Determinable Contracts Not Specifically Enforceable, Injunction Cannot Be Granted To Prevent Breach: J&K High Court

These observations were made by Justice Wasim Sadiq Nargal while hearing a plea moved by the State Health Agency (SHA) of Jammu and Kashmir seeking a restraint order against IFFCO-TOKIO General Insurance Company for opting out of a contract for Implementation of Ayushman Bharat- Pradhan Mantri Jan Arogya Yojana & Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana - SEHAT in the Union Territory of J&K.

Background:

The State Health Agency (SHA) of Jammu and Kashmir had entered into a three-year insurance contract with the Insurance Company for Ayushman Bharat Yojana. However, the insurer opted out of the contract before its completion, citing a clause allowing termination after one year based on mutual agreement. The SHA challenged this, seeking to enforce the contract through an injunction under the Arbitration and Conciliation Act.

Representing the SHA, Mr. Mohsin Qadri argued that the insurer's exit notice was arbitrary and violated the contract's terms. He emphasized the mandatory nature of the three-year clause and argued that invoking the exit clause for mere convenience was illegal and against public health interests.

Observations Of The Court:

Upon analysing the contract and relevant legal provisions, the bench noted that while the agreement specified a three-year term, it also incorporated a clause enabling annual review and termination by mutual consent. This critical detail rendered the contract "determinable in nature", meaning either party could end it without specific conditions attached.

Citing Section 14 of the Specific Relief Act, the court clarified that determinable contracts are not enforceable through specific performance, as their continuation depends on mutual agreement.

“Upon a bare reading of the clause 9.1 (c) supra, which starts with non-obstante clause, the renewal of insurance contract is subject to mutual agreement between both the parties. This clearly reflects that insurance contract is determinable in nature at the behest of one of the parties without any conditions attached. As such, the insurance contract is not specifically enforceable under Section 14 of the Specific Relief Act”, Justice Nargal recorded.

Deliberating on the inapplicability of Injunctions in such cases the bench remarked,

“This also has bearing on injunctions which may be sought by the parties, as Section 41(e) of the Specific Relief Act, 1963, provides that an injunction cannot be granted to prevent the breach of a contract, the performance of which would not be specifically enforced”.

Addressing the limitations of Section 9 petitions, the court reiterated that parties cannot seek specific performance of contracts through such petitions. It emphasized that the purpose of Section 9 is to preserve and maintain the subject matter of the dispute pending arbitration, rather than enforcing contractual obligations.

“The interim relief in the form of directing the respondents to continue with the insurance contract could not have been granted as it will amount to granting of relief of specific performance of contract, which is beyond the scope of Section 9 of the Arbitration and Conciliation Act', the court said.

Based on these considerations the court found the petition devoid of any merit and accordingly dismissed it. However, the court emphasized that its observations were provisional and independent of the future proceedings before the Arbitral Tribunal.

Case Title: Union Territory of Jammu & Kashmir Vs IFFCO-TOKIO, General Insurance Company Limited

Citation: 2024 LiveLaw (JKL) 15

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