13 September, 2018
The Specific Relief (Amendment) Act, 2018 (Amendment Act) was recently passed by both Houses of Parliament and subsequently received Presidential assent on 1 August 2018. Notification of the coming into force of the different provisions introduced by the Amendment Act is presently awaited.
The Specific Relief Act, 1963 (Act) codifies the law in relation to grant of the relief of specific performance[1] including injunctions.Under the Act, the remedy of specific performance was not available to a party as a matter of right, but its grant was based on the discretion of the court. The Amendment Act has brought about a substantive change in the substratum and ethos of the Act. As per the Amendment Act, the courts are bound to enforce the specific performance of a contract as a rule, subject to limited exceptions.
The other major changes include:
The introduction of the remedy of substituted performance. Although the duty of mitigating the loss suffered was always cast on the party that suffered a breach, this provision can be seen to be a statutory recognition of the said duty, although framed as an option available to a party who has suffered breach.
A new Section 20A to the principal Act provides that for infrastructure project contracts, the court shall not grant an injunction in any suit, where it would cause hindrance or delay in the continuance or completion of the infrastructure project.
The Amendment Act itself does not provide any guidance on whether the amendments would operate prospectively or retrospectively. A “savings clause” or a “transitory provision” is conspicuous by its absence. A similar controversy in the context of the 2015 amendments to the Arbitration and Conciliation Act, 1996 is still unsettled, in so far as the Arbitration and Conciliation (Amendment) Bill, 2018 is pending approval with the Parliament[2].
Let’s examine the extent and magnitude of the controversy on the basis of some well settled legal principles.
Background and Nature of Amendments
An important element in the examination of whether the Amendment Act is prospective or retrospective in its application is to understand the objectives behind the amendments.
The Amendment Act is based on the recommendations contained in a Report submitted by an Expert Committee to the Government of India in 2016.[3] Giving primacy to specific relief is based on the intent to ensure enforcement of the moral obligation to honour one’s promises, deter a promisor from committing a breach thus affecting contractual behavior and enable a promisee to choose a remedy of his choice. It is recognised that a decree for compensation does not compensate fully, as proving losses with certainty is difficult. Therefore, the Amendment Act removes all restrictions and makes specific performance a general remedy available to a party who wishes to claim it.[4]
What emerges is that the amendments do not purport to be either declaratory or clarificatory. The amendments seek to bring about a substantive change in the law by stating, for the first time, that the remedy of specific performance when sought for breach of contract, would no longer be exceptional or discretionary and would be available to a party as a matter of right. The amendments do away with the discretion of the courts to grant specific performance of contracts.
This is clearly a substantive change in law that is remedial in nature. Remedial statutes are necessarily regarded as prospective unlike declaratory or clarificatory statutes, which are considered retrospective.
Therefore, from this perspective, the Amendment Act would need to be construed as not having retrospective effect.[5]
Section 6 of the General Clauses Act
As the Amendment Act has led to the repeal and substitution of the corresponding provisions of the Act, the general law in relation to repeal of statutory provisions would be applicable, which is to be found in Section 6 of the General Clauses Act. Section 6 inter alia states that a repeal shall not affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed. It also saves the previous operation of any enactment so repealed or anything duly done or suffered thereunder.[6] Section 6 protects accrued and vested rights by stating that the said rights can still be enforced notwithstanding the repeal of the statute under which that right accrued unless the repealing statute took away such right expressly or by necessary implication.
Under the Act (un-amended), there was an obligation cast on the plaintiff seeking specific performance to prove that compensation as a remedy is either inadequate or unascertainable. Specific performance as a remedy was not available to a party as a matter of right, but its grant was dependent on the discretion of the court. This obligation of the plaintiff can be viewed as a corresponding right or privilege enjoyed by a defendant. By virtue of Section 6, the aforementioned right and obligation that accrued when the Act (un-amended) was in force, would stand preserved even after the introduction of the Amendment Act. This is particularly so because the plain language of the Amendment Act (which is the repealing statute in the present case) does not in any way indicate an intendment to take away accrued and vested rights.
When can the right or obligation be said to have accrued or vested upon a party? This right accrues or vests only when a breach of the contract occurs or, in other words, when the dispute arises.[7] In the absence of a breach or a dispute, no right under the Act (un-amended) can be said to have accrued. It does not matter that the contract was entered into prior to the Amendment Act coming into force – i.e. at a time when the Act (un-amended) was in force. Therefore, the applicability of the Amendment Act would extend to all breaches and disputes that have arisen subsequent to the Amendment Act coming into force, regardless of whether those contracts were entered into prior to the Amendment Act coming into force.
One of the main objectives of the Amendment Act is to reduce the intervention of the courts to ensure that public works contracts can function smoothly.[8] Given this, the absence of a specific provision clarifying the applicability of the Amendment Act is a curious oversight by the legislature. The consequent ambiguity is likely to result in a lot of judicial time being spent to quell the controversy. Let us hope that some remedial measures are taken by the legislature to prevent this oversight from blowing up into extensive litigation at the cost of hapless litigants.
For further information, please contact:
Indranil Deshmukh, Partner, Cyril Amarchand Mangaldas
indranil.deshmukh@cyrilshroff.com
[1] ‘Specific Performance’ is a remedy ordered by courts, that requires precise fulfillment of the contractual or legal obligation. See Specific Performance, Black’s Law Dictionary (10th ed., 2014).
[2] The Arbitration and Conciliation (Amendment) Bill, 2018 seeks to introduce Section 87 to the principal Act to clarify that the provisions of the Arbitration and Conciliation (Amendment) Act, 2015 are applicable to fresh arbitrations and court proceedings relating thereto viz. arbitration and court proceedings relating to the arbitrations invoked on or after 23.10.2015. In any case, whether the provisions of the Arbitration and Conciliation (Amendment) Act, 2015 would apply to Section 34 application which were pending as on 23.10.2015 is still res integra.
[3] Expert Committee’s Report on Specific Relief Act, 1963 submitted on 26th May 2016
[4] Pg. 47-52, Expert Committee’s Report
[5] Union of India v. Indusind Bank Limited (2016) 9 SCC 720
[6] The Gujarat Electricity Board v. Shantilal R. Desai AIR 1969 SC 239
[7] Baroda Cement and Chemical Ltd. v. Commissioner of Income Tax, 1986 158 ITR 636 Guj.
[8] Page 18, Expert Committee’s Report
