Whether Specific Performance Of An Agreement Is Mandatory Under Amended Provisions Of Specific Relief Act, 1963? Calcutta High Court Explains

The Calcutta High Court recently had the opportunity to expound on the issue as to whether specific performance of an agreement, including a negative covenant contained therein, is mandatory under the amended provisions of the Specific Relief Act, 1963.

Justice Moushumi Bhattacharya observed that although Section 10 of the amended Act vide inclusion of the phrase 'shall' nearly negates the exercise of discretion by Courts while issuing an order for specific performance, it is subject to conditions stipulated under Sections 11, 14 and 16 of the Act which envisage situations where specific performance cannot be enforced. 

"It would be evident from a combined reading of the provisions, is that Specific Performance of a contract, even in the diminished landscape of Section 10 post-amendment, must segue into Sections 11, 14 and 16 of the Act, without discordance, for the 'shall be enforced' in Section 10 to be in harmonious sync with the import of the amendment", the Court observed. 

Background

In the instant case, the petitioner had sought an injunction restraining the respondent from selling tea leaves grown in the Kallaincherra Tea Estate in the district of Cachar, Assam owned by the respondent and for a direction to be issued to the respondent to sell the entire quantity of tea leaves grown in the said garden to the petitioner. In this regard, the petitioner placed reliance on a negative covenant in the agreement (Clause 20) executed between the parties on December 14, 2017 which restraints the respondent from transferring or creating any third party interest in respect of the assets of the respondent including the green tea leaves grown in the Tea Estate of the respondent.

Thereafter, a Supplementary Agreement was entered into between the parties on October 16, 2019 which also dealt with sale of green tea leaves and for the intervention of the Tea Research Authority (TRA) for ascertaining the fine count of tea leaves by way of the standard method of Balometer fine count. Specifically, Clause (4) of the Supplementary Agreement stipulated that the respondent has to supply all the green leaves procured at the Tea Estate only to the petitioner in terms of the Agreement dated December 14, 2017 and not to divert the same to any third party.

Consequently, the petitioner moved the instant petition alleging that the respondent was in breach of the Agreement and for the consequential loss suffered by the petitioner. Accordingly, the petitioner claimed specific performance of the Agreements entered into between the parties.

Observations

Placing reliance on the relevant provisions of the Specific Relief Act, 1963, as amended in October, 2018, the Court noted that under the amended Section 10 of the Act, the performance of a contract shall be enforced by the Court subject to Sections 11(2), 14 and 16. The Court observed that pursuant to the amendment and the inclusion of the phrase 'shall', Courts cannot exercise their discretion anymore while passing an order for specific performance.

"The word "shall" is a significant alteration compared to Section 10 as it stood before the amendment of 2018. The unamended Section 10 left space for exercise of discretion by the court at the time of considering whether an order for specific performance can be passed", the Court opined. In this regard, the Court placed reliance on the recent Supreme Court judgments in B. Santoshamma v. D. Sarala and Sughar Singh v. Hari Singh wherein it was held that specific performance of a contract is no longer discretionary after the amendment.

The Court further noted that specific performance of contracts and enforcement of negative covenants are woven into the fabric of the Specific Relief Act and included in the amended provisions. However the Court underscored that such a compulsion of enforcing specific performance is abated by Sections 11(2), 14 and 16 of the Act. 

"Although Section 10 has done away with the discretionary powers of a court in the matter of specific performance of a contract, the mandatory nature thereof is diluted by Sections 11(2), 14 and 16 of the Act. This indicates that specific performance in respect of contracts is not absolute", it was averred further.

It was further observed that Section 42 of the Act which empowers the Court to grant an injunction for performing a negative agreement is also subject to the proviso to Section 42 which casts an obligation on the petitioner to perform the contract as far as it is binding on the petitioner.

Justice Bhattacharya further referred to other relevant provisions of the Act which pose a restriction to the mandatory nature of Section 10 of the amended Act, 

"Besides the situations where a contract cannot specifically be enforced (Section 14), Section 16 disentitles a person from claiming specific performance of a contract if that person becomes incapable of performing or violates any essential term of the contract or willfully acts at variance with the relation intended to be established by the contract (Section 16 (b)). Section 16(c) further requires the person seeking specific performance to prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him. Explanation (ii) to Section 16 has been amended to the effect that the plaintiff must aver performance of, or readiness and willingness to perform the contract according to its true construction"

The Court proceeded to determine that in the instant case, the petitioner had failed to honour its obligations under the Agreement and accordingly ruled that an order for specific performance cannot be issued in the instant case. 

"Having found that the petitioner has breached the material and fundamental terms of the agreement, this court is not inclined to hold in favour of the petitioner in the matter of specific performance of the contract or restrain the respondent in terms of the negative covenant contained in the Agreement", the order read further. 

Case Title: The All India Tea and Trading Company Limited v. Loobah Company Limited

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