Introduction
Recently, in Katta Sujatha Reddy v. Siddamsetty Infra Projects (P) Ltd.1, the Supreme Court of India held, inter alia, that the 2018 Amendment to the Specific Relief Act, 1963 (SRA) is prospective and cannot apply to those transactions that took place prior to its coming into force.
The aforesaid judgment assumes significance considering that it will no longer be open for parties to take the benefit of the amended provisions of the SRA (as amended in 2018) if the underlying contract was executed prior to 1-10-2018 i.e. the date on which the provisions of the Specific Relief Amendment Act of 2018 came into force.
Background
The parties executed two agreements dated 26-3-1997 and 27-3-1997 (collectively “the agreements”), under which the respondent (Siddamsetty Infra Projects Private Limited) agreed to purchase from the appellants a non-agricultural land, ad measuring Acs 40.08 gts for a consideration of INR 40,20,000 (said land). Disputes arose between the parties in view of the appellants’ failure to execute and register a sale deed in the respondent’s favour. Aggrieved, the respondent purchaser filed a suit before the Additional District Judge, Ranga Reddy District, L.B. Nagar, Hyderabad (trial court), inter alia, seeking specific performance of the agreements.
By its order, the trial court, inter alia, held that the respondent was not entitled to specific performance of the agreements, since (i) it had suppressed material evidence by falsely claiming to have made payment of a sum of INR 34,80,850 under the agreements; and (ii) it was never ready to pay the balance sale consideration.
Against the aforesaid order, the respondent purchaser preferred an appeal before the High Court. The High Court, inter alia, framed the following issue, which assumes relevance for the purposes of this article.
“6. Whether Section 10 of the Act as substituted by Act 18 of 2018 is prospective or retrospective in nature?”
Section 10 of the amended SRA is reproduced below for ease of reference:
10. Specific performance in respect of contracts. — The specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of Sections 11, 14 and 16.
By its order, the High Court, inter alia, took the view that the amended Section 10 of the SRA would apply retrospectively. It based its view chiefly on the reasoning that specific relief, in essence, is a procedural matter and therefore would apply retrospectively. The High Court also opined that when a provision is replaced by way of substitution, the substituted legislation operates retrospectively and not prospectively.
Subsequently, both the appellants and the respondent preferred the captioned appeals before the Supreme Court, impugning the High Court’s order.
The Supreme Court’s decision
The court observed that the 2018 Amendment created new rights and obligations which did not exist prior to such amendment. It noted that by virtue of the amended/substituted Section 10 of the SRA, the grant of relief of specific performance, which was hitherto subject to a court’s discretion, was made mandatory subject to fulfilment of the requisite ingredients as set out in the SRA. The Supreme Court noted that under the pre-amended SRA, one of the major considerations for grant of specific performance was the adequacy of damages. The court proceeded to note that pursuant to the amendment, the aforesaid consideration has been completely done away with “in order to provide better compensation to the aggrieved party in the form of specific performance”.
Based on the above, the Supreme Court held that the 2018 Amendment of SRA is not merely a procedural enactment; rather it is substantive in nature, and therefore would not have retrospective applicability. It observed that ordinarily, the effect of amendment by substitution would be that the earlier provisions would be repealed, and the amended provisions would be enacted in place of the earlier provisions from the date of inception of that enactment. However, if the substituted provisions contain any substantive provisions which create new rights, obligations, or takes away any vested rights, then such substitution cannot automatically be assumed to have come into force retrospectively. In such cases, the legislature has to expressly provide, as to whether such substitution is to be construed retrospectively or not.
Against this backdrop, the court referred to the notification by which the Central Government had appointed 1-10-2018 as the date on which the amended provisions of the SRA would come into effect. In view of the above, the court concluded that the 2018 amendment of the SRA is prospective in nature, and that the same cannot apply to transactions that took place prior to 1-10-2018.
Comments
As stated earlier, in view of this decision, it will no longer be open for parties to take benefit of the amended provisions of the SRA if their transaction took place prior to 1-10-2018.
This judgment will have very serious repercussions and impact the ability of parties to rely on the beneficial changes introduced in the SRA if their contracts predate the amendment. One wonders if this was truly the intent of the legislature. If not a clarificatory amendment should follow soon. Courts and the legislature will also need to consider that since the amendment in 2018, several civil courts and Arbitral Tribunals have been routinely applying the amended provisions of the SPA to contracts which predate the amendment. What happens to those decisions?
It is unlikely that this issue will rest here but until further legislative or judicial developments on the subject, parties to contracts which predate 1-10-2018 (and their legal counsel) will need to reapprise themselves of the position prevailing prior to 1-10-2018.
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† Partner, Khaitan & Co.
†† Senior Associate, Khaitan & Co.