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A need for clarity

Amendments to the Specific Relief Act passed by the Rajya Sabha last month leave open the question of whether they are prospective or retrospective, write Amar Gupta and Ananya Kumar.

A need for clarity

Specific Relief Act.

On 23 July 2018, the Rajya Sabha passed the Specific Relief (Amendment) Bill, 2018, which brought about certain salient and notable changes to the Specific Relief Act, 1963 (“Principal Act”).

One of the salient features of the Amending Act is the change brought about in Section 14 of the Principal Act, which takes away the discretion of courts to refuse specific performance of contracts and, instead, makes specific performance mandatory, subject to the limited exceptions carved out in the provision.

The amendments to the Principal Act, particularly those with respect to legislative introduction of the concept of ‘substituted performance’, insertion of special provisions relating to ‘infrastructure contracts’ and fixation of time limits for disposal of cases are generally being lauded.

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However, there are certain questions posed by the amendments, which appear to have escaped notice.

The Amending Act does not specify whether the amendments would be applicable prospectively or retrospectively. In other words, would the amendments apply to contracts entered into prior to the Amending Act coming into force?

The ordinary rules of construction, as laid down in various judicial precedents provide that every statute is prospective unless it is expressly or by necessary implication made to have retrospective operation.

Statutes dealing merely with matters of procedure are, however, presumed to be retrospective unless the text thereof does not admit of such construction. One of the qualifications this rule is subject to is that a statute which not only changes the procedure but also creates new rights and obligations shall be construed to be prospective unless otherwise provided either expressly or by necessary implication.

Statutes that provide new remedies for enforcement of an existing right are treated as procedural and apply to future as well as past causes of action.

In case of the Amending Act, two principles recognized by the Supreme Court for application of amending statute to existing rights and obligations, are relevant. First, the statute providing for new remedies for enforcement of an existing right apply to future as well as past causes of action.

Second, to be saved from application of the amending provision, the right must be ‘accrued’ and not merely ‘inchoate’. In other words, a positive act towards the right must have been undertaken for it to be considered as choate and accrued.

Arguably, since the Amending Act makes certain contracts which were earlier not enforceable (such as those the breach of which could be compensated in money terms) capable of being enforced, the amending Act clearly is substantive and provides for a new remedy.

Further, where no action for enforcement has been initiated, there is no “accrued” or “vested” right under such contracts, and the rights can be argued as being “inchoate”. For these reasons the Amending Act can be argued as being applicable to existing contracts.

There is, however, a counter argument against the application of the amendments to existing contracts.

In a recent decision (Union of India v. Indusind Bank Ltd.; decided by the Supreme Court on 15 September 2016), the apex Court, was called upon to rule on the retrospective application of the amended Section 28 of the Indian Contract Act, 1872. The amended provision in this case declared contracts providing for extinguishment of rights and discharge of liability after a specified time as void.

The Supreme Court held that the amendment to Section 28 was substantive and remedial in nature and not declaratory or clarificatory. The decision also reaffirmed the principle that parties were entitled to arrange their affairs in a manner as per the law existing on the date on which they entered into their contract. On these grounds, the amended provision was finally held as being inapplicable to contracts entered into prior to the date of amendment.

Based on this decision, it can be argued that even the Amending Act will not apply to existing contracts, which were entered into prior to the date on which it comes into force.

The object of the Amending Act is to reform the law and remove difficulties in enforcement of contracts. It may, therefore, in this case, be preferable to follow the rule of purposive, which would not be adequately served if the amendments were not applied to existing contracts.

However, legislative intervention, clarifying the position vis-à-vis the applicability of the amendments to existing contracts may be the preferred alternative. After all, it is the season of ordinances!

The writers are Partners of J. Sagar Associates. The views expressed are personal.

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