08 May

Enabling Specific Performance of a Contract: Post Coronavirus Pandemic | Corporate Law Advice in Delhi NCR | Corporate Lawyer in Delhi NCR | Corporate Attorney in India

in Business Laws, Corporate Lawyer, E Commerce, Foreign Direct Investment FDI, Uncategorized

When a contractual party breaches the contract the other party has a number of legal remedies for the loss caused by such breach including lawsuits and arbitration. But when the crux of the contract is performance specific or of a unique transaction and no amount of money can compensate the aggrieved party, then Specific Performance of Contract comes as a legal remedy for the aggrieved party. Specific performance of a contract is a remedy used by the Courts when in the breach of a particular contract the Court sees no other remedy (monetary) to compensate the aggrieved party. For example, party A enters into a contract with party B to buy his house. B accepts the transaction but later refuses to sell his house. Here, real estate is considered to be a unique transaction so A is entitled to specific performance of contract as there is no other house which looks similar to B’s house.

However, there are few conditions before enabling specific performance of a contract. These conditions are sated in Section 10 of the Specific Relief Act, 1963. This section states that at the discretion of the Court, the specific performance of a contract can be enforced under two conditions:
a. “when there exists no standard for ascertaining actual damage caused by the non-Performance of the act agreed to be done; or
b. “when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief.”

Process to enable Specific Performance of Contract
For a contractual party to claim specific performance of a contract, a suit has to be filed by that party. Before filing the suit the party has to make sure that the contract is a valid contract. A valid contract consists of consideration, consent, lawful object, competent parties, etc. This was held in case Balram v. Natku AIR 1928 PC 75.

Before filing the suit the party also has to make sure that the specific performance suit meets the statutory requirements mentioned in sections 16 (c), 20, 21, 22, 23 of the Specific Relief Act, 1963. This was held by the Hon’ble Supreme Court in case Kamal Kumar v Premlata Joshi & Ors (2019) 3 SCC 704, where it was further explained that only after these requirements are presented in the Court proceeding by both the parties with evidence, the Supreme Court can grant or reject the specific performance claim. It is also essential for the party claiming for specific performance of contract to prove that he/she had the willingness to perform the contract or had performed his/her side of the contract. This was held by the Hon’ble Supreme Court in the case Vijay Kumar & Ors. v. Om Prakash AIR 2018 SC 1913. Section 16(c) of the Specific Relief Act, 1963 emphasizes the terms “readiness and willingness”.

Specific Performance of Contract post Coronavirus Pandemic
In the current situation of the covid19 pandemic, a lot of contracts have been troubled. Businesses have been facing difficulty in obliging their contractual obligations which is leading to the contractual parties having to invoke the force majeure clauses in their contracts to protect themselves from situations like breach of contract. Now, with the pandemic being a temporary thing, these contracts cannot be held void forever. Impossibility of performing a contract does not mean mere physical or literal impossibility. It can also mean impossibility in the present situation with the advent of an unanticipated event. This was held in the case Satyabrata Ghose v. Mugneeram Bangur & Co. 1954 SCR 310, where the Hon’ble Supreme Court held that “to determine whether a force majeure event has occurred, it is not necessary that the performance of an act should literally become impossible, a mere impracticality of performance, from the point of view of the parties, and considering the object of the agreement, will also be covered. Where an untoward event or unanticipated change of circumstance upsets the very foundation upon which the parties entered their agreement, the same may be considered as “impossibility” to do as agreed.”

In order to enable specific performance of contract post the pandemic, two situations should be analyzed i.e.

When the force majeure clause of the particular contract is valid for non-performance i.e. it contains the said event on the happening of which the contract will be held void.
Where the force majeure clause is not valid i.e. it does not give protection against the said event. In the second case the aggrieved party can either claim for monetary compensation for non-performance of contract or if the nature of the contract is more performance based and money cannot compensate the party, the party can claim for specific performance of contract post the unanticipated event.

Usually the problem arises in the second case when the force majeure clause of a particular contract does not include the said event or even if the contract does not include the force majeure clause itself. In such a case the contractual party can invoke force majeure as defined under section 56 if the Indian Contract Act, 1872, however, this does not benefit the aggrieved party as they suffered a loss. In this situation the aggrieved party can either claim for monetary compensation which would imply breach of contract. But if the other party does not agree to this or if the core function of the contract is such which cannot be compensated in terms of money, then the aggrieved party can enable specific performance of contract.
Authored By: Adv. Anant Sharma & Sanjana Akasam