The Specific Relief Act’s Blind Spot: Hardship Defense
- CCL NLUO
- Apr 29
- 7 min read
Authors: Rashi Das* & Akash Hogade**
Second* and Fourth** year law student at Maharashtra National Law University, Mumbai
I. Introduction
The usage of commercial contracts in India has been progressively increasing and expanding beyond the traditional understanding of contracts which has led to a substantial surge in contractual disputes. Remedies for contractual disputes include liquidated damages, unliquidated damages, specific performance, rescission, etc. While damages and rescission are governed under the Indian Contract Act, 1872, (‘ICA’) specific performance is provided for in the Specific Relief Act, 1963 (‘SRA’). In this article, the first part delineates the consequential and application problem of hardship as an exemption to the relief of specific performance, particularly in relation to The Specific Relief (Amendment) Act, 2018 (‘amendment’). The second part reinforces the problems arising due to the amendment and tries to find potential solutions for the same.
II. The Prelude
Internationally, a hardship event is recognised as a valid ground for exemption from the performance of contractual obligations. For instance, the UNIDROIT Principles provide that performance can be exempted in situations of hardship that fundamentally alter the equilibrium of the contract, either in terms of the cost of performance or the value expected to be attained from successful performance.
In India, neither the comprehensive scope of hardship has been provided nor a distinction between the exemption from performance on account of force majeure and hardship event has been made. While no specific force majeure provision exists in India, it is governed by Section 32 r/w Section 56 of the ICA. However, the only mention of hardship was made under Section 20 of SRA prior to the amendment. Post-amendment, this provision has also been replaced with the defense of substituted performance against specific performance. This has resulted in a legislative vacuum over the scope and application of hardship exemption.
Section 20 of SRA prior to the amendment provided for hardship as a valid ground for denial of specific performance at the discretion of the Court. The defense of hardship was assessed from the standpoint that the performance would involve unforeseen hardship on the part of the defendant while non-performance of the same would involve no hardship on the plaintiff. This leads to the application of the provision by evaluating the circumstances based on comparative hardship. Such an interpretation based on comparative hardship is practically impossible to establish as non-performance of obligations on the part of the defendant will inevitably cause hardship or losses to the plaintiff. The provision having a higher threshold therefore strictly limits the scope of hardship as a defense against specific performance. This undermines the commercial freedom and business efficacy of the defendant in a commercial contract where excessive onerousness in performance and commercial impossibility is a reality.
Pre-amendment it was at the discretion of the court to analyse whether the circumstances of the case would make it excessively onerous for the defendant to perform their obligations. Under the provision, no specific pleading for hardship as a defense was necessary. The amendment has done away with the discretion of the court to deny specific performance on grounds of hardship. While the defendant still has the recourse of hardship against specific performance, a specific pleading for the same has to be made in this regard. Even though such pleading can be made, there exists no provision under which such defense can be taken. Additionally, the sanctity of hardship as a defense remains untested, as there is no clear framework to assess the threshold to prove hardship under the current legal landscape. This raises eyebrows as to whether the same contours and applicability of hardship defense can be relied upon as it existed pre-amendment. Furthermore, there exists a lack of clarity on whether the courts will consider the defendant’s right to claim hardship in a manner consistent with the pre-amended provision.
The amended Section 20 of SRA delineates the concept of substituted performance replacing the court's discretion in granting specific performance. The amendment has now shifted the focus from the defenses against the decree of specific performance to providing an alternative remedy wherein a third-party may perform the obligations. The statute pre-amendment was in the form of an equitable legislation whose focus was not only to give a right to the plaintiff to agitate but also a right of defense to the defendant. It is now pertinent to note that the amendment has reduced the scope of the defendant to rely on defenses to merely cover of damages arising of the substituted performance. As a result, the amendment has created a lack of legislative provision under which defenses against the decree of specific performance can be taken, thereby creating difficulty and lack of clarity for the litigants in filing their pleadings.
III. The Change - Problems and Solutions
The amendment has changed the contours, approach and application of hardship as a defense. This change in the nature of defense has created numerous challenges for the litigants wherein firstly, the amendment has done away with the circumstances where the discretion could have been exercised by the court. This has led to decreased levels of scrutiny compared to the position of law pre-amendment. The amendment also creates a technical approach of casting a duty on the part of the parties to plead specifically the defense of hardship. The approach though in the spirit of Order VIII, Civil Procedure Code, 1908 has led to denial of deeper scrutiny of the court in an event where there is no specific pleading.
Secondly, the nature of substituted performance is completely different from the aspect of hardship. The aspect of substituted performance leads to performance of a contract by a third-party agency, but in the event of hardship, the court had the discretion to deny performance. The replacement has also created much confusion and ambiguity. This can be said as substituted performance is based on the premise of performing the obligation of the contract and hardship is premised on non-performance of the contract.
Thirdly, the amendment doesn’t take note of the practical commercial viability of parties in a commercial contract. The discretion under Section 20 of SRA provided for the courts to scrutinise the viability of enforcing specific performance from the business efficacy point of view. The Apex Court has time again reiterated that the approach of business efficacy in interpreting circumstances around a commercial contract is inherent in the court’s outlook. The replacement of Section 20 of SRA with the amendment has put the court in a precarious situation where commercial sense is not a priority in approaching the defenses to denial of specific performance in a commercial contract.
Fourthly, the amendment has changed the mindset in moving towards encouraging performance of contracts. This change of mindset has not included various aspects of onerousness and change of circumstances which might change the equilibrium of viability of performance of the contract. This has led to a discouraging trend in usage of commercial viable defenses against specific performance in commercial contracts.
IV. Probable Solutions
These problems have often gone unnoticed due to the lack of streamlined awareness. Probable legislative amendments could salvage the precarious ambiguous situation prevailing in commercial contracts. The first step in this salvaging process would be to establish a flexible definition for the term ‘hardship’. The consequential usage and the probable circumstances for which hardship could be used should be delineated in statutes. There is also a need to clarify the objective threshold to use hardship as a defense against the relief of specific performance under the SRA and the relief of damages under the ICA. This becomes necessary especially when the degree of scrutiny changes with the change of relief sought. In a suit for damages the application of hardship is taken into consideration prior to the filing of the suit, on the contrary in a suit for specific performance the application of hardship is subsequent to the grant of relief of specific performance. This changes the approach of the court as the timing of the application of hardship changes. Therefore, delineating the usage of hardship as a defense for different relief sought becomes paramount. Further, the discretion of the trial court in denying specific performance has to be restored as it will be in accordance with the principle of business efficacy. This discretion, if applied reasonably and guided by the principles of law, would help the parties to take into account every possible circumstance of the business viability of performance/non-performance.
Since the statutes do not enumerate hardship exemptions, it becomes important that parties in their commercial contracts include a hardship clause. This clause could explain that hardship would be a defense from performance of the contract. This creates a contractual defense , but it may not be as impactful as a statutory defense as enumerated pre-amendment. Be that as it may, this could act as a breather for the parties, as such an exemption of performance by a contractual clause can be enforceable under Section 37 of the ICA. This also reduces the burden on the courts and makes the interpretation of commercial contracts smoother.
V. Conclusion
In this regard, it is important to recognise that the amendment, though with an intention to enforce contracts in the right spirit, has taken away important facets of a commercial contract. Though much water has flown, it is better late than never to address such lacuna and resolve them at the earliest. In a country where the issues, mindset and approach have been commercialised the existing anomalies act as a barrier. These barriers have put numerous unfettered restrictions in the growth of viable commercial contracts in the country. It’s high time that these barriers are nipped in the bud so that India grows exponentially in terms of Foreign Direct Investment.
Note: This article has been reviewed by Mr. Anish Jaipuriar, Partner (Merger & Acquisition, Tech Laws) at Burgeon Law, at the Tier II Stage.
