The Act makes significant amendments to the existing Specific Relief Act, 1963, which is the law related to the grant of relief for specific performance of all contractual arrangements in India (including agency and distribution arrangements).
The Act has made the right to grant specific relief mandatorily enforceable by the courts. Previously, specific performance of a contract was a remedy granted only at the discretion of the courts, when, i) the actual damage caused due to non – performance of the action could not be ascertained; or ii) when monetary compensation would not be adequate relief for the non-performance of a contract. Courts are now bound to enforce the specific performance of a contract as a rule, subject to limited exceptions.
The Act also provides that specific relief cannot be sought in a contract where a party to the contract obtained substituted performance (explained below); or in a contract which involves the performance of a continuous duty which the court cannot supervise; or a contract which is dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms and a contract which is in its nature determinable.
The other major changes to the Act include:
1. Introduction of a new concept of “substituted performance”, where an affected party can choose to get the contract performed by a third party, or by its own agency, at the cost of the defaulting contracting party in which case, the party would forego its right to seek specific performance. In case a non-defaulting party exercises the option of such substituted performance, such party can no longer seek any specific performance of contract; although such party will still be entitled to claim damages from the defaulting party on account of the defaulting party’s breach of contract.
2. Introduction of a separate category of “infrastructure projects”, which stipulates setting up of special courts for determining cases relating to infrastructure projects and places and places restrictions on Courts from granting injunction in a suit relating to an infrastructure project, where granting injunction would cause impediment or delay in the progress or completion of such infrastructure project.
It is common perception that litigation in India is considered cumbersome and unnecessarily long. The Act is one of the numerous regulatory changes introduced over the past few years in order to change this perception and is specifically aimed at providing greater clarity for enforcement of contractual obligations, by mandatorily requiring courts to grant relief of specific performance, with limitations and certain exceptions. Additionally, the Act also provides for timely conclusion of disputes with the intention of speeding up the process of enforcement in India.
The provision of substituted performance also provides contracting parties another route in case of non-performance of obligations by one party as the non-defaulting party in a contract is permitted to engage third parties for the specific performance of contracts at the cost of the defaulting parties. While companies engaged in distribution or agency relationships in India can rest easy knowing that the Act intends to prevent parties from avoiding performance of their contracts and timely adjudication of disputes, it is paramount that the contracts between the parties are worded properly to provide for specific performance clearly, along with language providing for alternate mechanisms for performance of contracts at the cost of the defaulting party.
Srijoy Das, IDI Country expert for agency & distribution in India, & Harsahib Chadha, Archer & Angel