In Part I of this post, we discussed the concept of determinable contracts under the Specific Relief Act, 1963 (the “Act”) and analysed two decisions of the Supreme Court in this regard. In this post, we will examine the decisions of various High Courts which caused some confusion as to what would qualify as a determinable contract under the Act.
As far back as 1999, the Delhi High Court found a joint venture agreement which provided for termination by either party in the event that certain government approvals were not obtained by a specified date, to be determinable in nature.[1] Conspicuously, the court did not refer to the decision of the Supreme Court in Indian Oil Corporation Ltd. v. Amritsar Gas Service & Ors.[2]
The most notable result of the lack of clarity in Amritsar Gas (supra) came by way of a decision of the Delhi High Court (Division Bench) in Rajasthan Breweries Ltd. v. The Stroh Brewery Company.[3] The agreements in this case specified certain events which would entitle each party to terminate. Observing that the facts of the case before it were identical to those in Amritsar Gas (supra), the court held that the agreements in this case were determinable and, therefore, not capable of specific performance. The court went so far as to hold that even in the absence of a specific clause enabling either party to terminate the agreement on the happening of specified events, the very nature of the agreement (being a private commercial transaction) made it liable to termination without assigning any reason by serving a reasonable notice. In the event such termination is held to be wrongful or bad in law, the only remedy available to the aggrieved party is to seek compensation for wrongful termination and not specific performance. The decision in Rajasthan Breweries (supra) was applied by the Delhi High Court in subsequent decisions.[4]
In Turnaround Logistics (P) Ltd. v. Jet Airways (India) Ltd. & Ors.,[5] the Delhi High Court held that all revocable deeds and voidable contracts are determinable contracts. It held that specific performance of such agreements would not be granted because the court will not go through the idle ceremony of ordering the execution of a deed or instrument, which is revocable and ultimately cannot be enforced. The court also held that not only voidable contracts, but even contracts which provide for termination on the happening of a particular event would be determinable in nature.
A Single Judge of the Delhi High Court sought to provide clarity on the issue in 2012 in KSL & Industries Ltd. v. National Textiles Corporation Ltd.,[6] by observing that the agreement before the Supreme Court in Amritsar Gas (supra) could be terminated by either party by simply giving a notice and, therefore, the ratio of that judgement could not be extended to cases where the contract could be determined only on the happening of a particular contingency. Given that this is contrary to the decision in Rajasthan Breweries (supra), which was delivered by a larger bench and was prior in time, this decision may be persuasive at best, and that too for other High Courts.
In Indian Oil Corporation Ltd. & Ors. v. Bhagawan Balasai Enterprises & Ors.,[7] a Division Bench of the Madras High Court concurred with the view taken by the Delhi High Court in Turnaround Logistics (supra) and held that all revocable and voidable contracts are determinable in nature. However, recently in Jumbo World Holdings Ltd. & Ors. v. Embassy Property Developments Private Ltd. & Ors.,[8] a Single Judge of the Madras High Court while dealing with a termination clause in a Share Purchase Agreement which provided for termination on the happening of certain specified events or in case of breach, held that such a clause did not enable either party to terminate the contract on a “no-fault” basis and therefore cannot be said to be “inherently unilaterally determinable” in nature. Jumbo World (supra) also held that Section 14(c) of the Act does not mandate that all contracts that could be terminated are not specifically enforceable and observed that if this were the case then no commercial contract would be specifically enforceable. The court listed five broad categories into which contracts can be placed on the basis of ease of determinability viz. (i) contracts that are unilaterally and inherently revocable or capable of being dissolved such as licences and partnerships at will, (ii) contracts that are terminable unilaterally on “without cause” or “no fault basis”, (iii) contracts that are terminable forthwith for cause or that cease to subsist for cause without provision for remedying the breach, (iv) contracts that are terminable for cause subject to a breach notice and opportunity to cure the breach, and (v) contracts without a termination clause, which could be terminated for breach of a condition but not a warranty as per applicable common law principles. The first and second categories were considered as determinable, the third would not be determinable though the relative ease of determinability may be a relevant factor in deciding whether to grant specific performance, and the fourth and fifth categories would not be determinable in nature.
The Kerala High Court assigned a more plausible meaning to the term ‘determinable’ in T.O. Abraham v. Jose Thomas & Ors.[9] In a suit for specific performance of an agreement for sale of equity shares, the court laid down the following principles: (a) for a contract to become determinable, the defendant has to first show that its clauses and terms are such that it would become possible for either of the parties to terminate it without assigning any reason, and (b) a contract which can be terminated by either of the parties at their own will, without assigning any further reason and without having to show any cause, is inherently determinable.
In Spice Digital Ltd. v. Vistaas Digital Media Pvt. Ltd.,[10] the contract in question enabled parties to terminate without assigning any reason by giving a 30-day notice and also immediately upon breach by the other party by giving 14 days’ time to cure the breach. The contract provided for a lock-in period during which the parties were entitled to terminate. A Single Judge of the Bombay High Court found Amritsar Gas (supra) and Rajasthan Breweries (supra) to be applicable in the facts of the case and held that the contract could not be specifically enforced as it was determinable. However, the court did not clarify whether it found the contract to be determinable because it could be terminated without assigning reasons, or simply because it could be terminated.
In any event, Spice Digital (supra) was a case where parties could also terminate without assigning any reason and, therefore, the ratio in that judgement cannot be faulted. Four years later however, in Gujarat Chemical Port Terminal Co. Ltd. v. Indian Oil Corporation of India,[11] the Bombay High Court while dealing with an agreement which permitted both the parties to terminate the agreement on the occurrence of one or more events held that such an agreement was a determinable contract under the Act.
As recently as March 2020, in Narendra Hirawat & Co. v. Sholay Media Entertainment Pvt. Ltd. & Anr.,[12] a Single Judge of the Bombay High Court took a view similar to that of the Kerala High Court. The court rejected the contention that agreements which contain a termination clause must be treated as being determinable by their very nature and held that the expression ‘a contract which is in its nature determinable’ in Section 14(d) of the Act means that the contract is determinable at the ‘sweet will’ of a party to it i.e. without reference to the other party, or to any breach committed by the other party or to any eventuality or circumstance. The court further held that determinable contracts contemplate a unilateral right in a party to determine the contract without assigning any reason or without having any reason. The court found that the contract before it was clearly not “in its nature determinable” as it was determinable only in the event of the other party committing a breach and was dependent on an eventuality which may or may not occur. The court distinguished the judgments in Amritsar Gas (supra), Jindal Steel and Power Ltd. (supra) and Spice Digital (supra) inter alia on the ground that the contracts in these judgments enabled parties to unilaterally terminate without assigning reasons.
The views taken by the Kerala High Court in T.O. Abraham (supra), by the Madras High Court in Jumbo World Holdings (supra) and by the Bombay High Court in Narendra Hirawat (supra) are commercially progressive, and appear to accord sanctity to the language actually used in Section 14(d) of the Act viz. ‘a contract which is in its nature determinable’. A contract which is inherently determinable is clearly different from a contract which can be terminated only upon the happening of a certain event (such as default by a party) which may or may not occur. It is logical to deny specific performance of a contract which is inherently determinable because even if the court were to grant specific performance or an injunction, one or both of the parties will still be entitled to terminate the contract without cause thereafter. A contrary interpretation, such as that of the Delhi High Court in its earlier decisions, would mean that (i) most commercial contracts cannot be specifically enforced because they can be terminated at the option of either party, (ii) and conversely, a contract without a termination clause would not be specifically enforceable, irrespective of whether the same is inherently determinable.
In any event, there is a lack of consistency across courts and across judgments within the same court. The position in Delhi appears to be that a contract with any sort of termination clause will not be specifically enforced and theoretically that any contract which relates to a private commercial transaction will not be specifically enforced. The legal position in Bombay is not as clear given that Gujarat Chemical (supra) found a contract which provided for termination by the parties upon the happening of certain events to be determinable. Gujarat Chemical (supra) is prior in point of time to Narendra Hirawat (supra) and the latter does not even take note of the former. Both judgments were passed by Single Judges and, therefore, Narendra Hirawat (supra) runs the risk of being considered per incuriam though arguably, it lays down a more plausible interpretation of Section 14(d) of the Act. There is a similar lack of clarity in Madras, whilst the position in Kerala appears to be the clearest.
This divergence in views means that a party seeking specific relief in relation to a contract with a termination clause may be granted or denied such relief depending on where the proceedings are filed. Not only does this create a lack of legal certainty but could even lead to forum-shopping. The conflicting positions must be resolved to continue the impetus to ease of doing business in India, which is the hallmark of the 2018 amendments to the Act.
[1] Crompton Greaves Limited v. Hyundai Electronics Industries Co. Ltd. (1999) 48 DRJ 754
[2] (1991) 1 SCC 533
[3] AIR 2000 Del 450
[4] Mic Electronics Limited v. Municipal Corporation of Delhi (2011) 1 ArbLR 418 (DB); Jindal Steel and Power Ltd. v. M/s. SAP India Pvt. Ltd. (2015) 153 DRJ 225; and Inter Ads Exhibition Pvt. Ltd. v. Busworld International Cooperative Vennootschap Met Beperkte Anasprakelijkheid 2020 SCC OnLine Del 351
[5] CS(OS) 574/2006
[6] 2012 SCC OnLine Del 4189
[7] (2018) MLJ 275
[8] 2020 SCC Online Mad 61
[9] (2018) 1 KLJ 128
[10] (2012) 114 (6) BomLR 3696
[11] 2016 SCC OnLine Bom 2605
[12] 2020 SCC Online Bom 391
