Specific Performance of Contracts: A Legal Analysis of Judicial Discretion and Equitable Considerations

A Case Study Specific Performance of Contracts

The remedy of specific performance represents a cornerstone of contract law, allowing courts to compel parties to fulfill their contractual obligations rather than merely awarding monetary damages. However, this equitable remedy is not granted automatically or mechanically. Courts exercise considerable discretion when deciding whether to enforce specific performance, carefully balancing competing interests, potential hardships, and the equitable considerations that underpin this extraordinary relief.

Understanding Specific Performance Under Indian Law

Specific performance is governed by the Specific Relief Act, 1963, which was substantially amended in 2018 to strengthen the enforceability of contracts in India. The Act provides the legal framework for granting specific relief in civil cases, requiring courts to specifically enforce contracts in appropriate circumstances [1]. The fundamental purpose of this remedy is to ensure that individuals receive what they are entitled to under their contractual agreements, rather than settling for monetary compensation that may prove inadequate.

The legislative history of the Specific Relief Act reveals a careful attempt to balance the need for contractual certainty with the courts’ discretionary power to deny relief where enforcement would cause injustice. The 2018 amendments introduced several significant changes, including provisions for substituted performance of contracts and special procedures for infrastructure projects [2]. These modifications reflect the legislature’s intent to make specific performance more accessible while maintaining judicial oversight over potentially inequitable outcomes.

Judicial Discretion in Granting Specific Performance

Indian courts have consistently held that specific performance is a discretionary remedy that must be exercised judiciously. Courts are not bound to grant specific performance merely because a valid contract exists and has been breached. Instead, they must consider various factors including the conduct of parties, balance of hardships, and whether monetary compensation would adequately address the breach. This discretionary approach ensures that the remedy serves the interests of justice rather than becoming a tool for oppression or unfairness.

The Delhi High Court’s decision in Sanghi Brothers v. Kamlendra Singh [3] exemplifies this careful exercise of judicial discretion. In this landmark case, the plaintiff sought specific performance of a Memorandum of Understanding executed in 1998 for the transfer of immovable property in Vasant Vihar, New Delhi. The suit was filed in 2004, but by the time the matter came up for final adjudication in 2023, nearly twenty-five years had elapsed since the execution of the agreement. The court refused to grant specific performance, citing multiple factors that made enforcement inequitable and impractical.

Impact of Third-Party Interests on Specific Performance

One of the most significant factors affecting specific performance is the creation of third-party interests in the disputed property. Indian courts have established that when property subject to a specific performance suit is sold to a bona fide third party, the court must carefully consider whether enforcement would cause undue hardship to innocent purchasers. This principle recognizes that property transactions do not occur in isolation and that subsequent purchasers may have legitimate expectations deserving of protection.

In the Sanghi Brothers case, the court observed that the defendant had sold the suit property to a third party during the pendency of litigation, despite interim orders restraining such alienation. The third party had taken possession and obtained a registered sale deed, creating substantial vested interests. The court held that revoking this transaction would lead to increased hardships and unjustified litigation [3]. This approach reflects the principle that specific performance should not be granted where it would disturb settled third-party rights, even if those rights were created in violation of court orders.

The doctrine of lis pendens, embodied in Section 52 of the Transfer of Property Act, 1882, provides that property transfers during pending litigation are not void but remain subject to the suit’s outcome [4]. However, courts must balance this principle against the practical realities of property ownership and the legitimate interests of subsequent purchasers who may have acted in good faith.

Passage of Time and Changed Circumstances

The passage of substantial time between contract execution and litigation can significantly impact specific performance claims. While time is generally not considered of the essence in contracts for immovable property unless expressly stipulated, prolonged delays can create practical difficulties and inequities that justify denying specific performance. Courts recognize that property values fluctuate dramatically over time, and enforcing ancient agreements at original prices may result in windfall gains or unconscionable losses.

The Sanghi Brothers judgment specifically addressed this temporal dimension. The court noted that the Memorandum of Understanding was executed in 1998, the suit was filed in 2004, and the matter was decided in 2023. During this twenty-five-year period, the property’s value had increased from approximately Rs. 2.5 crore to Rs. 60 crore [3]. The court recognized that enforcing the original agreement would create significant economic disparity and potential injustice, as the defendant would be forced to transfer property worth Rs. 60 crore for the originally agreed consideration of Rs. 2.5 crore.

This principle finds support in broader equitable considerations. Courts have consistently held that specific performance should not be granted where it would result in unconscionable outcomes or where changed circumstances have fundamentally altered the nature of the parties’ bargain. The dramatic appreciation in property values represents precisely such a changed circumstance that courts must consider when exercising their discretionary power.

Compensation as an Alternative to Specific Performance

When courts determine that specific performance should not be granted, they have the power to award compensation in lieu of specific enforcement. This alternative remedy is explicitly provided under Sections 20 and 21 of the Specific Relief Act, 1963 [5]. Section 21 specifically states: “In a suit for specific performance of a contract, the plaintiff may also claim compensation for its breach in addition to such performance. If, in any such suit, the court decides that specific performance ought not to be granted, but that there is a contract between the parties which has been broken by the defendant, and that the plaintiff is entitled to compensation for that breach, it shall award him such compensation accordingly.”

The quantum of compensation is determined according to principles laid down in Section 73 of the Indian Contract Act, 1872 [6]. This provision establishes that when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss or damage which naturally arose in the usual course of things from such breach, or which the parties knew when they made the contract to be likely to result from the breach. However, compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

In the Sanghi Brothers case, the Delhi High Court awarded Rs. 15 lakh as lump-sum compensation in lieu of specific performance [3]. This compensation took into account the circumstances of the case, including the plaintiff’s legitimate expectations under the original agreement, the defendant’s breach, and the practical impossibility of enforcing specific performance given the intervening third-party interests and changed circumstances. The court held that such compensation would meet the ends of justice better than attempting to unwind the complex property transactions that had occurred over the intervening decades.

The Doctrine of Readiness and Willingness

A fundamental requirement for obtaining specific performance is that the plaintiff must prove readiness and willingness to perform their part of the contract. Section 16(c) of the Specific Relief Act explicitly provides that specific performance cannot be enforced in favor of a person who fails to prove that they have performed or have always been ready and willing to perform the essential terms of the contract which are to be performed by them [5]. This requirement ensures that courts do not aid parties who themselves have failed to honor their contractual obligations.

The readiness and willingness requirement serves multiple purposes. It prevents plaintiffs from seeking the court’s assistance while remaining in breach themselves, maintains the principle of mutuality in contract enforcement, and ensures that the defendant is not compelled to perform for a plaintiff who cannot reciprocate. Courts have interpreted this requirement strictly, examining whether the plaintiff was continuously ready and willing from the date of the contract through the filing of the suit and beyond.

Section 20 and Grounds for Refusing Specific Performance

Section 20 of the Specific Relief Act, particularly as amended in 2018, provides courts with specific grounds for refusing specific performance. The provision recognizes that courts must balance competing considerations of justice and equity when deciding whether to compel performance. The section emphasizes that courts should consider the conduct of parties and the balance of convenience before granting this extraordinary remedy [7].

The statutory framework acknowledges that specific performance may be denied where the contract has become incapable of performance, where enforcement would cause exceptional hardship to the defendant, or where the plaintiff has engaged in conduct that makes it inequitable to grant relief. These provisions grant courts the flexibility to respond to the particular circumstances of each case rather than applying rigid rules that might produce unjust outcomes.

Partial Performance and Divisibility of Contracts

Section 12 of the Specific Relief Act addresses situations where contracts become wholly or partly incapable of performance. The general rule is that courts should not direct specific performance of part of a contract unless the part left unperformed bears only a small portion of the whole in value [8]. This principle prevents courts from substantially rewriting contracts or enforcing agreements that have fundamentally changed in character.

In the Sanghi Brothers case, this principle proved relevant because the property in question could not be transferred in its entirety as originally contemplated. The court noted that the part left unperformed bore a substantial portion of the whole property, making partial specific performance inappropriate [3]. This situation commonly arises when property has been subdivided, partially sold, or otherwise altered in ways that prevent complete performance of the original agreement.

Balancing Contractual Rights with Equitable Considerations

The law of specific performance exemplifies the tension between strict legal rights and equitable considerations. While parties have legitimate expectations that their contracts will be enforced, courts must also consider whether enforcement would produce fair and reasonable outcomes given all the circumstances. This balancing act requires courts to look beyond the bare words of the contract to examine the real-world consequences of their orders.

The Supreme Court of India has repeatedly emphasized that specific performance is not granted merely because it is lawful to do so. Courts must consider the totality of circumstances, including the conduct of parties, the nature of the property, the passage of time, changes in property values, and the potential impact on third parties. This holistic approach ensures that the remedy serves justice rather than becoming a source of oppression or windfall gains [9].

Conclusion

The doctrine of specific performance under Indian law represents a sophisticated attempt to balance competing interests and achieve equitable outcomes in contract disputes. While the remedy provides important protection for contractual expectations, it is not available as of right and must be earned through proper conduct and timing. Courts exercise careful discretion in granting specific performance, considering factors such as the passage of time, creation of third-party interests, changes in circumstances, and the balance of hardships between parties.

The Sanghi Brothers case illustrates these principles in action, demonstrating how courts navigate the complex interplay between legal rights and practical realities. By refusing specific performance but awarding appropriate compensation, the court achieved a result that recognized the plaintiff’s legitimate grievances while avoiding the injustice and chaos that would have resulted from attempting to unwind decades of property transactions. This approach reflects the fundamental principle that equity looks not just at the letter of contracts but at the substance of justice.

For parties entering into contracts, particularly those involving immovable property, these principles carry important lessons. Contracts should be performed promptly, disputes should be litigated expeditiously, and parties should understand that the passage of time and changed circumstances may ultimately make specific performance unavailable even for valid contracts. The law provides adequate remedies through compensation and damages, but the extraordinary relief of specific performance remains subject to judicial discretion guided by equitable principles.

References

[1] The Specific Relief Act, 1963, Act No. 47 of 1963. Available at: https://www.indiacode.nic.in/handle/123456789/12938

[2] The Specific Relief (Amendment) Act, 2018. Available at: https://www.pw.live/judiciary/exams/specific-relief-act-1963

[3] Sanghi Brothers (Indore) Pvt. Ltd. v. Kamlendra Singh, 2023 SCC OnLine Del 5528 (decided on 06-09-2023). Available at: https://www.livelaw.in/high-court/delhi-high-court/delhi-high-court-ruling-specific-performance-property-sale-third-party-suit-pendency-237516

[4] Thomson Press (India) Ltd. v. Nanak Builders & Investors (P.) Ltd., (2013) 5 SCC 397. Doctrine of lis pendens and pendente lite transfers.

[5] Sections 20 and 21, The Specific Relief Act, 1963. Available at: https://www.aaptaxlaw.com/specific-relief-act/section-21-22-23-24-25-of-specific-relief-act-1963.html

[6] Section 73, The Indian Contract Act, 1872. Available at: https://indiankanoon.org/doc/339747/

[7] Notes on the Specific Relief Act, 1963 – Section 20. Available at: https://rayatlaw.ac.in/public/uploads/study-material-3569.pdf

[8] Section 12, The Specific Relief Act, 1963 – Specific performance of part of contract.

[9] Katta Sujatha Reddy v. Siddamsetty Infra Projects (P) Ltd., (2023). Supreme Court of India judgment on readiness and willingness to perform. Available at: https://www.drishtijudiciary.com/current-affairs/specific-performance