An Analysis Of Katta Sujatha Reddy (Part I) - Is The Specific Relief (Amendment) Act, 2018 A Prospective Or A Retrospective Legislation?

In August 2022, a three-judge bench of the Supreme Court, in Katta Sujatha Reddy v.Siddamsetty Infra Projects Pvt. Ltd., 2022 LiveLaw (SC( 712, ruled that the Amendment, would apply prospectively. In reaching this conclusion, the Court held that: (i) the Amendment is substantive in nature, meaning it was not a mere procedural change that could be applied retrospectively; and (ii) the relevant date for determining the prospective application of the Amendment is the date of the “transaction.”

However, on 5 October 2024, the Supreme Court, by a 2-1 split, admitted a petition to review Katta Sujatha Reddy to reconsider the retrospective/prospective application of the Amendment.

In this first part of a two-part series, we discuss the prospective versus retrospective debate and explore whether the Amendment is substantive or procedural through a provision-by-provision analysis. In part two, we will analyze the issue surrounding the date of reckoning.

The 2018 Amendment – A Shift from Subjective to Objective Standards

The Amendment marked a significant policy shift by curtailing the discretion previously available to courts in declining specific performance, even when all qualifying requirements for securing specific relief were met.

Before the Amendment, Section 10 of the Specific Relief Act, 1963 ('Act'), allowed courts to exercise discretion in enforcing specific performance if: (a) no standard existed for ascertaining the damage caused by non-performance; or (b) compensation in money would afford inadequate relief. The Amendment removed the phrase “in the discretion of the Court,” and the revised Section 10 now mandates that “specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of Section 11, Section 14, and Section 16.” The revised Section 10 is now affirmative in permitting specific performance, subject only to statutory restrictions contained within Sections 11(2), 14, and 16. Additionally, the earlier Section 20, which conferred courts the power to refuse specific performance on general equitable grounds, has been deleted in its entirety.

In Katta Sujatha Reddy, the Supreme Court observed that following the Amendment, specific performance, which was previously a discretionary remedy, is now codified as an enforceable right, independent of equitable considerations. Instead, it hinges on the satisfaction of the statutory prerequisites laid out in the Act.

Although the Amendment has been heralded as making specific performance a matter of right, it should be noted that the remedy was always available. What has fundamentally changed is the withdrawal of judicial discretion in declining specific performance by invoking equitable considerations. Therefore, from the perspective of contracting parties, the Amendment neither creates new rights nor takes away existing contractual rights. Instead, it reshapes the scope of judicial power by standardizing when specific performance should be granted.

Key Changes Introduced to Section 10 of the Act

Given that Sections 11(2), 14, and 16 are now read into the amended Section 10, it is necessary to understand their status and role in the amended Act:

• Section 11(2): This sub-section, which provides that a contract made by a trustee in excess of his powers is incapable of specific performance, has remained unchanged under the Amendment. Notably, consistent with the policy shift intended by the Amendment, the discretionary element in Section 11(1) has been deleted.
• Section 14: While Section 14 has been replaced in its entirety, the changes are less drastic than a complete substitution might suggest. The revisions include:
• The removal of the earlier bar on specific performance where “compensation in money is adequate relief.” This, it is suggested, tilts towards being a substantive amendment, where the legal standard has been modified.
• The introduction of a new bar under Section 14(a), stating that specific performance shall not be enforced where substituted performance has been obtained under the amended Section 20. A corresponding bar has also been introduced in Section 16, disallowing specific performance by a person who has already obtained substituted performance.
• The earlier Section 14(1)(b) barred specific performance of contracts that involved “minute and numerous details” or depended on the “qualification and volition” of the parties. The Amendment has done away with the “numerous details” clause and the subjective yardstick of “volition”, reflecting a broader policy preference for objective standards over subjective criteria.
• Section 16: The earlier bar in Section 16(a) that debarred a person incapable of claiming compensation for breach of contract from seeking specific performance has been replaced with a new bar that disallows specific performance for parties who have already obtained substituted performance. Further, dropping the word 'aver' from Section 16(c) in the context of the plaintiff proving readiness and willingness to perform her part of the contract is essentially a reflection of the law as clarified by judgments. This section's other provisions remain largely consistent with its pre-amendment counterpart.

A comparison of the key provisions of the Act, pre-Amendment and post-Amendment, is tabulated below:

Other changes in the Amendment - Apart from the above changes:

• Section 6 has been amended to accommodate persons who received possession claiming through or under a third party.
• A new Section 20A has been introduced by which courts are restrained from granting injunctions in contracts relating to infrastructure projects.
• Sections 20B and 20C have provided for establishment of special court and expeditious disposal of suits. By an amendment to Section 21 the Amendment has clarified that damages can be sought for in addition to specific performance, and the reference to seeking damages in substitution for specific performance has been deleted.

These changes are not discussed in detail as they do not have a direct bearing on the elimination of discretion in specific performance adjudication and are evidently procedural.

Substituted Performance: No Substantive Change?

The introduction of substituted performance as a remedy has been viewed as a substantive addition. However, this interpretation may be overstated. Substituted performance essentially allows a promisee, upon breach of contract, to have the contract fulfilled through a third party—an option that was always available even before the Amendment. The new provision simply formalizes the requirement of giving a 30-day notice to the promisor before opting for third-party performance. This notice requirement may have introduced its own complications that curtail the 'ease of doing business' aim of the Amendment, though that debate is best reserved for another post.

Nevertheless, Section 20(4) clarifies that “nothing in this section shall prevent the party who has suffered breach of contract from claiming compensation from the party in breach” This provision reaffirms that substituted performance by a third party was never prohibited and always existed as an option for the promisee, serving as a crucial component of the duty to mitigate damages. Thus, the amended Section 20 primarily reinforces what was already an implicit right, making the introduction of substituted performance more a procedural clarification than a substantive change.

What has the Amendment really changed?

Based on the above analysis of the provisions that have undergone revisions, the critical changes are twofold:

1. Elimination of judicial discretion: Courts no longer have the latitude to deny specific performance based on equitable considerations beyond those enumerated in the Act.
2. Removal of the adequacy of monetary compensation as a bar: Previously, a defendant could resist specific performance by arguing that monetary compensation was an adequate substitute. This bar has been abolished, potentially altering the balance of rights and defenses available to parties.

A Closer Look: Is the Change Substantive or Procedural?

The issue of attempting to decipher the prospective or retrospective application of the Amendment arises primarily because the statute itself does not expressly clarify the point. Further, although the Amendment has been touted as a substantial shift in the law on specific relief, the question remains: Change for whom?

In Anant Gopal Sheorey v. State of Bombay, AIR 1958 SC 915, the Supreme Court, while quoting from Maxwell's Interpretation of Statutes, noted that “no person has a vested right in any course of procedure.” Lord Denning, in Blyth v. Blyth (1966) 1 All ER 524, observed that the rule against retrospectivity does not apply to statutes that only alter the “form of procedure or admissibility of evidence, or the effect that courts give to admissibility of evidence.”

Notably, the modification to Section 10 and the deletion of the earlier Section 20 via the Amendment relate to the scope of the court's powers, narrowing their discretion and replacing subjective criteria with objective standards. This change, while significant from a public policy standpoint, may not directly alter the rights or obligations of the contracting parties. Therefore, these provisions, which have no onerous impact on the parties' contractual rights, are better classified as procedural amendments that can be applied to pending disputes.

In Hitendra Vishnu Thakur v. State of Bihar, (1994) 4 SCC 602, the Supreme Court outlined five principles on the application of statutory amendments, and in the first of these, it observed that “a statute that affects substantive rights is presumed to be prospective in operation, unless made retrospective, either expressly or by necessary intendment, whereas a statute that merely affects procedure, unless such a construction is texturally impossible, is presumed to be retrospective in its application." The court also ruled that a statute should not be applied retrospectively where it would “create new disabilities or obligations” or “impose new duties in respect of transactions already accomplished.”

In view of the above, the amendment to Section 14 warrants closer examination since it stands on a different footing when compared to the other provisions that have been amended. Under the unamended Section 14(1)(a), the adequacy of monetary compensation served as both a bar to specific performance and a defense for a party resisting specific performance. This change by itself does not affect any rights retrospectively.

As noted in Darshan Singh v. Ram Pal Singh & Anr., (1992) Supp. (1) SCC 191, a statute does not become “retrospective merely because a part of the requisites for its action was drawn from a time antecedent to the Amendment Act coming into force.” However, removing this defense is a substantive shift, as it removes the alternative of damages in lieu of performance for parties who may have structured their contractual terms based on the availability of this bar. It should be noted that though no contractual rights are changed (and hence there is no retrospective impact), the Amendment implicitly dislodges a defendant's statutory option to pay damages as a substitute for being called to perform the contract.

In Ssangyong Engineering & Construction Co. Ltd. v NHAI, AIR 2019 SC 5041, while ruling on the applicability of the explanations introduced in Section 34 of the Arbitration & Conciliation Act, 1996 ('Arbitration Act') by an amendment in 2015, the court ruled that “it is the substance of the amendment which has to be looked at, rather than the form,” to determine whether it is substantive or procedural. Similarly, in Union of India v. Vedanta Ltd., AIR 2020 SC 4550, the Supreme Court held that since the 2015 amendment to the Arbitration Act had the effect of narrowing the definition of public policy under Section 34 and thereby changed the legal standard applicable, the amendment would be substantive and thus prospective.

Thus, the removal of the adequacy of damages criterion represents a substantive alteration that (i) potentially impacts parties' economic rationale in contracts concluded before the Amendment, and (ii) removes a previously available defense to specific performance. On these two considerations, it is more likely than not that the removal of the adequacy-of-damages ground will be held to be prospective.

It is worth bearing in mind the Supreme Court's dicta in Adhunik Steel v. Orissa Manganese & Minerals Pvt. Ltd., 2007 (7) SCC 125, that “the law of specific relief is […], in its essence, a part of the law of procedure, for specific relief is a form of judicial redress.” At the same time, case law suggests that determining whether a legislative change is substantive or procedural requires a provision-by-provision assessment. Relying on a broad, macro-level analysis of the Amendment could lead to legally unsound scenarios.

A review of the provisions indicates that the Amendment is largely procedural, with one significant exception: the deletion of the “adequacy of monetary compensation” bar to specific performance, which was previously contained in Section 14(1)(a) of the unamended Act. Since the Amendment does not expressly provide for retrospective application, the substantive changes ought to apply prospectively, while there is no legislative bar for the majority of the Amendment, which is procedural, to apply to pending suits.

The author is an advocate practicing in the High Court of Karnataka and Supreme Court of India. Views are personal.