Contract Remedies Substituted Performance, Rectification & Rescission
Section 20. Substituted performance of contract.
20(1).
This rule works along with the Indian Contract Act, 1872, and does not limit any general rights under that Act.
Unless the parties have agreed to something different, this rule applies automatically when a contract is broken.
When a contract is broken because one party does not perform his promise, the other party suffers a breach.
The party who suffers because of the breach has the right to choose substituted performance.
This means he can get the work done:
By a third party, or By his own agency .(Doing it himself or through his own arrangements).
After getting substituted performance done, the suffering party can recover all expenses, including:
Money actually spent.
Costs actually incurred.
Losses actually suffered, from the party who failed to perform.
20(2).
Substituted performance under 20(1) cannot be done immediately.
The law requires a written notice first.
The party who has suffered the breach must give a written notice of at least 30 days to the party who broke the contract.
The notice must call upon the defaulting party to perform the contract within the time mentioned in the notice.
Only if the defaulting party refuses to perform, or fails to perform within that time, the suffering party may then get the contract performed:
By a third party, or by his own agency.
The suffering party cannot recover any expenses or costs unless he has actually got the contract performed through a third party or his own agency.
20(3).
When the party who suffered the breach has already got the contract performed through:
A third party, or his own agency, and this was done after giving the required notice, then a consequence follows.
After choosing substituted performance, the suffering party loses the right to ask for specific performance of the original contract.
So , he cannot later go to court and demand that the defaulting party be forced to perform the original contract.
20(4).
This section does not stop the party who has suffered the breach from claiming compensation.
Even if the suffering party chooses substituted performance, he can still ask for compensation from the party who broke the contract.
Compensation may include any loss or damage caused by the breach, in addition to recovering expenses spent on substituted performance.
Substituted performance does not take away your right to compensation.
Section 20A. Special provisions for contract relating to infrastructure project.
20A(1).
A court cannot grant an injunction in any suit under this Act if the contract relates to an infrastructure project listed in the Schedule.
An injunction cannot be granted if it would cause an impediment, slow down, or delay the progress or completion of that infrastructure project.
Courts must not stop or delay infrastructure projects by granting injunctions in contract-related cases.
20A(2).
The Central Government has the power to change or update the Schedule of this Act.
This power may be used when it is required for the development of infrastructure projects.
The Government may make changes when it considers such changes necessary or useful.
Any change must be made through a notification published in the Official Gazette.
The amendment may relate to any category of projects or any infrastructure sub-sector listed in the Schedule.
20A(3).
Every notification issued by the Central Government under this Act must be placed before both Houses of Parliament (Lok Sabha and Rajya Sabha).
This must be done as soon as possible after the notification is issued, while Parliament is in session.
The notification must lie before Parliament for a total of 30 days.
These 30 days may fall in one single session or in two or more successive sessions.
During this time, Parliament has the power to review the notification.
If, before the end of the next session after the one in which the notification was laid:
Both Houses agree to modify the notification, or
Both Houses agree that the notification should not be made then:
The notification will take effect only in the modified form or it will cease to have any effect, depending on what both Houses decide.
Any modification or cancellation by Parliament does not affect the validity of anything that was already done under the notification before it was modified or annulled.
Section 20B. Special Courts.
The State Government must act in consultation with the Chief Justice of the High Court before taking any action under this provision.
After consulting the Chief Justice, the State Government will issue a notification in the Official Gazette.
Through this notification, the State Government will designate one or more Civil Courts as Special Courts.
These Special Courts will have jurisdiction within the local area specified in the notification.
These Special Courts will have the authority to hear and try suits under this Act.
This applies specifically to suits involving contracts related to infrastructure projects.
Section 20C. Expeditious disposal of suits.
A suit filed under this Act must follow a special timeline, even if the Code of Civil Procedure says otherwise.
The court must dispose of the suit within 12 months from the date the summons is served on the defendant.
So , The one-year period starts when the defendant officially receives the summons.
The court is allowed to extend this period, but only in a limited way.
The extension cannot exceed six months in total.
Not six months at a time but six months in aggregate , so the maximum possible extension is six months overall.
The court can grant this extension only after recording written reasons explaining why more time is needed.
Section 21. Power to award compensation in certain cases.
21(1).
When a plaintiff files a suit asking for specific performance of a contract, he is not limited to only that remedy.
The plaintiff may also ask for compensation for the breach of the contract.
This compensation can be claimed in addition to asking the court to enforce the actual performance of the contract.
The plaintiff can ask the court to force the contract to be carried out, and at the same time ask for money compensation for any loss caused by the breach.
21(2).
Sometimes, in a suit for specific performance, the court may decide that specific performance should not be granted.
Even if specific performance is refused, the court may still find that a valid contract existed between the parties.
The court may also find that the defendant has broken the contract.
If the court concludes that, because of this breach, the plaintiff is entitled to compensation, then the court must award compensation.
The court is required to award the compensation accordingly, based on the loss suffered by the plaintiff.
So , If the court cannot force the contract to be performed, but the defendant clearly broke the contract, the court must give the plaintiff compensation.
21(3).
Sometimes the court may decide that specific performance should be granted.
However, the court may also feel that granting specific performance alone is not enough to fully do justice.
There may be some additional loss or harm suffered by the plaintiff.
In such a situation, the court may conclude that the plaintiff should also receive compensation for the breach of the contract.
If the court reaches this conclusion, it must award compensation to the plaintiff in addition to ordering specific performance.
21(4).
When the court decides to award compensation under this section, it must follow the same rules used for awarding damages under the Indian Contract Act, 1872.
Specifically, the court must follow the principles in section 73 of the Contract Act.
These principles deal with:
Compensation for loss or damage caused by breach of contract.
Losses that naturally arise from the breach.
Losses the parties knew about when the contract was made.
The court must calculate compensation according to these established rules, not based on guesswork or unrelated factors.
The court must use the standard contract-law rules from section 73 to decide how much compensation the plaintiff should get.
21(5).
The court cannot award compensation under this section unless the plaintiff has asked for it in the plaint.
The claim for compensation must be clearly mentioned in the original filing.
If the plaintiff did not include a claim for compensation in the plaint, the court must still give him a chance to add it later.
The court may allow the plaintiff to amend the plaint at any stage of the proceeding.
This will be done on terms that the court considers fair and just.
Explanation
Even if the contract has become incapable of specific performance, the court can still use its powers under this section to award compensation.
This means the failure of specific performance does not stop the court from deciding whether compensation should be given.
Just because the court cannot force the contract to be performed does not mean the plaintiff loses the right to compensation.
Section 22. Power to grant relief for possession, partition, refund of earnest money.
22(1).
This rule applies even if the Code of Civil Procedure says something different.
It gives extra rights to a person who files a suit for specific performance of a contract to transfer immovable property.
A person who sues for specific performance may, in a suitable case, also ask for additional reliefs beyond the specific performance itself.
(a)
The plaintiff may ask for possession of the property.
If the property needs to be divided, the plaintiff may ask for partition and separate possession.
This can be asked along with the request for specific performance.
The plaintiff can ask the court to give him the property itself, not just the decree enforcing the contract.
(b)
The plaintiff may also ask for any other relief he is legally entitled to.
This includes asking for the refund of earnest money or the refund of any deposit paid or made, if the court refuses to grant specific performance.
If the court does not enforce the contract, the plaintiff can ask for his money back or any other relief he deserves.
22(2).
The court cannot grant any relief mentioned in clause (a) or clause (b) of 22(1) unless the plaintiff has specifically asked for that relief in the plaint.
The plaintiff must clearly write in the plaint what extra relief he wants.
1.
If the plaintiff has not asked for such relief in the plaint, the court must still give him a chance to correct this mistake.
The court shall allow the plaintiff to amend the plaint at any stage of the case.
This amendment will be allowed on terms the court finds fair and just.
This amendment is specifically for adding a claim for the extra relief under clause (a) or (b).
22(3).
The court has the power to grant other reliefs under clause (b) of 22(1), such as refund of earnest money or any other legally available relief.
This power is separate from, and does not reduce, the court’s power to award compensation under section 21.
Even if the court gives the plaintiff other reliefs under clause (b), it can still award compensation under section 21 if the plaintiff is entitled to it.
Section 23. Liquidation of damages not a bar to specific performance.
23(1).
A contract that is otherwise suitable for specific performance can still be specifically enforced even if it contains a clause naming a sum of money to be paid in case of breach.
This applies even when the defaulting party is willing to pay that named amount.
The court must examine the terms of the contract and the surrounding circumstances.
Specific performance will be granted if the court is satisfied that:
The amount mentioned in the contract was included only to ensure or secure performance,
The purpose of the amount should not to give the defaulting party a choice between performing the contract or simply paying money instead.
So , If the money clause was meant to force performance, and not to replace performance, then:
The court can still order specific performance even if the defaulting party offers to pay the amount.
23(2).
When the court decides to grant specific performance under this section, it must also not order the payment of the sum that was named in the contract for breach.
So , the court must choose only one remedy:
Either specific performance or the payment of the named amount, but not both together.
Section 24. Bar of suit for compensation for breach after dismissal of suit for specific performance.
If a suit for specific performance of a contract (or a part of it) is dismissed, then:
The plaintiff cannot file another suit asking for compensation for the breach of that same contract or that part.
So, the dismissal acts as a bar against filing a fresh suit seeking damages for the breach of that particular contract.
However, the dismissal does not stop the plaintiff from filing a suit for other types of relief that he may be legally entitled to because of the breach.
These may include reliefs that are not compensation, such as restitution, refund, or other legal remedies that arise from the breach.
Section 25. Application of preceding sections to certain awards and testamentary directions to execute settlements.
The rules in this Chapter that deal with contracts will also apply to certain awards.
These are awards to which the Arbitration and Conciliation Act, 1996 does not apply.
If an award falls outside the scope of the 1996 Arbitration Act, the rules of this Chapter will still apply to it.
The rules also apply to directions in a will or codicil that require the execution of a specific settlement.
So if a will or codicil instructs someone to create or execute a particular settlement, then:
The rules of this Chapter regarding contracts will govern how that direction is enforced.
Section 26. When instrument may be rectified.
26(1).
Sometimes a written contract or other written instrument does not reflect the real intention of the parties.
This may happen because of:
Fraud, or mutual mistake made by both parties.
When this happens, the law allows the parties to ask the court to rectify (correct) the written document so that it matches their true intention.
This provision does not apply to the articles of association of a company governed by the Companies Act, 1956.
(a)
Either party, or his representative in interest, may file a separate suit asking the court to rectify the instrument.
(b)
In any suit where a right arising under the written instrument is involved, the plaintiff may ask in his pleadings that the instrument be rectified.
If the plaintiff is already in court about something related to the document, he can add a request to have the document corrected.
(c).
In the same type of suit, the defendant may also ask for rectification of the instrument.
This can be done in addition to any other defence the defendant may raise.
26(2).
When a suit is filed asking the court to rectify a contract or other written instrument, the court will examine whether the document truly reflects what both parties intended.
If the court finds that, because of fraud or mutual mistake, the document does not express the real intention of the parties, then:
The court has the power to rectify (correct) the document.
The court may use its discretion to order that the instrument be corrected so that it matches the true intention of the parties.
However, this rectification can be made only if it does not harm the rights of third parties who:
Acted in good faith.
Had no notice of the mistake or fraud.
Gave value. (Paid money / consideration)
26(3).
A written contract can be rectified first.
This means the court can correct the written document so it accurately reflects what the parties truly intended.
After rectification, the contract may also be specifically enforced, but only if:
The party asking for rectification has asked for specific performance in the plaint.
The court believes it is appropriate to grant specific performance.
26(4).
The court cannot grant rectification of a written instrument unless the party has specifically asked for it in the pleadings.
The request for rectification must be clearly mentioned in the plaint or written statement.
If the party did not include a request for rectification in the pleadings, the court must still give an opportunity to add it later.
The court may allow the party to amend the pleading at any stage of the case.
This amendment will be permitted on terms the court finds fair and just.
Section 27. When rescission may be adjudged or refused.
27(1).
Any person who has an interest in a contract may file a suit asking the court to rescind (cancel) the contract.
The court may order rescission in any of the situations listed below.
(a).
Rescission may be granted where the contract is voidable or terminable by the plaintiff.
This means the plaintiff has a legal right to cancel or end the contract because of reasons like:
Fraud.
Misrepresentation.
Coercion.
Undue influence.
Any situation that makes the contract voidable under the law.
(b).
Rescission may be granted where the contract is unlawful, but the illegality is not obvious from the written document.
The unlawfulness may come from circumstances outside the contract itself.
The court must also find that the defendant is more at fault than the plaintiff.
So , If the contract turns out to be unlawful for hidden reasons, and the defendant is more to blame, the plaintiff can ask the court to cancel it.
27(2).
Even if the plaintiff is otherwise entitled to rescission under 27 (1), the court may still refuse to rescind the contract in any of the situations listed below.
(a).
The court may refuse rescission where the plaintiff has ratified the contract, either expressly (clearly stated) or impliedly (by conduct).
So , If the plaintiff has accepted or approved the contract after knowing the facts, the court will not cancel it.
(b)
The court may refuse rescission where circumstances have changed since the contract was made, and these changes were not caused by the defendant.
If the change is such that the parties cannot be put back into the position they were in when the contract was made, the court may refuse rescission.
So , If things have changed so much that the court cannot restore both sides to their original situation, rescission may be denied.
(c)
The court may refuse rescission where third parties have acquired rights in good faith:
Without notice of any defect or dispute, and finds value
So , If innocent third parties have obtained rights while the contract was still in force, the court will not cancel the contract and disturb their rights.
(d)
The court may refuse rescission where the plaintiff wants to cancel only part of the contract, but that part is not separable from the rest.
So , If the contract is one whole package and cannot be split, the court will not cancel only one part of it.
Explanation
In areas where the Transfer of Property Act, 1882 does not apply, the word contract in this section means a contract in writing.
So , In certain territories, only written contracts can be considered for rescission under this section.
Section 28. Rescission in certain circumstances of contracts for the sale or lease of immovable property, the specific performance of which has been decreed.
28(1).
A court has issued a decree for specific performance of a contract to sell or lease immovable property.
The purchaser or lessee is required to pay the amount ordered by the court.
This amount may include purchase money, rent, or any other sum directed by the court.
The payment must be made within the time period specified in the decree.
The court may also allow an additional period if it finds it appropriate.
If the purchaser or lessee fails to pay within the allowed time, the vendor or lessor can take action.
The vendor or lessor may file an application in the same suit asking the court to rescind (cancel) the contract.
After such an application, the court may order the contract to be rescinded:
Only as against the defaulting party.
Altogether, depending on what the court thinks is fair in the circumstances.
28(2).
When the court rescinds (cancels) the contract under 28(1), certain consequences automatically follow.
(a)
This applies when the purchaser or lessee already has possession of the property under the contract.
The court must order them to return possession to the vendor or lessor.
So if the buyer or tenant has already moved in, the court will require them to give the property back.
(b)
The court can order the purchaser or lessee to pay the vendor/lessor all rents and profits they earned from the property.
This payment covers the period from the date they took possession up to the date they return the property.
The court may also direct that any earnest money or deposit paid by the purchaser or lessee be refunded.
This refund is allowed if the court believes it is fair and just in the circumstances.
28(3).
If the purchaser or lessee pays the required amount (purchase money or any other sum) within the time fixed by the court, they can seek additional reliefs.
To do this, they must file an application in the same suit and no new case is needed.
After this application, the court may grant any further relief that the purchaser or lessee is legally entitled to.
These further reliefs can include, where appropriate, the following:
(a)
The court may order the vendor or lessor to execute a proper conveyance or lease in favour of the purchaser or lessee.
(b)
The court may order the delivery of possession of the property to the purchaser or lessee.
If the property needs to be divided, the court may order partition and separate possession after the conveyance or lease is executed.
28(4).
No separate suit can be filed by a vendor, purchaser, lessor, or lessee to obtain any relief that can be claimed under this section.
So all related reliefs such as:
Rescission.
Refund.
Possession.
Conveyance.
Any other relief connected to the decree
must be requested within the same suit where the decree for specific performance was passed.
28(5).
The costs of any proceedings taken under this section are completely within the discretion of the court.
The court has full freedom to decide:
Who should pay the costs.
How much should be paid.
Whether each party should bear its own costs or one party should pay for both.
Section 29. Alternative prayer for rescission in suit for specific performance.
A plaintiff who files a suit for specific performance of a written contract may also ask for an alternative remedy.
The plaintiff may request that if the court cannot specifically enforce the contract, then:
The contract should be rescinded (cancelled) and delivered up (given back) to be formally cancelled.
So , essentiallly the plaintiff is asking the court:
Either make the contract happen, or if that is not possible, cancel it completely.”
If the court decides not to grant specific performance, it has the power to order that the contract be rescinded and delivered up for cancellation as requested.
Section 30. Court may require parties rescinding to do equity
When the court rescinds (cancels) a contract, it may also require the party who gets this relief to give back any benefit received under the contract.
The party must restore the benefit as far as possible.
This means they must return what they got, or its equivalent, to the other party.
The court may also require that party to pay compensation to the other side, if fairness and justice demand it.
