Revisiting Judicial Discretion in Specific Relief

The scope of this article is to understand the position of law on enforcement of contracts before and after the amendment of the Specific Relief Act, 1963 with the main focus on curtailment of the Court’s discretion in not granting specific enforcement of a contract.

The 2018 amendment to the Specific Relief Act, 1963 (‘the Act’) has come into effect on October 1, 2018, vide notification bearing number S.O.4888(E) (‘the Amendment’).An expert committee consisting of 6 legal experts was constituted to analyse and recommend amendments to the Act (‘the Committee’). The Committee was formed to review the Act with respect to public utility contracts in light of the developments since 1963 and to do away with discretionary relief.

The Committee considered that in countries such as Germany, France and Spain specific enforcement of contracts is available as a matter of right with no tests to prove the inadequacy of compensation. In India, however, the Plaintiff had to prove the contract, its terms, breach and that the compensation would not be sufficient relief for the loss suffered in order for specific enforcement of a contract to be granted. Immovable properties were, however, an exception, where the court would presume that compensation is inadequate for the Plaintiff.

The Countries where specific performance is available as a right have strict contract enforcement policies, established systems for execution, heavy damages and penalties, as a result of which there is little or no scope for breach of contract. In fact, in order to fully give effect to the intention of the amended Act, the Committee strongly recommended the amendment of Indian Contract Act, Transfer of Property Act, Sale of Goods Act and Consumer Laws as the Act is not exhaustive in itself. However, the parallel amendments are still awaited.

Key features of the amendment

Some of the changes to the legislation include not having to aver but merely prove readiness and willingness to perform the contract and ability to engage an expert in such cases.[1] Some of the key changes introduced to the Act are –

  1. Judicial discretion to not grant specific performance earlier existed under Sections 10, 11 and 20. Broadly speaking, Section 10 provided that specific performance of a contract could be granted subject to the discretion of Court when –
  1. No standard existed for ascertaining the actual damage caused by non-performance of an agreed act
  2. The act agreed to be done is such that compensation for its non-performance would not offer adequate relief. It is also called the inadequacy test.

The Committee was of the opinion that the tests to prove award of compensation were too strict and that the exact damage could often not be fully assessed by the Plaintiff.  Therefore, it opined that specific performance would best protect the rights of the promisee and that specific relief ought to be available to the promisee as a matter of right. It now reads “…the Court shall enforce the specific performance of a contract subject to Sections 11, 14 and 16”. Grounds for refusal of specific performance are consolidated within those three sections.

  1. Section 11 relates to cases in which specific performance of contracts connected with trusts are enforceable and the words ‘contract may, in the discretion of the Court’ have been replaced by ‘contract shall’ thus taking away the Court’s discretion to not grant specific performance of trust related contracts.
  1. Amended Section 14 provides for the grounds on which specific performance may be refused, being  –
  1. Where a party has obtained substituted performance of a contract in accordance with Section 20
  2. A contract, the performance of which involves the performance of a continuous duty which the Court cannot supervise
  3. A contract which is so dependent on the personal qualifications of the parties that the Court cannot enforce specific performance of its material terms
  4. A contract which is in its nature determinable. 

An interesting observation is that the Committee recommended deletion of Section 20 of the Act and include under Section 14, two of the grounds for refusal of specific performance being –

  1. Where the terms of the contract or the conduct of the parties at the time of entering into the contract, or other circumstances under which the contract was entered into are such that the contract though not voidable, gave an unfair advantage to the Plaintiff over the Defendant
  2. Where the performance of the contract would involve some hardship on the Defendant which was not foreseeable at the time of entering into the contract, whereas its non-performance would involve no such hardship on the Defendant. 

However, these grounds are absent in toto from the amended Act, resulting in a void for Courts to contemplate these aforementioned circumstances.

  1. Section 20 specifically dealt with the Court’s discretion to not grant specific performance. Such discretion had to be sound, reasonable, non-arbitrary and guided by sound judicial principles. This entire Section has been deleted as the grounds for refusal have been consolidated in sections 11, 14 and 16. The amended Section 20 provides for substituted performance of contract, whereunder the party who suffers a breach shall have the option of substituted performance through third party or his own agency and recover the costs and expenses suffered by him from the party who commits the breach subject to certain conditions.
  2. Earlier, as per the old Section 20(2) of the Act, the Courts had absolute discretion to not grant specific enforcement of a contract in light of the circumstances of the case and several other factors such as unfair advantage to the Plaintiff, unforeseen hardship to the Defendant and where it would be inequitable to grant specific performance. However, now specific enforcement of contracts has been made the rule and discretionary relief the exception.
  3. Section 20A is a special provision for infrastructure related contracts, whereunder the Court shall not grant an injunction in a matter involving a contract relating to a public utility infrastructure project, where such injunction would cause an impediment or delay in the progress or completion of such infrastructure project.
  4. Section 21 (2) provides that where the court feels specific performance ought not to be granted, but the Defendant has broken the contract, compensation in lieu of specific performance may be granted. A symbiotic reading of the Act would imply that such compensation would only be available within the precincts of Sections 11, 14 and 16.

Cases where judicial discretion was exercised to deny specific enforcement of a contract

  1. In Ramji Patel v. Rao Kishore Singh, AIR 1929 PC 190, it was held that specific performance will not be granted where compensation in money was adequate relief. It was held that the circumstances under which the contract was entered into and the terms of the contract implied that the Plaintiff was getting an unfair advantage from this contract. An agreement to sell immovable property was sought to be enforced and the observations made with respect to the same included “He simply invested money, and a return of money should normally be sufficient. It is not shown that he had any pressing need for land”. In Abdul Rahim v. Ma Budima AIR 1933 Rangoon 149, it was held that specific performance as a rule would only be allowed when there was no other sort of relief to meet the circumstances of the case.
  1. In Nanjappan v. Ramaswamy 2015 (1) KAR L.R. 568 (SC), the Appellant had entered into a contract with the Respondent to sell a property and received an advance sum. The balance had to be paid within 2 years, however, the period for performance kept getting extended up to 8 years by entering into fresh agreements and paying further sums.  The Supreme Court exercised its discretionary powers and rejected a plea for specific performance because of the inequitable hardship suffered by the Appellant who had constructed a house, paid sale considerations etc. In a hypothetical situation, where this case was to be adjudicated in light of the amended law, it appears the Court would be compelled to direct specific performance of the contract without taking into consideration the inequities.
  2. In Jayakantham and Ors v. Abaykumar (2017) 5 SCC 178, a decree for specific performance (for sale of immovable property) was appealed against inter alia on the ground that the agreement to sell was in fact executed as a security for a loan transaction. While elucidating the guiding principles of judicial discretion in depth, the Supreme Court held that just compensation would be adequate relief in the present case inter alia on the ground that the terms of the contract, the conduct of parties at the time of entering into the agreement and circumstances under which the contract was entered into, gave the Plaintiff an unfair advantage over the defendants making it inequitable to enforce specific performance.

Criticism and conclusion

The first and foremost reason of reference to the Committee was the review of the Act for the purpose of public utility projects. While the object of the reference may have been met for the benefit of public utility contracts, the effect of the amendment is far reaching and touches upon all types of contracts. Therefore, whether every type of contract will fit the mould of the amendment is uncertain.

Another unfathomable cavity in the legislation is whether the amendment is prospective or retrospective in operation. This deficit is particularly troublesome in light of the paradigm shift in law and may result in a lot of confusion.

In an attempt to make specific performance stringent, the Courts have been constrained from going beyond the word of the contract and looking into its spirit and equities. This restriction seems unassailable and ideally, there ought to have been a small window for the Courts to view from its judicial eye, factual circumstances that are apparent only to its wisdom and not to the legislation or the contract.  

In conclusion, the amendment may be well-intentioned and stems from an economic need to position the country as an investor-friendly nation. However, its practical implications wait to be seen in its formative years.

[1] Section 16(c) and Section 14 A of the Specific Relief Act, 1963

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