Limits of Specific Performance: Contracts Excluded Under the Specific Relief Act

By Mohd. Sahil Khan 10 Minutes Read

Introduction

Have you ever wondered why some contracts can be enforced with a court order while others cannot? It’s a fascinating aspect of Contract law, and the Specific Relief Act sheds light on this. Imagine you’ve signed a long-term employment contract with a company. The contract outlines your job duties, salary, and other terms of employment. However, after a few years, you and your employer start to have disagreements about your performance and the company’s expectations. Your employer threatens to terminate your contract, and you believe this is unfair and unjustified.

In this scenario, specific performance would likely not be granted. While you might want the court to order your employer to continue your employment, it would be difficult for the court to supervise and enforce a long-term employment relationship. The court cannot ensure that both parties will fulfill their obligations in a satisfactory manner over an extended period. This scenario highlights the complexities of specific performance under the Specific Relief Act, which provides guidelines on when such enforcement is appropriate and when it is not.

Contracts not specifically enforceable under Section 14

Section 14 of the Specific Relief Act, 1963 lays down certain conditions that do not allow the specific performance of the contract.

1. Performance involving continuous duty

• Section 14(1)(b) of the Specific Relief Act states that courts cannot enforce contracts that the court cannot supervise.
• ‘Continuous duty’ refers to a duty that must be performed continuously for a certain period.
• Employment contracts for continuous service of employees and a contract to give maintenance are some examples of performance involving continuous duty.
• In the case of Ryan v. Mutual Tontine Westminister Chambers[1], the court refused to enforce a landlord’s promise to always have a doorman on duty.

2.  Determinable contracts

• Determinable contracts are those contracts that either party can terminate at any time or under specific circumstances.
• Section 14 (1)(d) of the Specific Relief Act provides for determinable contracts. A partnership firm is an example of a determinable contract, wherein a partner can retire by giving notice to the other partners in writing.
• Many contracts allow one or both parties to end the contract under certain conditions, such as a breach of contract or the end of the contract’s term. A breach of contract may allow for immediate termination or may give the defaulting party a chance to fix the problem.
• There is disagreement about how Section 14(d) of the Indian Contract Act applies to contracts that can be terminated. Some courts believe that only contracts that either party can end without giving a reason are considered terminable. Other courts believe that contracts that allow for termination due to specific events are also terminable.
• In Indian Oil Corporation Ltd. v. Amritsar Gas Service & Ors.[2], Indian Oil Corporation (IOC) terminated a distributorship agreement with Amritsar Gas Service due to complaints of unauthorized gas connections. The agreement had two termination clauses: one for specific events and another allowing either party to terminate with 30 days’ notice. IOC terminated under the first clause.
• An arbitration panel found IOC’s termination wrongful and ordered reinstatement and compensation. The Supreme Court agreed that the agreement was terminable, meaning either party could end it. However, the Court ruled that since the termination was unjustified, the only remedy was compensation for the 30-day notice period, as the agreement could be ended without reason. Therefore, the specific performance was not granted in this case.

3.  Personal qualification

• Section 14(1)(c) provides that the contracts that are dependent upon the personal qualification of parties in such contracts’ specific performance cannot be granted by the court.
• The ‘material terms’ of a contract are the essential parts that define its purpose. This could be teaching, singing, etc. If a contract relies on someone’s personal skills or abilities, a court cannot force them to fulfill the contract. The injured party can only seek monetary compensation.
• In the landmark case of Percept D Mark (India) Pvt. Ltd. v. Zaheer Khan[3], the court observed that contracts involving personal services often rely on trust and respect between the parties. In such a scenario, the court cannot grant the decree of specific performance of the contract.

Contracts barred from specific performance under Section 16

• Under Section 16 of the Specific Relief Act, the specific performance of a contract cannot be enforced in favour of certain individuals due to personal bars.
• Firstly, a person who has already obtained substituted performance of the contract under Section 20 cannot seek specific performance in accordance with Section 16(a).
• Secondly, individuals who become incapable of performing their obligations, breach any essential terms, act fraudulently, or deliberately act contrary to the contract’s intended purpose are barred from seeking relief.
• Thirdly, a party who fails to prove that they have performed or consistently demonstrated readiness and willingness pursuant to Section 16(c) to fulfill the essential terms of the contract unless those obligations were waived or prevented by the other party, cannot enforce specific performance. These provisions ensure that only parties acting in good faith and capable of fulfilling their contractual duties can seek the court’s intervention to enforce the contract.
• While refusal of specific performance under Section 14 is based on the subject matter of the contract, refusal under Section 16 is based on the personal conduct of the plaintiff. The Specific Relief Act is based on the principle that ‘he who seeks equity must do equity.’ Thus, if the plaintiff’s conduct is inequitable, he cannot seek specific performance.
• In the case of Atma Ram v. Charanjit Singh[4], the apex court held that since the suit was instituted after a long period of delay, showing a lack of readiness and willingness on the part of the plaintiff. The court ruled that since the suit was instituted after a delayed time, it showed a lack of conduct on the part of the plaintiff. Thus, the court did not grant specific performance of the contract.

Conclusion

The Specific Relief Act provides clear guidelines on when contracts cannot be specifically enforced, emphasizing both the contract’s nature and the parties’ conduct. Contracts that involve continuous duties, personal qualifications, or are determinable in nature often fall outside the scope of specific performance due to practical and supervisory limitations faced by the court.

Similarly, Section 16 imposes personal bars based on the plaintiff’s actions, ensuring that only those who act in good faith and demonstrate readiness to fulfill their obligations can seek relief. This approach balances the need for fairness and equity in contractual enforcement, ensuring that the court does not intervene in cases where supervision is impractical or where the party seeking enforcement has acted contrary to the principles of equity. The Act, therefore, protects the integrity of the judicial process while promoting fairness in contract law.

[1] [1893] 1 Ch 116.

[2] (1991) 1 SCC 533.

[3] AIR 2006 SC 3426.

[4] AIR 2020 SC 3413.

Mohd. Sahil Khan