Power to Award Compensation under the Specific Relief Act

Power to Award Compensation under Specific Relief Act

Author: Prasun Sarkar

Introduction

In England, where the concept of equitable form of relief was applicable, a party to a contract had two remedies available to him in the event the other party defaulted or omitted to hold up his part of the promise. He may either bring an action against him for paying damages for the breach of contract or he may file a suit for specific performance. Lord Cairn’s Act of 1858 permitted the court of equity to award damages in suits for specific performance when such was the more adequate remedy. But it was consistently held that just as its power to give damages as additional relief was to be exercised in a suit in which the court had granted specific performance so the power to give damages as an alternative to give specific performance did not extend to cases in which the plaintiff had debarred himself from claiming that form of relief, nor did it extend to cases in which providing relief was impossible.                                                                               

In India, it was held by the Privy Council in Ardeshir Mama v. Flora Sasson^[1] that the distinction between the two kinds of action has been maintained by the Specific Relief Act in India although both legal and equitable relief may be obtained in one and the same court and that Section 21 of the Specific Relief Act, contemplates a suit of the second kind and the law is same in India as in England with a minor exception.

The law laid down by the Privy Council where there is an alleged breach of contract, the plaintiff may;      

1. Treat the contract as an end and sue for damages. No further performance is required by him. If he sues for damages, the plaintiff will be barred from filing a subsequent suit for specific performance.
2. Treat the contract as a subsiding one and file for specific performance and damages, in addition to or in substitution for specific performance. In such a case, the plaintiff must prove his willingness to perform his part of the contract up to the date of hearing the suit. The Court has the power to award compensation only in those cases where the Court could have granted specific performance but refuses to do so at its discretion. If the plaintiff debars himself by his action to get specific performance, the Court has no power in a suit to grant damages.^[2]

In the latter case, the plaintiff affirms the existence of the contract even at the date of the suit and it will not be open to him in such a case to fall back upon an independent claim for damages on the footing of the breach of the contract. But if the contract becomes impossible to perform, the Courts in India have such power that it does not preclude the court from exercising the jurisdiction conferred by this section.

The right of pre-emption is not in the nature of the right to specific performance of a contract to sell the property and the principle behind Section 21 cannot be applied to suit for pre-emption.^[3]

Where a suit as contemplated under Section 21 is dismissed, a subsequent suit for damages for breach is barred under Section 24. This provision also differs from the English Law, where the dismissal of a bill in equity for specific would bar action at law for damages.^[4]

Damages

The conditions according to which damages may be awarded in addition to specific performance are laid down as follows:

1. The Court decides that specific performance ought to be granted  but
2. The justice of the case requires that not only specific performance but also some compensation for the breach of the contract should be given to the plaintiff.

The circumstances in which the Court may consider specific performance to be insufficient to meet the justice of the case may be stated as follows:

In a suit for specific performance by the purchaser, compensation was awarded by the Court on the ground of inordinate delay on the part of the vendor in completion of the sale the compensation being assessed at the rate of rent the house would fetch.^[5]

The Court cannot award compensation in addition to specific performance unless it is satisfied that the specific performance is not sufficient to satisfy the justify of the case.^[6] Thus, damages are not to be awarded in addition to specific performance on the ground of delay in completing the contract.

Illustrations

In an agreement for the sale of land, the defendant paid Rs. 80 as earnest money and for the balance agreed to execute a hand note. The plaintiff agreed to execute the conveyance as soon as the amount was paid. When the plaintiff filed a suit for specific performance, it was held that the agreement was enforceable as much at the instance of the seller as at the instance of the purchaser and the fact the seller claimed in its plaint damages corresponding to interest on the principal amount due did not make it any less specifically enforceable.  

Damages in addition to specific performance when not claimed in plaint

There was a dispute with regard to whether the Court can award damages in addition to a specific performance where damages have not been specifically claimed in the plaint. The Allahabad and Lahore High Courts held that the failure of the plaintiff to ask for damages in addition to specific performance does not prevent the Court from awarding it in proper cases.                                              

The Madras High Court,^[7] however, held that there cannot be any decree for damages where it has not been specifically claimed for in the plaint. There must be an allegation in the plaint, damages would not be decreed. Plaintiffs may, however, ask leave of court to amend at any stage of the proceeding to include a claim for damages. The subsection also makes it clear that the amendment may be allowed by the Court at any stage irrespective of the question whether a claim for damages for breach of contract was barred at the date of amendment.^[8]                                              

 If there is no claim of damages during the pendency of the suit subsequent claim of damages would be barred.^[9]

The use of the word “shall” in subsection 4 indicates that it is obligatory on the court to allow an amendment to include a claim for compensation in addition to or in substitution for the claim for specific performance. The only discretion left to the court is as regards the terms on which the plaintiff will be allowed to amend.

The amendment cannot be allowed where the claim for specific performance would fail on the ground that the plaintiff has abandoned the contract or disabled him from performing the contract. The foundation of the suit lies on the basis that the contract subsists and the plaintiff is willing to perform his end of the promises. Hence suit for damages cannot be filed when there has been a breach of contract and the plaintiff has put an end to the contract.

Damages in Substitution

The court has the power to award damages in lieu of specific performance. The conditions for the same include:

1. The Court is of the view that specific performance could be granted but considering the facts and circumstances, it would be more appropriate to award damages.

Illustration

A defendant by a letter offered to take a lease of premises for a period of five years at a monthly rate of Rs.150. Plaintiff accepted this offer verbally and upon the basis of this agreement, the defendant was put into possession, upon the latter’s agreement, the defendant was put into possession, upon the latter’s agreeing to execute a formally registered deed of lease afterward. Subsequently, the defendant refused to execute the deed. In this case, a suit for specific performance was maintainable but the Court ordered an alternative relief for compensation.

2. Though specific performance is refused, the plaintiff is entitled to compensation for breach of contract.

It has been held that the right to damages, where the defendant is guilty of a breach, also arises from Section 73 of the Contract Act, and in such a case, if specific performance cannot be decreed for some reason then the plaintiff is entitled to compensation for the loss he suffered.[10] Wherein a contract of sale of immovable property, the sale is dependent on the permission of a third party that is not a party to the contract and if such permission is refused by the third party, specific performance cannot be granted and damages is the only thing that can be awarded.[11] The plaintiff can claim damages where the defendant refuses to take any action to satisfy the conditions imposed by law upon him before the fulfillment of the contract. Damages can only be awarded maintaining the privity of contract.

Standard of Compensation

Before compensation in lieu of specific performance can be granted, the plaintiff must prove not only that the contract has been broken but also that he has also suffered loss or damage. The principle to be followed is same as that in Section 73 of the contract act,^[12] “When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, 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 of it. Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach”

Illustration

Taking into consideration the contract for the sale of land, for default of the purchaser, the vendor is entitled to recover the difference between the price at which it was contracted for and the price at which he could have sold the property at the time of the breach. However, no compensation will be awarded to the vendor if he sells the property to some other party at the same contracted price. In case there is the default on the part of the vendor, the purchaser is entitled to damages for the loss of his bargain which ordinarily be the profit between the date of the breach of contract and date of conveyance.

Where a contract specifies a sum of money as the damages payable on the breach, the Court is nevertheless obliged to determine the real damage but the Court can award damages exceeding the amount specified in the contract. On the other hand, where the plaintiff has been compensated by some other means, the Court will use its discretion and refuse further damages under this section.^[13]

Illustration

Where on the breach of a contract by the vendor, the purchaser is compensated more than he was actually entitled to by a subsequent purchaser, the Court may rightly refuse to award the purchaser any further compensation under Section 21, even when the contract provided for the return of earnest money with damages on the breach.

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[1] 32 C.W.N. 953: 55 I.A. 360: A.I.R. 1928 P.C. 208.

[2] Ardeshir Mama v. Flora Sasson; 32 C.W.N. 953: 55 I.A. 360: A.I.R. 1928 P.C. 208.

[3] Mahabir v. Chanda; A1979  A. 167.

[4] Callianji v. Narsi; 19 Bom. 764, 770.

[5] Sashibhusan v. Rai Chand, A.I.R 1950 (1950) Cal. 333.

[6] Somasundaram v. Chidambaram; A.I.R 1951 Mad. 282 : (1950) 2 M.L.J. 509.

[7] A.P. Pratinidhi Sabha v. Lahori Mal, (1924) 5 Lah. 509.

[8] Ramkrishnaya v. Sreesamulu, A.I.R 1939 Mad. 547 (550).

[9] Kumaraswamy v. Rudraradhaya, A.I.R 1976  Mys. 215.

[10] Sheo Kumar v. Gyan Nath; A.I.R. 1955 All. 408 (412).

[11] Golab Roy v. Muralidhar Modi; A.I.R 1964 Or. 176.

[12] Mazaharal v. Azimaddin, A.I.R. 1923 Cal. 707.

[13] Partap Chand v. Raghunath, A.I.R. 1937 Nag. 243.