that the presence of a termination clause in a contract in all probability leads to the contract being held as determinable and, therefore, the remedy of specific relief is not applicable.
The ratio decedendi of the above mentioned verdicts’ interpretation of the law establishes that the, specific performance of contracts would become an sisyphean proposition, even if there isn’t a without cause termination clause in a contract, most contracts have the reasonable foresight while being drafted to add a termination clause that entitles the contracted parties to terminate the contract on the occurrence of events specified therein.
The scope and ambit on the remedy of specific relief is expected to develop and get nuanced further, but presently, it appears that an order granting relief for specific performance would be difficult to obtain considering the determinable nature of such contracts.
- ‘Determinable’ or not: that’s the question in commercial contracts; http://www.livemint.com/Companies/xPiP32ElcuTgcA7Ej7DY8O/8216Determinable8217-or-not-that8217s-the-question.html
- India: Determinable Contracts; http://www.mondaq.com/india/x/408322/Contract+Law/Determinable+Contracts