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India Looking To Make Contract Enforcement Easy

By: Ramesh Vaidyanathan

India ranks a lowly 164 (of 190) in World Bank’s ‘ease of contract enforcement’ rankings.[1] With an overburdened judiciary that is saddled with millions of pending cases, contract enforcement has always been a nightmare in India. This aspect has often been considered one of the key challenges of doing business in India.[2] While the aggressive push in the recent past towards alternative dispute resolution processes has definitely helped alleviate the misery to some extent, the current substantive law still gives a long rope to the defaulters.

Realising the importance of this issue in India’s efforts to be an attractive destination for foreign investment, the lower house of the Indian Parliament recently passed the Specific Relief (Amendment) Bill, 2017 (“the Bill”) to amend the Specific Relief Act, 1963 (“the Act”). The Bill seeks to make specific performance available as a general rule to contracting parties and also introduces the concept of substituted performance. The Bill also proposes measures to prevent unnecessary delays in infrastructure projects.[3]

The exception to become the general rule

Currently, the remedy of specific performance is generally available as an exception, at the discretion of the courts. For cases that require continuous supervision of courts, specific performance is not considered practical. Turning this logic upside down, the Bill seeks to make specific performance a general rule at the option of the party suffering the breach and monetary compensation an alternative when contracts cannot be fulfilled.

This does not imply that a party can insist on performance in all situations. The Bill prohibits specific performance claims involving the performance of a continuous duty (for example, a franchisee running the franchise store as per the franchise contract) or where the court cannot enforce specific performance of material terms or where substituted performance (as per the provisions of the Bill) is obtained.[4]

Substituted Performance

The Bill allows the aggrieved party the option to require substituted performance of the unperformed contract after serving a notice to the breaching party.[5] The party suffering the breach is entitled to get the contract performed by a third party and recover the losses from the breaching party.[6] This is intended to prevent defaulting parties from misusing the lacunae in the current law.

Emphasis on Infrastructure Projects

The Bill also seeks to address the issue of long delays in infrastructure projects by allowing courts to grant injunctive relief affecting infrastructure projects only where such injunction would not hinder the commencement or completion of the infrastructure project.[7] Additionally, certain courts will be designated as special courts for infrastructure projects where cases filed are to be disposed of within 12 months, with the option to extend the timeline by a maximum of six more months.[8]

The Way Forward

While the Bill still awaits the sanction of the upper house of Indian Parliament, the Bill in its current form will come as a huge relief to contracting parties, especially in the infrastructure sector. It is hoped that these legislative changes would help in pushing India’s contract enforcement rankings.

[1] http://www.doingbusiness.org/data/exploretopics/enforcing-contracts.

[2] https://thewire.in/business/how-does-india-plan-on-solving-its-crippling-contract-enforcement-problem.

[3] http://www.prsindia.org/uploads/media/Specific%20Relief/Specific%20Relief%20(A)%20Bill,%202017.pdf.

[4] Section 5, the Bill.

[5] Section 10, the Bill.

[6] Section 10, the Bill.

[7] Section 10, the Bill.

[8] Section 10, the Bill.

This Article was first published by the ABA Section of International Law in its Newsletter of the International Contracts Committee, Summer 2018.

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