The Specific Relief Act, 1963 provides the legal mechanism for contract enforcement in India. The law, as it stands today, proceeds on the footing that the party suffering from breach of a contract is entitled to compensation for loss and consequential damages and it is rare for the courts to enforce specific performance of the contract in favour of such a party.
Taking into account the dismal rating of India under “Enforcing Contracts” at the Ease of Doing Business Report compiled by the World Bank, the Legislature has decided to improve and amend the statutory framework through The Specific Relief (Amendment) Bill, 2017. The Amendment seeks to make specific performance a norm rather than an exception by taking away the discretionary powers of the court to allow specific performance. As per the amendment, the court shall allow specific performance except under certain circumstances. One of the circumstances where no specific performance of the contract may be allowed is when a contract is of a determinable nature.
Determinable Nature of a Contract
The word, “Determinable”, in legal parlance means “liable to end upon the happening of a contingency; terminable”2. Thus, any contract which provides for the termination of the same at the instance of one of the parties and at the occurrence or non-occurrence of a certain event is determinable in nature.
The difficulty in granting specific performance of a contract containing a termination clause is that the party against whom the specific performance is decreed may terminate the contract and thus, such an order would cease to be merely academic in nature considering the impending termination of the contract. Of course, the party suffering from breach of contract may claim damages for breach of contract but no recourse towards enforcing specific performance may lie in such cases.
A contract may be terminated as a result of cause, convenience or expiry of term or other events agreed upon between the parties. If a contract does not provide for unilateral termination of agreement, such an agreement cannot be said to be determinable.3
The leading case law on the point of determinable contracts is Indian Oil Corporation Ltd. v. Amritsar Gas Service & Ors.4. It was held by the Hon’ble Supreme Court that since the Agreement between the parties was of a revocable nature, the only relief available to the aggrieved party was that of claiming damages and no specific performance of the contract could be granted in such cases.
In Rajasthan Breweries Ltd. v. The Stroh Brewery Company5, while deciding an Appeal against an order declining ad-interim temporary injunction under Section 9 of the Arbitration and Conciliation Act, 1996, the Delhi High Court held that it would be bad in the eyes of law to grant an injunction where the contract was by its very nature, determinable. The said interpretation was laid down by reading Section 14 (i)(c) of the Specific Relief Act, 1963 in conjunction with Section 41 of the Act.
Building upon the exposition in Amritsar Gas Service, in Turnaround Logistics (P) Ltd. v. Jet Airways (India) Ltd. and Ors.6, a division bench of the Delhi High Court held that contracts of a terminable nature and including voidable contracts cannot be specifically enforced. Further, it is now an established principle7 that an injunction cannot be granted in order to restrain a party from determining a contract.
Although the very nature of contract enforcement is being sought to be changed through the passage of The Specific Relief (Amendment) Bill, 2017, the law with regards to the contracts of determinable nature remains unaltered. Since the specific performance of contracts containing termination clauses remain unenforceable, the parties entering into a contract might prefer to have a higher threshold for liquidated damages in order to discourage one of the parties from declining to perform its obligations. In the absence of enforcement of specific performance under such contracts, the only recourse available to the aggrieved party remains damages.
* Authored by Renjith Nair, Associate, Dhaval Vussonji & Associates and contributed by Sonam Mhatre, Associate Partner, Dhaval Vussonji & Associates.
2 Black’s Law Dictionary 544 (10th ed. 2014)
3 Om Prakash Malik v. Virendra Kumar Malik, 2016 SCC 3238
4 (1991) 1 SCC 533
5 AIR 2000 Delhi 450
7 Ramchandra Tanwar v. Ram Rakhmal Amichand AIR 1971 Raj 292; Mittal Services v. Escotel Mobile Communication Ltd. AIR 2003 Del 410
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