Bill would make it easier to attain contract performance

By Manoj Kumar, Hammurabi & Solomon
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Amendments to the Specific Relief Act, 1963, proposed in the Specific Relief (Amendment) Bill, 2017, would make enforcing contracts much easier in India. The lower house of parliament recently passed the bill, which seeks to limit the discretion of courts in matters relating to business agreements and provides for a non-discretionary remedy of enforcement of contracts in cases of breach.

Under the 1963 law, parties who allege violation of their contractual rights may seek: (i) performance of the business contract (specific performance); or (ii) monetary compensation. Specific performance would be granted by a court in its discretion only if monetary compensation is not a sufficient remedy or if the quantum of monetary compensation cannot be ascertained.

Manoj Kumar, Hammurabi & Solomon
Manoj Kumar
Founder and managing partner
Hammurabi & Solomon

The bill seeks to make specific performance a right not subject to courts’ discretion and it being replaced by monetary compensation in the exercise of such discretion. To further strengthen the regime to ensure performance of obligations under a contract, the bill also provides for “substituted performance” of a contract. Under this provision, the affected party is required to give 30 days’ clear notice seeking specific performance of the contract by the party in breach. If the other party does not remedy the alleged breach by performing its obligations, the affected party would then have the right to have the contract performed by its own agency or by a third party.

If the affected party benefits from substituted performance, its right to seek specific performance against the other party will be closed. The affected party would however be entitled to recover costs relating to substituted performance from the other party.

Additionally, to prevent any hindrance or delay in the completion of infrastructure projects, the bill provides that courts cannot grant injunctions in proceedings concerning contracts related to infrastructure projects. This would affect contracts in the sectors of transport, energy, water and sanitation, communication (including telecommunication), social and commercial infrastructure (such as affordable housing), etc., as well as such other sectors as may be notified by the government of India from time to time.

The bill also seeks to fast-track proceedings of cases relating to infrastructure projects by providing for designation of specific courts to deal with such cases and by mandating that such cases be completed in a time-bound manner. The designation of such courts would be done by each state government in consultation with the chief justice of the respective high court. The bill provides for completion and disposal of these cases by the designated courts within 12 months (extendable by a further period of six months) from the receipt of summons by the other party.

The bill further seeks to address the problems around lack of domain knowledge for dealing with contracts involving technical and domain issues in specific areas, by providing for engaging experts in proceedings where the courts may need expert opinion in order to effectively and expeditiously decide disputes. The terms of engagement of such experts including their fees would be fixed by the courts and the costs would be borne by parties to the proceedings.

While the 1963 law permitted dispossessed persons in relation to immovable properties and persons claiming through such dispossessed persons to initiate proceedings for recovery of possession of immovable properties, the bill seeks to also permit persons through whom a dispossessed person got possession to initiate proceedings for recovery of possession of immovable properties.

Despite the enactment of the Limited Liability of Partnership Act in 2008, the 1963 law was not amended to include limited liability partners (LLPs) among the persons who may seek specific performance or against whom specific performance may be sought. The law only covers a party to the contract or a company resulting from the amalgamation of two existing companies as those may seek specific performance or against whom specific performance may be sought. The bill seeks to include LLPs among those who may seek specific performance or against whom specific performance may be sought.

The introduction of this new regime – making enforcement of contracts by specific performance the rule and not the exception, by enabling affected parties to a contract to have the terms of the contract specifically performed or failing which to have the contract completed by substituted performance – would be a landmark change and would immensely increase the confidence in the Indian judicial delivery system of parties to contracts. Enforcement of contracts has been one of the main pain points among overseas investors and the bill seeks to overcome this trust deficit effectively.

Manoj Kumar is the founder and managing partner at Hammurabi & Solomon

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