Substituted Performance as an Effective Specific Relief, Myth or Reality?

 P. T. Mohan Kumar, Advocate, High Court of Kerala

"………men may exercise at discretion their natural rights to enter into all contracts whatsoever that are in their nature obligatory; and it is the duty and the prerogative of the judiciary alone, to decide upon the obligation of all contracts that come before them for adjudication-and legislatures have no authority to interfere in the matter, further than to prescribe the means to be used for enforcing the obligation of contracts, and the extent to which these means shall be exerted".

[Lysander Spooner[1]]

§1. Introduction

The Law relating to specific performance is undergoing drastic changes in India. Specific performance under the Specific Relief Act, 1963 was a discretionary  remedy until recently. But, the Parliament amended the above Act, taking away the wide discretion of courts, as per the Specific Relief (Amendment) Act, 2018 [Act No. 18 of 2018]. Consequent to the amendment, a new relief is incorporated in the law of Specific Relief, viz., Substituted Performance. The ramifications of the amendment and how far substituted performance can be claimed as a substantive relief, are attempted to be examined in this article.

§ 2.Freedom of contract

Freedom of contract is always recognised in the  Law of Contracts. It is the right of an individual to enter into a contract. It is the prerogative of the parties to prescribe the scope of enforceability of the contract they enter into and to impose mutual rights and obligations. “Generally speaking, among the inalienable rights of the citizen is that of the liberty of contract.”[1] The freedom of contract is curtailed by the universal rule that it shall not violate the law of the land in moral and legal terms and it shall not be against the public interest. Such a contract entered into between individuals is legally binding on them and has the force of law which the law recognises as enforceable.

§2.1 Freedom to pursue remedy

Freedom to pursue remedy in case of breach of contract is a necessary corollary of the ‘freedom of contract’. It is the freedom of the party who suffers breach, to pursue the legal remedy in the nature of specific performance or damages. Of course, such remedies are with reasonable restrictions. “It is necessary to recognise the importance of preserving the integrity of agreements and the fundamental rights of parties to deal, trade, bargain, and contract. On the other hand, there is concern for the uneducated and often illiterate individual who is the victim of gross inequality of bargaining power, usually the poorest members of the community”[2]. Thus, the legislature and judiciary believe that there exists a duty to distinguish between contractual freedom on the one hand and legality and fairness on the other hand. Unequal bargaining power of parties or unconscionable nature of the contract often influence courts to enforce contractual obligations with utmost caution. This is in other words nothing but the discretionary power of the courts. In India, the Hon’ble Supreme Court in   Central Inland Water Corporation v. Brojo Nath Ganguly & Another [3] held that Article 14 of the Constitution guarantees to all persons equality before law and equal protection of laws. The Apex  Court made it explicitly clear that Courts  will not enforce unconscionable contracts and will  strike down unfair and unreasonable contracts,  or unfair and unreasonable clauses  in contracts, entered into between parties who are not equal in bargaining power. As the weaker party is left with no choice, or rather no meaningful choice, but to give his assent to such  contracts or to sign on the dotted line in a prescribed or standard form or to accept a set of rules forming part of the contract, however, unfair unreasonable or unconscionable it may be. This principle will not apply when the bargaining power of the contracting parties is equal or almost equal. This  principle may not apply where both parties are businessmen and the contract is a commercial one. In today’s complex world of giant corporations with their vast infrastructural organisations including the State    through its instrumentalities and agencies entering into almost every branch of industry and commerce,  there can be myriad situations which result in unfair and  unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. The Apex Court  held in the above case that the courts must  judge each  case on  its own facts and circumstances when called upon to do so by a party and my invoke the discretion contained in section 31(1) of the Specific Relief Act, 1963, for invalidating such contracts.                     

§3.   Specific Performance and Test of Inadequacy

Specific Performance is always treated as an equitable remedy, rather than a legal remedy. It is the settled common law principle that specific performance can be granted only when damages cannot be adequate. “By inadequacy of the remedy at law is here meant, not that it fails to produce the money - that is a very usual result in the use of all remedies – but that in its nature or character it is not fitted or adapted to the end in view[4].  Courts used to grant specific performance only when it was perceived that damages will be inadequate. Specific performance is deemed an extraordinary remedy, awarded at the court’s discretion. “It must be remembered that specific performance is not a matter of right, even when the plaintiff’s evidence establishes a contract valid at law and sufficient for the recovery of damages. Ordering specific enforcement of a contract is a matter within the sound judicial discretion of the court.... The plaintiff was required to show the good faith and equities of its own position, and the trial chancellor, in weighing the equities, was entitled to consider whether a decree of specific performance would work an unconscionable advantage to the plaintiff or would result in injustice.”[5]

Hitherto the traditional common-law rule that “specific performance is available only when damages are inadequate” was being followed in India also. In India, granting remedy or specific performance was purely discretionary until quite recently. Merely because it is lawful, a litigant would never get specific performance as a matter of right and always it was granted as an exception and on proving the inadequacy of damages. If the courts find that it is difficult to quantify damages, specific performance used to be decreed, subject to the satisfaction of equity and good conscience. This was the law followed in India in consonance with the Anglo-American jurisprudence, which is now being frowned upon as a controversial “contract theory” by many modern jurists.

§4. Section 20 of the Specific Relief Act, 1963, prior to 2018 Amendment.

20. Discretion as to decreeing specific performance

(1) The jurisdiction to decree specific performance is discretionary, and the court is not bound to grant such relief merely because it is lawful to do so; but the discretion of the court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a court of appeal.

(2) The following are cases in which the court may properly exercise discretion not to decree specific performance:

(a) where the terms of the contract or the conduct of the parties at the time of entering into the contract or the other circumstances under which the contract was entered into are such that the contract, though not voidable, gives the plaintiff an unfair advantage over the defendant; or 

(b) where the performance of the contract would involve some hardship on the defendant which he did not foresee, whereas its non-performance would involve no such hardship on the plaintiff; or

(c) where the defendant entered into the contract under circumstances which though not rendering the contract voidable, makes it inequitable to enforce specific performance.

Explanation 1 : Mere inadequacy of consideration, or the mere fact that the contract is onerous to the defendant or improvident in its nature, shall not be deemed to constitute an unfair advantage within the meaning of clause (a) or hardship within the meaning of clause (b).

Explanation 2: The question whether the performance of a contract would involve hardship on the defendant within the meaning of clause (b) shall, except in cases where the hardship has resulted from any act of the plaintiff subsequent to the contract, be determined with reference to the circumstances existing at the time of the contract.

(3) The court may properly exercise discretion to decree specific performance in any case where the plaintiff has done substantial acts or suffered losses in consequence of a contract capable of specific performance.

(4) The court shall not refuse to any party specific performance of a contract merely on the ground that the contract is not enforceable at the instance of the party.

§5.   Expert Committee recommendation to amend Section  20

The Ministry of Law appointed an Expert Committee[6] to study reforms to be effected on the Specific Relief Act, 1963. Accordingly the Committee submitted a report suggesting amendment of the various sections of the Act. Among them the most notable suggestion was to take away the wide discretion of courts in granting the relief of specific performance, under Section 20. The Committee in its report, dated 26th May, 2016 observed:

“11.5.6: Even if specific performance is a routine remedy, parties would seek specific relief in the same type of cases in which it is available under the present law. This is actually also the strongest justification of relaxing the grant of specific relief. If the promisee has the choice of his remedy, he will choose compensation after obtaining substitutes. He will also ask for compensation where he expects the promisor to be reluctant or hostile, where the performance will require supervision not available from the court, or where he cannot suspend his affairs pending orders from the court. He will choose specific performance only if there is no substitute, either because the subject matter is not available, or is of special value to him, and where he is willing to wait for relief till execution of the decree. Hence there need not be any fear or increase in litigation and administrative costs”.

The committee further observed:

“11.5.7 : If the inadequacy test is removed, the promisee can choose his own remedy. The promisee is the best judge of his own interest, and whether substitutes satisfy his needs. He has more information than the courts whether compensation is adequate, what it would cost him to get specific performance, and whether his promisor will obey the decree. He is unlikely to sue for specific performance if he finds a substitute or where compensation will be adequate”.

The Parliament accepting the recommendations of the Expert Committee and applying legislative wisdom amended the Specific Relief Act, as per the Specific Relief (Amendment) Act, 2018.

§6.   The Specific Relief (Amendment) Act, 2018  [Act No. 18 of 2018]

S. 10 of the Specific Relief (Amendment ) Act, 2018, Section 20 of the Specific Relief Act, 1963 was amended as follows:

"10. For section 20 of the principal Act, the following sections shall be substituted, namely:— 20. (1) Without prejudice to the generality of the provisions contained in the Indian Contract Act, 1872, and, except as otherwise agreed upon by the parties, where the contract is broken due to non-performance of promise by any party, the party who suffers by such breach shall have the option of substituted performance through a third party or by his own agency, and, recover the expenses and other costs actually incurred, spent or suffered by him, from the party committing such breach.

(2) No substituted performance of contract under sub-section (1) shall be undertaken unless the party who suffers such breach has given a notice in writing, of not less than thirty days, to the party in breach calling upon him to perform the contract within such time as specified in the notice, and on his refusal or failure to do so, he may get the same performed by a third party or by his own agency: Provided that the party who suffers such breach shall not be entitled to recover the expenses and costs under sub-section (1) unless he has got the contract performed through a third party or by his own agency.

(3) Where the party suffering breach of contract has got the contract performed through a third party or by his own agency after giving notice under sub-section (1), he shall not be entitled to claim relief of specific performance against the party in breach.

(4) Nothing in this section shall prevent the party who has suffered breach of contract from claiming compensation from the party in breach

§ 7.  Changes brought about by the amendment

§ 7. 1.  Relief was discretionary, under the un-amended Section

Under the un-amended Act, courts were given wide discretion in granting the relief of specific performance.   Prior to the amendment to Section 20, granting of the relief under S. 20 was purely discretionary. The Hon’ble Supreme Court observed, in Zarina Siddiqui vs A.Ramalingam @ R.Amarnathan[7]:  â€œIt is well settled that remedy for specific performance is an equitable remedy. The Court while granting decree of specific performance exercises its discretionary jurisdiction. Section 20 of the Specific Relief Act specifically provides that Court’s discretion to grant decree of specific performance is discretionary but not arbitrary. Discretion must be exercised in accordance with sound and reasonable judicial principles”. The statutory interdict in the unamended S. 20 was that “the court is not bound to grant such relief merely because it is lawful to do so.” Of course,  it was subject to a rider that the discretion of the court shall not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a court of appeal. It shall not give the plaintiff an unfair advantage. Courts were bound to apply the test of “comparative hardship”. It should be ensured that hardship of  the defendant be something in the nature of which he did not foresee and if the relief is refused, the Plaintiff will not undergo any hardship. The circumstances under which the defendant entered into the contract though not rendering the contract voidable, but if it makes it inequitable, the courts were not expected to enforce specific performance.

§7.2    Amendment takes away discretion of courts

The Expert Committee in its report (supra) observed that if the promisee has the choice of his remedy, he should be the best judge of it. He can choose compensation after obtaining substitutes. He will also ask for compensation where he expects the promisor to be reluctant or hostile, or if specific performance is impracticable. The committee observed that if the inadequacy test is removed, the promisee can choose his own remedy. He has more information than the courts whether compensation is adequate, what it would cost him to get specific performance, and whether his promisor will obey the decree or not. He is unlikely to sue for specific performance if he finds a substitute or where compensation will be adequate. It is significant that the Parliament accepted the recommendations of the Expert Committee Recommendations and proceeded to amend the Specific Relief Act, 1963 and in its wisdom “discretion of courts” in granting specific performance was also taken away. Thus, specific performance is no longer a discretionary relief in India, clearly departing from the common law concept. Substituted Performance is now incorporated in the above statute as a relief which a party suffering breach is rightfully entitled to and which he can avail of, as an extra-judicial remedy. The Allahabad High Court observed in Mukesh Singh and Ors. vs. Saurabh Chaudhary and Others.[8] about the salient feature of the amended provision in the following words: “The discretionary jurisdiction of Courts to decree specific performance was done away by newly substituted Section 20 by Act 18 of 2018. The newly substituted Section 20 makes specific performance of contract a general rule than exception subject to certain limited grounds. The newly substituted Section provides for substituted performance of contract, where a contract is broken, the parties who suffer would be entitled to get the contract performed by a third party or by his own agency and to recover expenses and cost including compensation from the party who failed to perform his part of the contract. This provision has been provided as an alternative remedy at the option of the party who suffers the broken contract”.

§8.   Analysis of Section 20

§8.1.   Without prejudice to generality of the Indian Contract       Act”…..how to be interpreted?

It is well settled that when this expression is used, it is to indicate that anything contained in the provisions following this expression is not intended to cut down the generality of the meaning of the provisions in the statute referred to therein. This was explained by the Privy Council in King-Emperor v. Sibnath Banerji[9]and followed by the Hon’ble Supreme Court in Shiv Kirpal Singh vs Shri V. V. Giri[10].  

§8.2.   There should be breach of contract:   Breach of contract committed by the promisor gives rise to a cause of action for the promisee to invoke this remedy. A “breach of contract” is a violation of a contractual obligation by failing to perform one’s own promise by either repudiating it or interfering with another party’s performance[11] A breach may be one by non-performance, or by repudiation, or by both.

§8.3.   Except as otherwise agreed upon by the parties: Substituted performance should be stipulated in the agreement as a contractual clause to the effect that in the event of breach, it is available as an alternate remedy to the promisee,  enforceable against the promisor.

§8.4.   30 days’ notice:  The remedy can be resorted to,  by the promisee only after issuing 30 days’ notice to the promisor and on the failure of the latter to respond to it or on his refusal. Issuance of notice is mandatory and an essential pre-requisite for availing of the above remedy.

§8.5.    Performance through a third party or through his own agency: The promisee can get the contract performed though a third party, at his   option or by the promisee himself or through his agents.

§8.6.   Promisee entitled to recover the cost and expenses incurred for substituted performance from the promisor: The cost and expenses are the actuals and the same are not in the nature of damages.

§8.7.   Recovery of expenses and costs only if substituted performance is accomplished and not otherwise. In other words, it cannot be claimed in expectation of the expenses and costs that would incur, while availing of the above remedy.

§8.8.   No claim for specific performance allowable:  Once the above remedy is availed of no further claim for specific performance of the contract.

§8.9.   The promisee is having an option to claim compensation as well: Even after availing of substituted performance, the promisee is having the right to claim compensation. It is explicit from the opening sentence of S. 20 that provisions of the Indian Contract Act, 1872 will apply, even while invoking substituted performance as a specific relief. It is equally clear that the principles of S. 73 of the Indian Contract Act, 1872 will apply in the matter of claiming compensation. It would be a natural corollary of the above provision that the quantum of compensation may depend on mitigative factors, natural course of events and attendant circumstances.

     Â§ 9.  Substituted Performance - a remedy is ex contractu – How far compensation is claimable?

The right emanating from the contract is ex contractu, as could be seen from Section 20 itself. Reimbursement of actual expenses and costs, that may arise while availing of the above remedy is claimable against the defaulting party. How far a claim ex delicto - arising from or based on a tort or delict (as a breach of duty) be enforced against the other contracting party, as a general rule, is rather doubtful. Substituted Performance is obviously an extra-judicial remedy. Of course, it is subject to s. 41 of the Indian Contract Act which lays down a rule of accord and satisfaction in the sense that “when a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor”. But, under Section 20, compensation can still be enforced by the party suffering breach. When analysing the above two statutory provisions objectively, the following questions may arise:

1)    Would it be against the prohibition contained in Section 41 of the Indian Contract Act, 1872?

2)    Would there be any incongruity or conflict likely to arise between these two statutory provisions?

3)    Is it the intention of the legislature that right to recover expenses and cost from the defaulter is only mitigatory?

4)    If so, can such amounts be set off from compensation claimed?

These questions would depend on the facts of a given case and let’s wait for judicial interpretation on the above conundrum.

§ 10. Substituted performance - in other Jurisdictions – A  Comparative Analysis

§10.1. In United States

In the United States it is recognised as a Judicial Remedy in appropriate cases. The courts may decree that, without prejudice to other modes,  the act required,  as far as practicable, be done by the party by whom the order or judgment is obtained or some other person appointed by the court, at the cost of the disobedient party, and upon the act being done the expenses incurred may be ascertained in such manner as the court may direct and execution may issue against the disobedient party for the amount so ascertained and for costs[12]. Now, the Uniform Commercial Code[13] provides that there can be agreement providing remedies in addition to or in substitution of those provided under law, limiting the measure of damages and can recover expenses as an option to be availed of by the party suffering breach in some contracts, viz., sale of goods, lease etc.

§10.2  United Kingdom

In English Law, the  rigorous approach is still continuing and the archaic common law concepts have not undergone much changes substantially. With regard to the freedom of parties to stipulate the remedy before arising of dispute, the position of English law is not entirely clear[14].  English Courts are generally reluctant to enforce ‘party agreed specific performance clauses”. Such reluctance is justified by invocation of “paternalistic concerns” and by the argument that parties cannot oust the power of courts through their private agreement[15].  Only in convincing cases freedom of parties to agree on ‘remedial terms’ is allowed by English Courts[16].

§10.3. Australia

A distinction between substitutionary and compensatory contractual awards is usually drawn in Australia and particularly in regard to ‘avoided loss rule of mitigation’, while considering the grant of the remedy in actions for specific performance. In Clark v Macourt [17] the Australian High Court, in an unusual factual circumstance that arose, by a majority awarded the buyer the full cost of replacing the defective sperm at the date of breach even though the award left her in a significantly better financial position than she would have been in, had the breach not occurred. This shows that substituted performance is recognised as an alternate form of specific relief, though not made as a statutory provision.

§10.4. Russia

Substitute performance has been in vogue in Russia for many years, as a specific relief and after the commencement of the Civil Code, since 1922, it became a statutory provision[18].

§10.5  France

French law recognises the duty of the promisor mis en demeure (promisee required by the promisor to comply with his duties') to specifically perform his contractual obligations. The availability of specific performance depends on the character of the obligation that the promisee promised to perform. Substituted performance is not generally allowed as a matter of right[19].

§10.6. Other Countries

German Law requires the promisor to contract for a substitute performance where the obligation to do can be performed by a third party[20]. Even impracticability or rather inadequacy of specific performance prompted many countries like Denmark, Sweden, Italy, and China to grant relief of “substituted performance” as a substantive relief when contracts are broken. In Poland, “if a debtor is in default in performing an obligation to act, the creditor may demand authorisation from the court to perform the act at the debtor's cost, while retaining a claim for remedy of damage. In emergencies, the creditor may perform an act without the court's authorisation, at the debtor's cost, or remove all that the debtor has done contrary to the obligation, at the debtor's cost, while retaining a claim for remedy of damage.[21]

§11. Unique experiment in India

Comparative study would indicate that India made a great leap forward in introducing substituted performance as a mode of specific relief. Obviously, it is for promoting the “self-help” theory of availing of legal remedies expeditiously and efficaciously and without incurring substantial litigation costs. Such litigation reforms are to be welcomed in India, especially the court fees and costs in this country are rocketing higher and higher day by day. Coupled with that, the inordinate delay in getting reliefs from courts also would justify such judicial reforms helping a litigant to seek his own legal remedies, extra judicium without spending substantial money, time and effort.

§ 12. Legal Implications of Substituted Performance - an analysis

Concept of Substituted performance is an antithesis of the “inadequacy test”. Please refer to the Expert Committee’s report (supra):  â€œIf the promisee has the choice of his remedy, he will choose compensation after obtaining substitutes. He will choose specific performance only if there is no substitute, either because the subject matter is not available, or is of special value to him, and where he is willing to wait for relief till execution of the decree. Hence there need not be any fear or increase in litigation and administrative costs. If the inadequacy test is removed, the promisee can choose his own remedy. The promisee is the best judge of his own interest, and whether substitutes satisfy his needs. He has more information than the courts whether compensation is adequate, what it would cost him to get specific performance, and whether his promisor will obey the decree. He is unlikely to sue for specific performance if he finds a substitute or where compensation will be adequate”. Manifestly, the Parliament accepted the above proposition of the Expert Committee and the new Section 20 was introduced. Observations of the Expert Committee would serve as a tool for interpretation of the scope of the above statutory provision.

§12.1. Principle of  substitutio personarum

The underlying principle is substitutio personarum (substitution of legal relationship of persons). It is more or less in the nature of an equitable assignment by a collateral contract letting a third party to perform the unfulfilled obligations. The Apex Court expressed a considered view on assignment of contracts in Kharadah Co. Ltd., v. Raymon and Co. (India) Ltd.[22]: “The law of the subject is well settled and might be stated in simple terms. An assignment of a contract might result by transfer either of the rights or of the obligations thereunder. But there is a well-recognised distinction between these two classes of assignments. As a rule obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. On the other hand rights under a contract are assignable unless the contract is personal in its nature the rights are incapable of assignment either under the law or under an agreement between the parties”.  The Hon’ble Supreme Court relied on, the principle in The British Waggon Company v. Lea & Co[23].  In British Waggon Company’s case it was laid down as follows: “Where a person contracts with another to do work or perform service, and it can be inferred that the person employed has been selected with reference to his individual skill, competency, or other personal qualification, the inability or unwillingness of the party so employed to execute the work or perform the service is a sufficient answer to any demand by a stranger to the original contract of the performance of it by the other party, and entitles the latter to treat the contract as at an end, notwithstanding that the person tendered to take the place of the contracting party may be equally well qualified to do the service”.

§12.3. Contracts on Personal Confidence – not assignable

Thus it is clear that performance of the obligation arising out of contracts solely based on personal confidence or the exercise of individual skill is normally not assignable. A contract is unassignable where it is based upon an element of personal skill or personal confidence to which, for the purposes of the contract, a stranger or third party cannot make any pretensions. This principle is further explained in Copper v. Micklefield Coal and Lime Co[24]. Therefore, the law is abundantly clear that for personal contracts of service, no substituted performance is possible.

§12.4. Doctrine of Privity vis-à-vis Collateral Contracts

Doctrine of Privity of contract implies that no one except the parties to contract are entitled or be bound by it. This doctrine has its exceptions, like collateral contracts as indicated above. A collateral contract is a contract between the third party and one of the parties to the main contract which associates with the main contract and such contract enables the third party to enforce the main contract. A contract between two parties may be accompanied by a collateral contract between one of them and a third person relating to the same subject-matter. This constitutes an equitable assignment. Such assignments are valid and the assignee gets right to enforce the right assigned.[Darlington Borough Council v Wiltshire Northern Ltd.].[25] The performance of an obligation under a contract can also be validly assigned. The promise of a third party to perform contractual obligation is also a valid consideration under S. 2 (d) of the Indian Contract Act, 1872.  

§12.5. Substituted performance - assignment or novation of Contract involved?

“As a rule obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in a substitution of liabilities”[ British Wagon Co. v. Lea & Co].[26] The Supreme Court has observed that, as a rule, obligations under a contract cannot be assigned except with the consent of the promisee. [Kharadah Co. Ltd. v. Ramon and Co. Pvt. Ltd.[27]]. As per the Transfer of Property Act, 1882, assignment of contractual rights or benefits has been couched under the term ‘actionable claim’ and is dealt with extensively under Section 130 of the Act. For assignment Notice S. 131 is necessary. In Kharadah Co. Ltd. v. Raymon & Co (India) Private Ltd. (supra),  the Apex Court has laid out the principle as follows: An assignment of a contract might result by transfer either of the rights or of the obligations thereunder.  But there is a well-recognized distinction between these two classes of assignments. As a rule obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. On the other hand, rights under a contract are assignable unless the contract is personal in its nature or the rights are incapable of assignment either under the law or under an agreement between the parties. The Apex Court reiterated the above principle in a recent ruling in Kapilaben and Others. vs. Ashok Kumar Jayantilal Sheth and Others.[28]

§12.6. Performance – an obligation, capable of assignment with consent.

With the above principles in mind if Section 20 is analysed, it can be seen that the legislative intention is that the duties, liabilities or burden, as a rule are transferable with the consent of the other contracting party. An exception to the rule of privity is carved out in Section 20 of the Specific Relief Act, 1963,  by using the expression “…….except as otherwise agreed upon by the parties……”, indicating that an agreed stipulation is essential in the contract for availing of this benefit, obviously by way of equitable assignment, which the other contracting party agrees at the very inception of forming the contract.

§12.7. Substituted Performance - an extrajudicial remedy?

If the promisee suffering breach issues 30 days’ notice to the promisor, signifying his intention to invoke this remedy and there is failure or refusal from the side of the other party, performance can be sought for, from a third party or on his own agency. The party suffering breach need not approach a court to get the relief of substituted performance. Intervention of the court is necessitated only for recovery of the amount due and payable by the defaulter.

§12.8. After substituted performance, to what extent jural relationship of  parties changes?

After getting substituted performance, the jural relationship of the contracting parties is modified as that of a debtor and creditor. The defaulter becomes a debtor and the party suffering breach becomes the creditor, in as much as there remains only an enforceable money claim towards reimbursement of the expenses and costs, in the nature of an actionable claim. 

§12.9  Effect of Section 20 on contracts for sale of immoveable   property

S. 55 (6) (b) of the Transfer of Property Act, 1882 enables a buyer to enforce a lien on the property agreed to be purchased, subject to the conditions laid down therein.   

S. 55 (b): unless he has improperly declined to accept delivery of the property, to a charge on the property, against the seller and all persons claiming under him, to the extent of the seller’s interest in the property, for the amount of any purchase-money properly paid by the buyer in anticipation of the delivery and for interest on such amount; and, when he properly declines to accept the delivery, also for the earnest (if any) and for the costs (if any) awarded to him of a suit to compel specific performance of the contract or to obtain a decree for its rescission. An omission to make such disclosures as are mentioned in this section, paragraph (1), clause (a), and paragraph (5), clause (a), is fraudulent.

The effect of Section 20 may interfere with the exercise of statutory lien/charge over the property forming the subject matter of the contract, by the buyer who is alleged to have defaulted in complying with his contractual obligations. The moment a notice as contemplated under the above provision, is issued by the seller, alleging default against the buyer and signifying his intention to invoke substituted performance, the law is set in motion. If the buyer fails to comply with the requirements made of, in the notice or does not respond, the seller gets an option to sell the property to a third party. Will the buyer lose his statutory lien? If the legislative intention is given effect to,  in its letter and spirit, the answer is in the affirmative. Of course, it may be a question of fact to be proved in a given case. If the alleged defaulter proves that he never defaulted his part of the contract alleging breach of a reciprocal promise by the seller and a court is called upon to decide upon a question of fact as to who has committed breach, the sustainability of substituted performance depends on a judicial decision. Cases may arise, wherein the sufficiency and adequacy of notice is challenged. In such cases, questions may arise as to sustainability of substituted performance, even though it is already availed of by the seller, and whether a defective notice may go to the root of the matter to invalidate the remedy exercised, would be mooted with force. But, once substituted performance is accomplished and a third party acquires right over the subject matter and court finds default on the part of the seller, the remedy of the buyer lies on in damages only. Would Section 53 of the Transfer of Property Act,1882 also apply, if a fraudulent element is proved, is also another question. Would a third party who rightfully undertook the obligation of substituted performance be protected is yet another question.

§12.10.  Effect of Section 20 on contracts for sale of goods.

Conflict would also arise, if the buyer opts in substituted performance under the following circumstances, especially in cases to which the Sale of Goods Act, 1930 applies. Instances where conflict would arise are (i) if the goods are unique or (ii) if the goods obtainable under the substituted performance,  are of a different quality or price apart from that specified in the contract.  The obligation under the main contract must be assigned by way of a clause of collateral contract with a third party without “novation, alteration or modification” – that would be the legislative intent though not explicit in Section 20. If the substitute goods are of high value and of a different quality, the same would never be accepted as substituted performance, unless the other contracting party agrees. The Australian precedent in Clark v Macourt (supra) is a unique case, where the court accepted substituted performance with variation of the original contract. How far that principle can be imported into the India law is debatable.

§12.11.    Promptness, earnestness and timely action – a pre-requisite.

“Specific performance is a relief which this Court will not give, unless in cases where the parties seeking it come promptly, and as soon as the nature of the case will permit. [Per Lord Cranworth,  Eads v. Williams][29].  This is a principle of equity, which the Indian courts also follow zealously.   If the party suffering breach invokes the remedy of substituted performance without delay,  he can get the remedy and avail of the benefit of Section 20.

§12.13.    Law favours the vigilant

The principle covered by the Latin maxim vigilantibus, non dormientibus, jura subveniunt (the laws give help to those who are watchful and not to those who sleep) would certainly apply with much force in a case, where a defaulter fails to respond to a notice issued by the party suffering breach, prior to invoking the substituted performance clause. Laches, which form the basis of in the above maxim  was examined by the Hon’ble Supreme Court, in  Bharat Barrel & Drum Mfg. Co. Ltd. & Another vs Employees State Insurance Corporation[30]. Further in State Of M.P. And Another vs Pradeep Kumar And Another[31], the Apex Court observed:  â€œâ€¦but even a vigilant litigant is prone to commit mistakes. As the aphorism to err is human is more a practical notion of human behaviour than an abstract philosophy, the unintentional lapse on the part of a litigant should not normally cause the doors of the judicature permanently closed before him. The effort of the court should not be one of finding means to pull down the shutters of adjudicatory jurisdiction before a party who seeks justice, on account of any mistake committed by him, but to see whether it is possible to entertain his grievance if it is genuine”. Also cases would arise, wherein both parties are at fault by committing breach of reciprocal promises. If both parties are at fault, the maxim in pari delicto would apply. But, this maxim is not of much universal application as explained by the Apex Court in Mohd. Salimuddin vs Misri Lal And Another[32], in the following words:“ The doctrine of pari-delicto is not designed to reward the 'wrong-doer', or to penalize the 'wronged', by denying to the victim of exploitation access to justice. The doctrine is attracted only when none of the parties is a victim of such exploitation and both parties have voluntarily and by their free will joined hands to flout the law for their mutual gain. Thus, it is obvious that judicial review of substituted performance would be done based on the sound principles of law, even if the remedy of substituted performance is already obtained by a litigant.

§13. Conclusion

“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of any other man, or order of men[33].”  These words of Adam Smith are golden. It is not the rigorous letters of law that justify a remedy. It must stand the test of the “laws of justice”, which is nothing but a codification of equity and good conscience. Even if the power of discretion is taken away from courts, by the amendment to Specific Relief Act, 1963,  it may not be having the effect of stripping of such a power from courts, especially when discretion is not taken away from courts in exercising the power under Section 31 (1) of the Specific Relief Act, 1963. The Apex Court in Central Inland Water Corporation v. Brojo Nath Ganguly & Another (supra) held that the courts must  judge each  case on  its own facts and circumstances when called upon to do so by a party and my invoke the discretion contained in section 31(1) of the Specific Relief Act, 1963, for invalidating contracts, which are shown to be unconscionable and executed between parties not having equal bargaining power. Discretionary power is inherent in every court,  as a necessary corollary for rendering justice in accordance with law, to do what is `right' and undo what is `wrong', that is, to do all things necessary to secure the ends of justice and prevent abuse of its process. Accepting this principle, in Vinod Seth vs. Devinder Bajaj[35] the Apex Court also observed that “Courts will do well to keep in mind the warning given by Benjamin N. Cardozo in The Nature of the Judicial Process[36] : "The Judge even when he is free, is still not wholly free. He is not to innovate at pleasure. He is not a knight-errant roaming at will in pursuit of his own ideal of beauty or of goodness. He is to draw his inspiration from consecrated principles. He is not to yield to spasmodic sentiment, to vague and unregulated benevolence. He is to exercise a discretion informed by tradition, methodized by analogy, disciplined by system, and subordinated to "the primordial necessity of order in social life".

--------------------------

[1] The Unconstitutionality of Slavery - Lysander SpoonerFrisbie v. United States, 157 U.S. 160 (1895), per David Brewer, J

[2]Frisbie v. United States, 157 U.S. 160 (1895), per David Brewer, J

[3] Jones v. Star Credit Corp., 298 N.Y.S.2d 264, 265 (N.Y. Sup. Ct. 1969).

[4] AIR 1986 SC 1571[

[5] Thompson v. Allen County, (1885) 115 U. S. 550, 6 Sup. Ct. 140, 29 L. Ed. 472.

[6] Water Supply Dist. V. Fowlkes, 407 S.W.2d 642, 647 (Mo. App. 1966)

[7]Government of India, Ministry of Law & Justice, Legislative Department (Legislative III Section) [F. No. 11(2)/2015-Leg.III] vide Office Order dated 28th January 2016 

[8](2015) 1 SCC 705.

[9]MANU/UP/1893/2019

[10]AIR 1945 PC 156

[11] AIR 1970 SC 2097.

[12]Black's Law Dictionary (10th ed. 2014) 

[13]Kronman, Specific Performance, 45, U. CHI. L. REV. 351(1978).

[14]U.C.C. - ARTICLE 2 - SALES (2002)

[15] [Lawrence Collins et al. (eds), Dicey, Morris, Collins: The Conflict of Laws (13th Edn., Sweet & Maxwell 2006), 1st vol. 576].

16][Anthony Ogus, 'English Report on Remedies', in Donald Harris and Denis Tallon (eds), Contract Law Today: Anglo-French Comparisons (OUP 1989) 247].

[17] Solène Rowan,, 'For the Recognition of Remedial Terms Agreed Inter Partes' (2010) 126 LQR 448.

[18][2013] HCA 56 – KWM

[19] Russian Commercial Law; Second Edition By Hiroshi Oda, 2007

[20]Comparative Reflections on the French Law of Remedies for Breach of Contract', in Cohen and McKendrick (eds), Comparative Remedies for Breach of Contract (n 18) 113.

[21]§887 of the Civil Procedure Code - Germany

[22] Art. 480, Polish Civil Code

[23]AIR 1962 SC 1810

[24] (1880) 5 Q.B.D. 149.

[25] (1912) 107 L. T. 457. 

[26] [1995] 1 WLR 68, 79 ].

[27](1880) 1 QBD 149.

[28](1963) 3 SCR 183: AIR 1962 SC 1810. ].

[29]2019 (16) SCALE 723 : 2019 (10) SCJ 269.

[30](1854), 4 D. M. & G. 691]

[31]AIR 1972 SC 1935

[32](2000) 7 SCC 372

[33]AIR 1986 SC 1019

[34]Adam Smith - An Inquiry into the Nature and Causes of the Wealth of Nations.

[35]2010 (8) SCC 1)

[36] Yale University Press -1921 Edition Page 114