Mitigating the uncertainty in contract execution
The Cabinet on Friday approved amendments to the Specific Relief Act, 1963, in a bid to ease enforcement of contracts. The government is likely to introduce the Specific Relief (Amendment) Bill, 2017, in the winter session of Parliament Why was there a need to amend the Act?
The World Bank’s Ease of Doing Business global report places India at the 164th position on the enforcing contracts indicator. The time taken to enforce a contract in India is close to four years (1,445 days), according to the World Bank report.
The Act, which has not been amended in the past 54 years, deals with discretionary relief given to a party on breach of a contract. This usually involves contract-based infrastructure and public-private partnership development projects. The amendments are directed to curb uncertainty in contracts that arise out of the inability to ascertain monetary damages in case of a breach of contract. The amendment Bill is still not in the public domain. The government appointed an expert committee last year to suggest modifications in the Act.
What were the recommendations of the expert committee?
An expert group, led by Anand Desai, submitted its recommendations to the law & justice ministry in June last year. The key highlights of the committee’s recommendations were:
Make specific performance the rule and damages the alternate remedy
Provide guidelines for reducing the discretion granted to courts and tribunals while granting performance and injunctive reliefs
Introduce provisions for rights of third-parties
Any public work must progress without interruption
How will the amendments improve ease of doing business?
Uncertainty in contract execution plays on the mind of investors, especially those involved in capital-intensive, long-duration projects, says Ramesh Vaidyanathan, managing partner, Advaya Legal. “The amendments will boost investor confidence,” he says. Experts point out that any ease in enforcement of contract brings down overall cost of doing business in India.
However, these amendments have to be followed up with setting up of more commercial courts in the country, along with intensive training for judges on matters related to commercial contracts, say legal experts.