Specific Relief Act, 1963 (‘SRA’) is the law governing specific performance of contracts, injunctions and other related matters. Recently SRA has been amended significantly and the amended law is well positioned to change the way in which litigation will be conducted in India. The amendments may be summarized as follows:
- To change the approach from damages being the rule and specific performance being the exception, to specific performance being the rule, and damages being the alternate remedy;
- To provide guidelines for reducing the discretion granted to Courts and tribunals while granting performance and injunctive reliefs;
- Introduction of the concept of substituted performance;
- To treat contracts of public importance at a different level and provide for special rules for enforceability of such contracts.
Suit for recovery of possession – who can bring
Sections 5 to 8 of SRA deals with recovery of property. Section 6 talks of dispossession of a person of immovable property without his consent and that such person may, by a suit, recover possession, notwithstanding any other title. Therefore, a person in possession of a property, when disposed of such property otherwise in due course of law, may recover possession by a suit. Person claiming possession must be the person who is in juridical possession. Hence agent, employee, servant, relative cannot claim relief under section 6 unless they had legal possession to begin with.
Supreme Court in a 2010 case decided that a landlord can file a suit under section 6 if the tenant has been forcibly dispossessed, although landlord was not in actual possession. The present amendment to section 6 codifies this position that the person who can bring the suit may be the person who was in possession, a person who claims through him or a person through whom the plaintiff was in possession.
Sections 10, 14 and 16 provide for cases in which specific performance is enforceable, in what cases it may not be enforceable and in whose favour the specific performance cannot be enforced. In cases, where specific performance is enforceable such as where there is no standard of ascertaining damages or where damages will not afford adequate relief etc., courts were given discretion as to whether to award specific performance or not and there was a fair chance of proving to contrary that damages will be adequate relief, even in cases such as agreements for transfer of immovable property. The present amendment to Section 10 makes it compulsory for the courts to enforce the contracts compulsorily subject to sections 11 (Trust related contracts), 14 and 16. Even of Section 11, specific performance has been made compulsory, except in case where trustee has acted out of its scope of powers.
Contnacts, where compensation is adequate relief, could not be specifically enforced. Such a situation gave the courts discretion to decide on the facts of the case whether damages are adequate relief or not. However, with the present amendments in Section 14 (1), this has been removed and replaced with the concept of substitute performance which is another amendment in Section 20 (discussed below). It is important to note that rest of erstwhile Section 14 has been deleted which included specific performance for construction contracts or execution of works on land provided certain conditions were fulfilled such as contract was precise enough about what works are to be done, plaintiff had substantial interest and defendant was in possession of the land on which construction or other works were to be done.
With the court discretion and conditions to specific performance gone and specific performance made compulsory, assuming other conditions of Section 14 (1) are met, it will be interesting to see the fate of development agreements in the courts. Also, this will prove to be a bounty for flat owners to get their allotment agreements etc. specifically enforced, hoping to get the construction completed, provided the courts first settle the bigger issue as to whether the flat owners can have access to civil courts/arbitration for specific performance and whether the civil courts/arbitration are ousted due to separate law namely Real Estate (Regulation and Development) Act, 2016 which is supposed to be a complete code for real estate and construction related matters and disputes.
An interesting situation will also arise with respect to enforcement and specific performance of investment agreements, shareholders agreements etc where servicing the exit of an investor is generally the obligation of the investee company and/or the promoters. Now that the specific performance has been made compulsory, it can mean that the investor have a right to get the exit obligations specifically enforced.
With the amendments in Section 16, specific performance has been made unavailable in favour of a plaintiff if he has availed substituted performance as per the new Section 20. Also, proof (and not proof and averment) of performance or readiness of performance of plaintiff’s obligation is required for him to get a specific performance in his favour.
Other important amendments in relation to specific performance are contained in Sections 20B, 20C and 21. Section 20B provides for designation of civil courts or special courts by state government to try a suit in relation to infrastructure projects (discussed below).
Section 20C prescribes a period of 12 months from service of summons to defendant to dispose off a suit filed under the SRA, which may be extended by another 6 months, giving reasons for such extension. To be noted that the time limit applies to all suits under the Act and not just for specific performance and keeping in mind that specific performance has been made compulsory and discretion of the courts has been removed, it will be interesting to see how most litigation shifts towards asking for specific performance rather than damages and hence becomes subject to the prescribed time limit.
Section 21 is also an important amendment which entitles Plaintiff to claim damages alongwith specific performance and not in substitution thereof.
The above amendments bring in finality to the question of enforceability of agreements and will also change the way lawyers draft agreements. In case your client is in a position that it can clearly claim specific performance as per the new provisions, should the need arises, the need for having heavy indemnity clauses, damages, LD, performance securities, guarantees etc. will to a large extent be rendered irrelevant, better so as enforcement of such clauses have their own reasons to give back-pains to clients and lawyers. Also, the need to provide ‘specific performance’ as a boiler plate clause in the agreements will no longer be required.
Section 20 has been replaced with the concept of substituted performance, which if undertaken will not entitle plaintiff to claim specific performance. Substituted performance is a popular method of risk mitigation used in agreements in case of a breach, specifically in construction contracts, development agreements, concession agreements, software development agreements and other types of service agreements where if the developer/service provider (call him X) fails or breaches, the performance seeker (call him Y) replaces X with Z at the cost of X and has Z completes rest of the agreement. The substitution is preceded with a reasonable cure period to enable X to cure the breach and if X still fails to do so, Y has a right to replace X and bring in Z. More sophisticated and high-stake agreements have elaborate provisions prescribing the manner of selection of Z, identification of costs, replacement of guarantees, lender’s consents, compensation for Z etc. depending on the circumstances.
Erstwhile Section 20 provided that Court shall always have discretion before awarding a specific performance even if its legally tenable and gave guidelines to Court to help them decide so. The new Section 20 only provides for Substituted performance and the only condition that has been prescribed is service of a minimum cure period notice of 30 days. Also, it specifies that the plaintiff shall have a right to recover the costs and expenses actually incurred or suffered by him and also right to claim compensation.
It is however not clear as to whether the Substituted performance has to be provided for in the agreement for the plaintiff to be eligible to avail it or whether it will be automatically available to the plaintiff or whether the plaintiff as to go to court to ask for an order to enable it to undertake Substituted performance.
In view of the above and the limitations of new Section 20, it appears that the Parties will still have to provide for elaborate Substituted performance in their agreements and the Section will only remain as an enabling provision to enforce such provisions in favour of the party seeking performance.
The Act has been amended to include a schedule which provides for a list of projects which shall qualify as ‘infrastructure projects’. Section 20A provides that no court shall grant injunction in a contract relating to an infrastructure project if such injunction would cause impediment or delay in the progress or completion of such infrastructure project.
The verbiage of the section yearns for clarity and comprehensiveness, specifically related to type of contracts contemplated, what all will constitute an impediment or delay and whether such restriction is applicable only cases of infrastructure project which are under development or is also applicable in cases where projects are developed and are being operated. Further, Section 41 has also been amended to restrict injunctions against infrastructure project. The amended sub-clauses in Section 41 (ha) however specifically provides for infrastructure project which are being developed and also those which are in operation and provides that the injunction cannot be granted against an infrastructure project which would impede or delay the progress or completion of the infrastructure project or interfere with the continued provision of facility of such infrastructure project.
Considering the current situation of the infrastructure projects in India and huge backlog of litigation related to infrastructure projects, it appears that the intention of introducing a section to prohibit injunctions against infrastructure projects may be considered in public interest. However, the law makers could have had considered using more comprehensive verbiage to take care of all other situations considering the precedents, in order to avoid further litigation.
With the above amendments, the law proposes to make specific enforcement of contracts faster, easier and subject to less or no discretion of the courts and therefore is a sigh of relief for claimants, specifically foreign investors and businesses doing business in India.
Author: Alpha Partners
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