Applicability of the Specific Relief (Amendment) Act, 2018: Retrospective or Prospective?

Since the inception of the Act, there have been varied opinions on whether the Act should have retrospective or prospective application?

In the case of Church of North India v Ashoke Biswas[ii], the Calcutta High Court held that any suit that was not ‘decreed’ until the commencement of the Amendment i.e. 01.10.2018 would fall within the purview of the Amendments. The rationale used by the Court in arriving at this conclusion was that the question of enforcement of contract only arises on the date of passing of the decree and not on the date of the institution of the suit, therefore the said Act must necessarily have retrospective effect and apply to all pending suits.

The XIIth Additional City Civil Judge at the Bangalore District Court found that the Act is in-fact prospective in effect[iii]. According to the learned Judge, the Legislature has specifically sought for the amending Act to be prospective by using the following words:

“It shall come into force on such date as the Central Government may, by notification in the official gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision”

The learned judge has construed the above to mean that the date of notification of enforcement of the act, i.e. October 1, 2018 is the date from which the said Act will also apply, thereby having prospective effect.

It is well settled that an amendment which is in the nature of a clarification or carries a declaratory flavor is retrospective in nature, whereas an amendment that alters substantive rights of a party is usually prospective in nature. The current amendment to the Specific Relief Act has changed the approach of the Act, in as much as it has made specific performance the norm and damages its exception. Therefore, the Specific Relief Act should be viewed prospectively. Having said that, the Supreme Court on one occasion[iv] has stated that when amending acts use the term “substitute” to effectuate an amendment to a particular provision, it should be deemed as if the substituted expression were included from the date of introduction of the original law.

The Supreme Court, in the recent case of Surinder Singh Deswal at Col. S.S. Deswal and Ors, v/s. Virendar Gandhi[v] has held that the amendment to section 148 of the Negotiable Instruments Act has retrospective application despite the fact that the amendment alters substantive right of the Parties. The Court, while arriving at the decision, looked at the objects with which the amendment was brought about i.e. to strengthen the credibility of cheques and to facilitate the growth of trade and commerce. The Court was of the view that the objects of the amending act can only be achieved by giving the provisions retrospective effect. 

The Specific Relief Act has been amended with the following objectives[vi]: 

• Introduce Provisions for right of third parties
• Change the approach to specific relief being the rule and damages the alternative
• Promote injunction
• Reduce the discretion granted to Courts
• Right to cover
• Expert Assistance
• Unconscionable contracts
• To encourage foreign investment
• To make India business friendly and promote ease of doing business.

Drawing a parallel to the Negotiable Instruments judgment[vii], it may be argued that the objectives of the Amendment to the Specific Relief Act and the objectives of the Amendments to the Negotiable Instruments Act are similar in nature, and therefore, the Amendments to the Specific Relief Act must also be given retrospective effect.

It will however be interesting to see how this issue is going to be viewed in the future by different Courts and whether the Apex Court is going to intervene and settle the law. 

Key Changes brought about by the Specific Relief (Amendment) Act, 2018:

1. Change of Approach from Damages to Specific Performance

Under the erstwhile provision, to claim specific performance, a plaintiff had to satisfy a threshold test, i.e. he had to show that compensation was either unascertainable or was inadequate. This inadequacy test did not permit the remedy of specific performance (or injunction) for every contract. Further, the plaintiff may not be able to prove all losses he has suffered by the breach, nor will such amounts claimed be awarded to him. A decree of specific performance comes closest to protecting this interest: it gives the plaintiff what was promised. To uphold the moral obligation of a promise and deter individuals from breaching the same, the amendment removed this restriction and made specific performance a general remedy available to a promisee who wishes to claim them.

However, it is pertinent to note that the award of specific performance is subject to certain exceptions and also to the terms and conditions of the agreement between the parties. Therefore, the Court has to deny grant of specific performance in the following cases:

• As found in the principal Act, contracts entered by a trustee on behalf of a trust in excess of his powers or in breach of trust cannot be directed to be specifically performed.
• As retained from the principal Act, when a contract is completely dependent on the personal details or volition of the Parties, Courts cannot direct specific performance of such contracts.
• As retained from the principal Act, contracts that are determinable are out of the purview of specific performance.
• As retained from the principal Act, contracts involving the performance of a continuous duty that cannot be supervised by the Court cannot be specifically enforced
• As retained from principal Act, where Substituted Performance has been received in lieu of the Contract.
• Where the person seeking such specific performance has not performed his end of the Contract or is incapable of doing so.

The onus on ‘proving’ that he has been ‘ready and willing’ to perform his end of the contract lies with the Plaintiff even if he does not ‘aver’ it. This is in stark contrast to the earlier provision wherein an ‘averment’ to this effect was considered mandatory.  

It is also interesting to note that the erstwhile law barred granting of specific performance of contracts that contained an arbitration clause, however, the said provision has been done away with vide this amendment.

In addition, promoting the objective of encouraging specific performance of contracts, the amendment, in contrast to the earlier provision of claiming compensation in addition to and in substitution of Specific Performance, now allows for claiming compensation as an additional relief to seeking specific performance of the contract.

2. Right to Cover – Substituted Performance

An aggrieved party may now obtain substituted performance, on account of the breach, from a third party or from one of its own agencies and recover the expenses incurred in such substituted performance from the party in breach. Such substituted performance may be obtained only upon service of notice of a minimum of 30 days to the defaulting party. However, if there is a contract to the contrary between the Parties, the concept of substituted performance will have no applicability.

 3. Rights of Third Parties

The SRA was also amended with a view to enable a third party, on whom parties have conferred a benefit, to specifically enforce contracts, subject to rights of the contracting parties. This is in the nature of an exception to ‘privity of contract’ doctrine.

• The erstwhile provision entitled a person who had been illegally dispossessed of her property alone to file a suit for specific performance. Now, the person through whom the dispossessed person received title to the property may also approach the court vide a specific performance suit.

Illustration: A leases out a flat admeasuring 30,000 sq. ft. to B. B grants a leave and license to C to the said flat. Any actionable claim that B has against C with respect to the said flat can also be initiated by A under the Specific Relief (Amendment) Act.

• The amendment also recognizes a newly amalgamated Limited Liability Partnerships to seek specific performance of contracts entered into with one of its component Limited Liability Partnerships.

Illustration: When LLP “a” and LLP “b” amalgamate to form LLP “c”, LLP “c” can then seek specific performance of a contract that LLP “a” was privy to. Similarly, a third party can seek specific performance against LLP “c” for a contract that LLP “a” was a party to.

4. Reducing Discretion of Courts pertaining to Contracts in relation to a trust

As opposed to the earlier provision where Courts were given the discretion to direct specific performance of contracts that were agreed to be done in the performance wholly or partly of a trust, being trusts established under the Indian Trusts Act, 1882, now the words “may”, in the discretion of the Court has been substituted with the word “shall” indicating the mandatory nature of the clause. Therefore, now, the Courts are obligated to direct specific performance of a contract that is to be done in the performance of a trust, either wholly or partially, subject to the terms and conditions of the remainder of the provisions of the act as well as the underlying contract.

5. Expert Assistance

The Amendment empowers the Courts to appoint experts to determine the nature of the Contract, its breach and so on and so forth if it deems fit during the course of the suit. The parties may, with the permission of the Court examine such experts appointed.

6. Public Utility Contracts

The Amendment has placed an embargo on the power of the Court to grant an injunction in infrastructure-based projects that will, in any manner, delay or cause an impediment in the completion of such projects. The Amendment has provided an exhaustive list of the infrastructure projects covered under this statute. Special courts are to be designated by the State Governments to exercise jurisdiction and to try a suit under this Act in respect of contracts relating to infrastructure projects.

7. Expedited Resolution

The Amendment provides for a time limit to dispose off all matters filed under the SRA. All matters are to be expeditiously decided within 12 months from the date of service of summons to the defendant(s), extendable by a maximum period of an additional 6 months.