Home » ENFORCEMENT OF CONTRACTS Mitigating the Uncertainty

ENFORCEMENT OF CONTRACTS Mitigating the Uncertainty

ENFORCEMENT OF CONTRACTS Mitigating the Uncertainty

<span style="font-weight: bold;">One of the most important aspects of civil rights is the fulfilment of expectations created by a contract, executed voluntarily by the parties.</span><br />
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There is a silver lining here: For the past two years, the Modi government has been adopting a broad strategy to substantially improve India’s dismal WB ranking for ease of doing business. Concerted efforts have been made to remove serious bottlenecks that exist in the numerous business laws and a &quot;holistic approach&quot;taken. These efforts have started showing results and, according to an official announcement made by the WB in October 2017, the overall WB ranking for 2017 improved by 30 points and India currently ranks 100 out of 183 countries. The Hon’ble PM has announced in the Parliament that several innovative measures, such as laying down new transparent policies, will be taken before WB’s next annual review to further improve India’s WB ranking in ease of doing business. The next WB review is scheduled on 1 May 2018, with the date being advanced by a month.&nbsp; <br />
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Towards this effort, several key economic bills were listed – the details of which are given below – for consideration and passage in the Winter Session of the Parliament.<br />
The government had earlier constituted a committee of experts to review the provisions of the Specific Relief Act, 1963 which have remain unchanged in the past 54 years and to suggest need-based changes to remove the bottlenecks in the enforcement of contracts pertaining to infrastructure development, public-private partnerships and other public projects. <br />
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What do we mean by specific relief? One of the most important aspects of civil rights is the fulfilment of expectations created by a contract, executed voluntarily by the parties. Specific relief is an alternative to performing a contract when monetary compensation for failing to complete contractual obligations is not enough. The law prescribes that in the event where the actual damage for not performing the contract cannot be measured/ascertained or monetary compensation is not adequate, the party suffering from the breach of contract can ask the Court to direct the other party (that has failed to perform its contractual obligations) to fulfil the requirements of the contract. This is called specific performance of a contract. This extends to infrastructure contracts, construction of residential/commercial buildings, sale and purchase of land, etc. It is a discretionary relief, left to the Court to decide whether specific performance should be given to the party asking for it. This gives rise to uncertainty in contracts. There will be no specific performance of those contracts where monetary compensation is sufficient or the contract involves performance of a continuous duty which the Court cannot supervise. Specific relief can be granted only for the purpose of enforcing individual civil rights and not for the mere purpose of enforcing a penal law. <br />
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Types of specific reliefs which can be granted (as on date) are as follows:<br />
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<li>Recovery of possession of property (in the manner prescribed by the Civil Procedure Code, 1908 (as amended)).</li>
<li>Specific performance of contracts</li>
<li>Rectification and cancellation of instruments and rescission of contracts</li>
<li>Preventive relief</li>
<li>Declaratory relief</li></ul><br />
Further details cannot be given here. The Hon’ble Supreme Court has explained it well in its landmark judgement given in Adhunik Steels Ltd vs. Orissa Manganese Minerals (P) Ltd (2007) 7 SCC 125.<br />
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The Specific Relief Act, 1963 came into effect on 16 December 1963. It widens the sphere of a Civil Court. It is a remedy available for the specific performance of a contract, rather than the grant of general relief or damages. <br />
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It allows the Court to grant discretionary relief, in the form of injunctions – temporary or perpetual – to a party which has suffered due to a breach of the contract by other parties. It does not cover all the &quot;specific reliefs&quot; conceivable. Section 15 enumerates a list of persons for or against whom the contracts may be specifically enforced. The Courts are empowered to grant preventive reliefs at their discretion. <br />
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Why is it proposed to be amended? The Bill is in tune with the recent rapid economic growth happening in our country and the expansion of the public infrastructure essential for the overall development. As a part of the government’s ease of doing business policy to give a major push to the development of public infrastructure and promote growth and investment, The Specific Relief (Amendment) Bill, 2017 has been tabled in the Lok Sabha during the Winter Session. According to the Union Law Minister, the Specific Relief Act is being overhauled and modernised for promoting growth and attracting huge investments in developing public infrastructure. The suggested changes shall lay down the guidelines for reducing the discretionary powers granted to the Courts and Public Tribunals while granting performance and injunctive reliefs. The government wants to ensure that there is ease of doing business, particularly in the public works where the Specific Relief law has been a hindrance. Litigation in any public works contract or infrastructure project leads to huge loss of time and cost overrun, which cost the public exchequer thousands of crores of rupees. It is a colossal waste of time, money and energy. <br />
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The consequential infrastructure benefits to the public are delayed by decades. Cost escalations following delays have been a scourge on many projects affecting the completion schedules and budgets. The Chennai MRTS,&nbsp; Velachery to St Thomas Mount final lap, is a classic example of defying completion for many years due to various reasons, including contractor delays. While the initial phases of metro trains that were planned much later saw the light of the day, the final leg of this MRTS, and possibly the most important link, is still delayed. <br />
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Uncertainty in contracts often means investors becoming wary of getting entangled in legal trouble. The government seeks to prohibit Courts from granting injunction in any suit, where it appears that granting injunction would cause hindrance or delay in the continuance or completion of an infrastructure project.<br />
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Major recommendations have been made by the Expert Committee. It has opined: ‘Any public work must progress without interruption. It requires consideration of a Court’s intervention in the public works, which should be minimal. The Courts should not interfere in a way that public works projects would be impeded or stalled.’ Some other recommendations are as follows:<br />
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Grant of specific performance in an infrastructure project contract should be made a rule, and not an exception. This would mean that even if contractual obligations cannot be met, the Court can ask the parties to fulfil the contractual terms. <br />
Monetary compensation will be an alternative when contracts cannot be fulfilled.<br />
Guidelines should be prescribed to the Courts for exercising discretion in these matters in order to streamline how they interpret the provisions of the Bill.<br />
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<span style="font-weight: bold;">Salient features of the proposed amendments</span><br />
The following are the salient features of the Specific Relief (Amendment) Bill, 2017.<br />
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<span style="font-weight: bold;">1.&nbsp;&nbsp;&nbsp; Reduction of Court’s interference</span><br />
To ensure ease of doing business, it is proposed to do away with the wider discretion of the Courts to grant specific performance and to make specific performance of a contract a general rule than an exception, subject to limited grounds.<br />
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<span style="font-weight: bold;">2.&nbsp;&nbsp;&nbsp; Persons who can seek specific performance</span><br />
The Bill adds a new entity to the list of persons for or against whom contracts may be specifically enforced (Section 15 of the Act). <br />
It includes Limited Liability Partnership (LLP) formed by the amalgamation of two existing LLPs, one of which may have entered into a contract before the amalgamation.<br />
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<span style="font-weight: bold;">3.&nbsp;&nbsp;&nbsp; Substituted performance</span><br />
The Bill introduces another relief to the party which suffers from breach of contract. In the eventuality of a breach of contract, the party which suffers would be entitled to get the contract performed by a third party or by its own agency. The affected party would be entitled to recover the costs and expenses incurred by it from the one which failed to fulfil its contractual obligations. The affected party shall also be entitled to claim compensation from such a party. Substituted performance would be an alternative remedy at the option of the person who suffers from the breach of contract.<br />
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In order to avail the remedy of substituted performance of contract, the party which suffers from the breach of contract should issue a notice of minimum 30 days to the party that has breached the contract, calling it to perform the contract within the time specified in the contract. On the refusal or failure of the party that has breached the contract to perform the contract within the specified time, the affected party can get the same performed from a third party or its own agent. <br />
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<span style="font-weight: bold;">4.&nbsp;&nbsp;&nbsp; Special Courts</span><br />
The Bill provides for the designation of one or more civil courts as Special Courts to try suits under its provisions in respect of contracts relating to infrastructure projects. Such designation is to be done by the state government in consultation with the Chief Justice of the concerned High Court. <br />
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The bill stipulates that a suit filed under its provisions shall be disposed by the Special Court within 12 months from the date of service of summons to the defendant. An extension of a maximum of six months (with aggregate time limit of 18 months) might be granted by the Special Court after recording reasons therefore. Courts would grant injunction only after satisfying themselves that the proposed injunction would not cause any impediment or delay in the progress or completion of the project. <br />
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<span style="font-weight: bold;">5.&nbsp;&nbsp;&nbsp; Infrastructure projects</span><br />
The Bill proposes to restrain the Special Court(s) from granting injunction to a suit filed for a contract related to an infrastructure project, where the injunction would cause impediment(s) or delay the progress or completion of the project. It stipulates a schedule which specifies various categories of projects and infrastructure sub-sectors. The Department of Economic Affairs (DEA) will be the nodal agency for specifying the various categories of projects and infrastructure sub-sectors, which are provided in the schedule and it is proposed that DEA may amend the schedule relating to any such categories or sub-sectors. The five specified sectors where the Courts would be restrained to grant injunctions with regard to infrastructure project contracts are: transport, energy, water and sanitation, communication, social and commercial infrastructure.<br />
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<span style="font-weight: bold;">6.&nbsp;&nbsp;&nbsp; Appointment of an expert </span><br />
The Bill provides for the appointment of an expert for any suit covered under it. The Court may engage one or more experts, if it considers necessary, and may direct the expert to report to it on any specific issue involved in the suit. The Court may also secure attendance of the expert for providing evidence, including production of documents on the issue in question. The opinion or the report given by the expert shall form a part of the record of the suit. <br />
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<span style="font-weight: bold;">7.&nbsp;&nbsp;&nbsp; Conclusion</span><br />
The proposed legislation, upon passage by the Parliament, will hopefully reduce uncertainty in public works projects, cut down unnecessary delays in the execution thereof and give the much needed push to attract huge investments in the public infrastructure projects. The amendments may reduce the uncertainties in the execution of infrastructure projects.<br />
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<span style="font-weight: bold; font-style: italic;">Author: <br />
Co-authored by Nishikant Deshpande, Managing Partner and Adv. Bhagyashree Bora, Partner, ADR Savvy, 1st Arbitration Law Firm from Pune.</span><br />

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