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In this article, Venkateswaran T, pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho, discusses the proposed amendments to the Specific Relief Act and how will it impact the Indian industry.

  1. Specific Relief (Amendment) Act, 2018

An important Bill named The Specific Relief (Amendment) Bill, 2018 to amend an existing Act, called The Specific Relief Act 1953 that had not been amended since its inception, was passed by Lok Sabha mid-March 2018 by a voice vote without debate amid over different issues, including the PNB scam.

This Bill proposed to grant a contractual party the right to seek damages from the other side in case of a breach of a business contract and to reduce discretion of courts in such matters.

The current Specific Relief Act 1953, enables specific relief (founded on law of equity) only based on court’s discretion. The amendments include remedies which aim at the exact fulfilment of an obligation or compel performance of a contract (Specific Relief) as a general rule rather than grant of damages or monetary compensation (Compensatory Relief).

Under the Act, specific performance is a limited right, which may be given by the court at its discretion, in the following circumstances:

  1. when monetary compensation is inadequate; or
  2. when monetary compensation cannot be easily ascertained.

The Bill has now amended 54-year-old law by removing above conditions and provide specific performance by courts as a general rule, as part of the government’s ease of doing business policy.

  1. Proposed Amendments – Background of events that led to this change

2.1 World Bank Doing Business 2018 and Economic Survey 2018 Report Findings

World Bank in its Doing Business 2018 report places India’s rank as 100 (out of 190 countries) which is remarkable improvement from earlier rank of 130 in 2017 – mainly contributed by factors such as payments of taxes and strengthening access to credit. An area that came out clearly where our country is lagging behind is in Enforcement of Contracts and associated Legal systems and procedures; this domain is closely watched by international investors for them to obtain comfort in our dispute resolution process resulting in speedy justice.

Subsequently our Economic Survey 2018 report highlighted in its chapter “Ease of Doing Business’ Next Frontier: Timely Justice” that India has only marginally improved its position on Enforcing Contracts (from 172 in 2017 to 164 in 2018 as per World Bank Doing Business indicators) which is still behind Pakistan, Congo and Sudan.

2.2 The Backlog – Pending Cases in India

An estimate of pending cases in India by National Judicial Data Grid as of 2nd April 2018 is 26.5 million. This when viewed along with the average time required to enforce a contract through court being 1445 days (approx.4 years) vs. 164 days in Singapore (the best performer as per DB 2018 report) – becomes self-explanatory for an investor’s country risk perception in a situation of a project contract ending up in a dispute.  

2.3 Commercial Cases – Delays leading to costs and time overruns

The Economic Survey 2018 also notes the count and value of stayed infrastructure projects belonging to 6 ministries (ref Annexure Table 1 at end of this article) as 52 nos. and Rs.52,081 Crores! Apart from general work overload in Courts, the Survey also mentions “Recourse to Injunctions and Stays” also as one of the main reasons for project delays on account of judicial procedures. For instance, in High Court of Delhi, Injunctions in the Intellectual Property Rights (IPR) cases led to about 60% of cases being stayed with average pendency of 4.3 years 7.9 years for final disposal.

The above scenario is a clear indicator of the impact the judicial delays have on uncertainty in commercial contracts, especially capital-intensive and long-duration projects, leading to project time and cost overruns resulting in unviable costs and uncertain project environment.

The Government, in the spirit of Ease of Doing Business in India and based on the recent years World Bank Doing Business Report findings, has therefore introduced various amendments to the Specific Relief Act 1953 to address the above concerns – especially regarding availability of Remedy to critical Infrastructure Projects and discretionary powers of Courts.

2.4 Constitution of Expert Committee to Review the Act

The Legislative Department of Ministry of Law and Justice vide Office Order dated the 28th January, 2016 had constituted an Expert committee led by Mr. Anand Desai to examine the Specific Relief Act, 1963 (47 of 1963) and to make suggestions for amendments therein with the following Terms of Reference –

(a) to review of the Specific Relief Act, 1963 from the point of view of enforceability of contract and other relief provided thereunder, in the context of tremendous developments which have taken place since 1963 and the present changed scenario involving contract based infrastructure developments, public private partnerships and other public projects involving huge investments;

(b) to study the remedies of specific relief provided under the Specific Relief Act, 1963 and suggest changes required in the present scheme of the Act so that specific performance is granted as a general rule and grant of compensation or damages for non-performance remain as an exception;

(c) to examine and suggest amendments in the Specific Relief Act, 1963 to ensure that discretionary relief is done away with;

(d) to examine amendments required to be made in the Specific Relief Act, 1963 for ensuring ease of doing business in India;

(e) any other suggestions for amendments in specific Relief Act, 1963.

2.5 The Committee subsequently submitted its Recommendations and following are the key highlights 

  1. Make Specific Performance the Rule and Damages/Compensation the Alternative (vs. the vice-versa discretion based law as existing currently)
  2. Reduction of discretion granted to Courts and Tribunals while granting performance and injunctive reliefs.
  3. Introduction of 3rd party rights provisions.
  4. Importance to projects that are of public work in nature insulating them from any interruption on account of judicial process.

https://lawsikho.com/course/diploma-advanced-contract-drafting-negotiation-dispute-resolutionClick here

  1. Key Features of the Specific Relief (Amendment) Bill 2018

Following are the Key features of the amendments introduced and passed in the 2018 Bill –

3.1 Specific Performance as a Rule

An important feature in the list of amendments is that grant of specific performance of contracts has been made compulsory, by taking away the discretionary power of courts. The current Act Section 10 mentions that specific performance of contract ‘may’ be enforced by the court in its discretion. Availability of such discretionary powers have allowed the courts often award damages as a general rule and grant specific performance as an exception apart from injunctions.

The amendment has now changed this scenario by stating that specific performance of a contract shall be awarded as a rule and be enforced by the court.

3.2 Substituted performance

Amendments have been included to provide the affected party option to utilise or appoint a third party contractor or appoint its own agency to execute the remaining part of the contract, called as Substituted Performance, by sending a 30-day written notice before obtaining and proceeding accordingly. The affected party can now also recover the costs in connection with execution of such a substituted performance from the other party who is in breach of the contract. However, it has also been mentioned that once the substituted performance provision requirement has been invoked, the affected party would then not be able to claim specific performance i.e., making the defaulting party to perform the contractual obligations as per earlier agreed terms.

3.3 Injunctions

The Act provides powers to Court to grant preventive relief (injunctions) to parties. The Act provides circumstances in which injunctions cannot be given, for example, to stop a party from filing a complaint in a criminal matter.

The Bill additionally seeks to prevent courts from granting injunctions in contracts related to infrastructure projects, if such an injunction would hinder or delay the completion of the project.

The aforementioned projects can be categorized under the following infrastructure sectors and their sub-sectors –

  1. Transport
  2. Energy
  3. Water and Sanitation
  4. Communication (such as telecommunication) and
  5. Social and commercial infrastructure (such as affordable housing).

The central government may amend the list through notification.

3.4 Identification of Special Courts to speed up Infrastructure project disputes

In order to give a boost to Infrastructure projects, especially to remove uncertainty in dispute resolution timelines, provision have been made to designate certain civil courts as Special Courts by the State Government, in consultation with the Chief Justice of a High Court. These Special Courts will deal with cases related to infrastructure projects and are expected to dispose of such cases within 12-months from the date of receipt of summons by the defendant, with an additional 6-month extension as required.

3.5 Recovery of Possession

The Act permits the following persons to file a suit for recovery of possession of immovable property:

  1. a person put out of possession (dispossessed person); and
  2. any person claiming through such dispossessed person.

The Bill additionally permits a person through whom the dispossessed got possession of the immovable property, to file a suit for recovery.

3.6 Appointment of Experts for opinion in cases

Technical experts can now be engaged by the Courts to obtain expert opinion in the cases (for e.g, complex IPR cases) as required to obtain informed views. The Courts have been given the freedom to determine the terms of payment or costs for appointing such experts, wherein finally the payment would be passed on to both the parties.

  1. Expected Impact to Industry

The above mentioned changes implemented into the Specific Relief Act, is expected to have the following positive impact –

  1. Reduction in uncertainty of contract disputes with respect to judicial timelines by way of no injunctions on projects of public interest.
  2. Critical contracts can be secured of equity remedy wherein the performance of the contract required for the project as envisaged in the terms and conditions would become the norm avoiding any monetary compensatory replacement.
  3. The substitution clause would enable immediate remedy for the petitioner party against the contracted party who has breached terms even prior judicial process as the project work can continue to get executed.
  4. Special courts and expert opinions ecosystem would ensure speeding up the dispute resolution timelines, thereby ensuring for India and its investors faster justice, reduced uncertainty in contracts environment, stable and secure judicial process perception and better rankings in international standings.

Annexure

Table 1. Stayed Projects- Stock (6 Ministries, as on 31.10.2017)

Ministry Stayed Projects Total Value

(Rs Crores)

Duration of Stay (Years)
Shipping 2 2620 5.9
Power 11 23,913 3
Road 30 11,216 3
Petroleum 2 342 0.9
Mines 12 106 4.5
Railways 12 13,882 3
Total 52 52,081 4.3

(Source : Economic Survey 2018)

References

  1. http://www.doingbusiness.org/data/exploreeconomies/india
  2. http://www.doingbusiness.org/data/exploreeconomies/india#enforcing-contracts
  3. http://njdg.ecourts.gov.in/njdg_public/main.php
  4. https://www.pressreader.com/india/business-standard/20171218/281921658401404

5.http://www.livelaw.in/specific-performance-compulsorily-ordered-courts-know-changes-proposed-specific-relief-amendment-bill/

6.https://economictimes.indiatimes.com/news/politics-and-nation/ls-passes-bill-on-damages-for-breach-of-contract/articleshow/63313606.cms

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