The Specific Relief (Amendment) Act, 2018 (“AmendmentAct“), which has brought significant amendments to the Specific Relief Act, 1963 (“Act“) was notified on August 1, 2018 and has become effective therefrom. While the Amendment Act has introduced various changes, one of the most significant change introduced is that specific performance of contracts has been made a rule rather than an exception. In our next series of articles, we focus on the four exceptions laid down in the Amendment Act to the specific performance rule.
Specific performance means enforcement of exact terms of the contract. Under it, the plaintiff claims for the specific thing of which he is entitled as per the terms of contract. For example, if A agrees to sell certain shares to B of a specific company which are limited in number and after the payment made by B, if A refuses to sell the shares, then B through specific performance is entitled to recovery of those shares.
Section 14 of the Act talks about contracts that cannot be specifically enforced. Section 14 (a) covers a case where a party to the contract has obtained substituted performance of a contract. This means that where substituted performance of a contract has been obtained, such contract cannot be specifically enforced. This does not however stop such party from claiming compensation from the party in breach.
‘Substituted Performance’ is a new concept introduced through the Amendment Act, which also aims at capturing the overall intent of the Amendment Act (i.e. to make specific performance a rule rather than an exception).
Substituted Performance gives an option to a party affected by breach of a contract to avail substituted performance through a third party, or by its own agency. It ensures that the aggrieved party can obtain performance of a contract from a third party in case of non-performance by the counterparty. Serving a notice of not less than 30 days to the party in breach, calling upon him to perform the contract, is a pre-requisite for exercising the right of substituted performance. This requirement of serving the notice prevents the right of substituted performance from being exercised in an unfair manner. The aggrieved party may get the contract performed by a third party or his own agency on failure of the other party’s refusal or failure to perform as per the notice. The aggrieved party will then be entitled to recover the costs and expenses incurred for the substituted performance from the party committing the breach.
As per Section 14 (a) of the Act, any contract for which substituted performance has been obtained by a party, cannot be specifically enforced. With the introduction of this concept, new contracts being drafted may even prompt parties to include specific clauses identifying the procedure of achieving substituted performance.
When a party exercises his right to get substituted performance, he forfeits his right to get specific performance of the contract enforced through Court. He may still claim compensation from the party in breach.