Specific enforcement now primary remedy in disputes

By Vinod Kumar, J Sagar Associates
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The Specific Relief Act, 1963, as amended by The Specific Relief (Amendment) Act, 2018 (act), has introduced significant changes to the law relating to enforcement of contracts and grant of injunction, including some specific to the infrastructure sector.

The act has made specific performance of contracts the primary remedy to bring certainty in enforcement of contracts, a radical departure from the common law approach of damages being the rule and specific performance being the secondary remedy. The discretion to grant a decree for specific performance has been taken away from the courts, and made mandatory, subject to certain exceptions.

Vinod Kumar id
Vinod Kumar
Partner
J. Sagar Associates

The remedy of “achieving the purpose of the contract” can now be granted irrespective of the nature of the contract, as long as the exceptions are not applicable.

One of the exceptions to the grant of specific performance in the earlier statute was “compensation in money being an adequate relief”. Grant of specific performance was therefore subject to it being proved that compensation is not an adequate relief. By removing compensation from the list of exceptions, the amendment ensures that the entitlement to claim compensation from the party committing the breach can no more be the basis for refusing specific performance.

The amendment also introduces the option of substituted performance at the cost and expense of the breaching party. However, before exercising the option, the party in breach is required to be given an opportunity to perform the contract, which may not be ideal as it forces the party that has suffered the breach to have the contract performed by the party in breach. A party opting for substituted performance cannot seek specific performance but retains the right to claim compensation. The utility and effectiveness of the provision for substituted performance will have to be tested.

Construction contracts

One of the exceptions to the grant of specific performance was contracts involving performance of continuous duty, which the courts cannot supervise. The amendment retains this exception. Prior to the amendment, despite the exceptions, contracts for construction of a building or execution of work on land were enforceable, subject to certain conditions. The amendment omits the list of contracts that could be enforced despite the exceptions from the principal act. Therefore, despite specific performance being made the rule, the enforceability of construction contracts, which involve continuous acts that require supervision, remains uncertain.

Infrastructure projects

Viability and certainty are fundamental to the success of infrastructure projects. The Economic Survey 2017-18 estimated that the total value of infrastructure projects injuncted or stayed at `5.2 trillion (US$7.3 billion), and the average duration of the stay orders at four years and three months. These figures were specific to six infrastructure ministries – shipping, power, road, petroleum, mines and railways – and did not account for other central and state government projects that were stalled due to court orders. The cost overruns for of such stayed projects was close to 60%. This has had a cascading effect on the economy as debt financing is the primary source of funds for such projects.

The Code of Civil Procedure recognizes the need for expeditious disposal of injunctions as well as for varying and setting aside orders of injunctions when undue hardship is caused.

Further, the code also recognises the need to discourage plaintiffs from seeking injunctions on insufficient grounds by enabling courts to award reasonable compensation to the defendant in such case. However, the limits on the powers of the court to grant such reliefs and the delays attached to any such proceedings have resulted in these provisions not acting as a tool to discourage frivolous petitions for injunctions.

To curtail delays in infrastructure projects due to injunctions, certain significant amendments have been introduced. Sections 20A and 41(ha) introduced by the amendment prohibit grant of injunction in contracts relating to infrastructure projects, if it would delay the progress or completion of such projects or interfere with continued provision of relevant facility to such projects.

The schedule added to the act by the amendment lists out the category of projects and infrastructure sub-sectors to which this prohibition applies. Provisions have also been included for special courts to decide on contractual disputes arising out of infrastructure projects and for the expeditious disposal of such disputes. The amendments should benefit the infrastructure sector, providing an impetus to economic growth.

Vinod Kumar is a partner in the Chennai office of J. Sagar Associates. His views are personal.

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