Non-resolution of contractual disputes between a government body and a contractor or between two private contractors come in the way of completion projects many a time, making stalled projects a chronic problem in the country, especially in the infrastructure sector.
Though the mother legislation governing contracts is the Indian Contract Act, 1872, the Specific Relief Act of 1963 provides a mechanism to move on when disputes arise. This Act, which gives remedies for resolution of disputes, has been amended to widen the options available for seeking execution of contracts. For instance, Section 20 of the Specific Relief Act has been replaced by a new provision which allows the aggrieved party to engage another entity for execution of work. “Where the contract is broken due to non-performance of promise by any party, the party who suffers by such breach shall have the option of substituted performance through a third-party or by his own agency, and, recover the expenses and other costs actually incurred, spent or suffered by him, from the party committing such breach,” says the new provision.
Besides the “substituted performance”, the Act provides for “specific performance” where the aggrieved party can seek court direction for execution of contractual obligation by the other party. The earlier law had laid conditions on the court while ordering specific performance. These conditions of inadequate monetary compensation or where compensation cannot be easily calculated stand removed after the amended conditions. “Before the passing of these amendments, specific performance was an exception rather than the rule and, therefore, in most cases the legal right available was damages,” says Gauri Rasgotra, partner and deputy head, Delhi, Cyril Amarchand Mangaldas.
The court is now bound to enforce specific performance unless it falls under the restrictions provided in the amendments. This in a way gives a government authority a greater legal leeway in getting a stalled project going. The aggrieved party can invoke a specific performance if it is able to prove non-performance and would be at a greater advantage. “Therefore, if the authority is able to prove breaches then either the court may grant the specific performance claimed by the authority or it may direct a third party to complete the project and ask the contractor to pay for the cost,” she says.
Moreover, the insertion of Section 20(A) seeks to ensure minimum court interference in public utility contracts that are specified in the Act as well as can be notified by the government as infrastructure from time to time. “It has sought to prevent the court from granting injunctions if it causes any delay in the progress or completion of the infrastructure project. Also, the court has to record reasons for the grant of such injunction,” she says.
Another sub-section 20(B) provides the state governments designate special courts to deal with cases relating to infrastructure projects. A time limit of 12 months has been fixed for deciding such cases.
At the same time, Section 14(A) of the Act now allows courts to engage experts in assisting it. The payment to such experts is liable to be borne by both contracting parties.
There have been attempts by the government in the past, too, to address the issue of resolution of disputes which arise because of factors like environment clearance, land acquisition, levy of user charges leading to cost escalationm and funding challenge for the contractors. At one point, a Public Utility Dispute Resolution Bill was conceived. The proposal for the Bill, which also provided for special tribunals, an independent monitoring agency and a new credit rating system, was later given a burial by the NDA government. Rasgotra says amendments to the Specific Relief Act addresses most of the issues that the government had proposed in that Bill for dealing with delays in the infrastructure sector.
Settlement of contractual disputes, however, will continue to depend on interpretations of agreement clauses that in most sectors are tightly designed, leaving little flexibility for addressing unforeseen issues.
Options for an aggrieved party
Specific performance: Seek performance of the contract
Seek monetary compensation instead of performance
Substituted performance: An aggrieved party can arrange for the performance of the contract by a third party or by his own agency, with cost being borne by the other party