Enforcement of Contracts in India

Author: Mr. Vishnu Anand, Partner & Mr. Naman Dutt, Associate at ZEUS Law

Published in asiancommunitynews.com on 23rd January 2023

In the past few years, India has seen an enormous improvement on the ‘Ease of Doing Business (EoDB)’ rankings provided by the World Bank. Since 2014, India has jumped 79 positions from 142nd (2014) to 63rd (2019) in ‘World Bank’s Ease of Doing Business Ranking 2020’, with major focus of the Indian Legislature and Judiciary on “enforcing contracts”.  In order to have a strong  business vision which elicits confidence for both national and international players, a proper and effective contract enforcement system is a must. An effective contract enforcement system reduces uncertainties and promotes business. Such a system ensures the legal and economic protection of all parties involved, and increases the ease of doing business. The enactment of the Commercial Courts Act, 2015, amendment in the Specific Relief Act, 1963, and various judicial reforms and precedents including the introduction of e-filing of cases, e-payment of court fees, online case management, are some of the initiatives taken by the Government of India to promote business friendly and secure environment.

 Commercial Courts Act, 2015

The enactment of Commercial Courts Act, 2015 (hereinafter referred to as “said Act”) has played a major role in setting up dedicated commercial courts in Delhi, Mumbai, Karnataka, and Kolkata. The dedicated courts include dedicated commercial courts at the District level and in High Courts exercising original jurisdiction. The enactment of the said Act facilitates fast-track adjudication of high value commercial disputes by dedicated courts, and procedural reforms. The suits under the said Act are of “Summary” nature, wherein, the timelines of the proceedings are well defined and are strictly followed. The key feature of the said Act is introduction of the concept of mandatory pre-institution mediation between the parties, which enables the parties to settle any or all of their disputes between themselves with the help of a court-appointed mediator.

The Commercial Courts, Commercial Division & Commercial Appellate Division of High Courts (Amendment) Act, 2018 allows the state governments to establish district level commercial courts which are subordinate to that of a High Court, even in States where the High Court is the court of first instance, thereby, allowing fast track adjudication of the commercial disputes at the district level and decreasing the burden of the Courts. The Amendment Act of 2018 further allows the State Government to reduce the specified value of commercial disputes from Rs.1,00,00,000/- (Rupees One Crore Only) to Rs.3,00,000/- (Rupees Three Lacs Only) which broadens the definition of commercial disputes and allows low value disputes to also be adjudicated in a speedy manner.

 Specific Relief (Amendment) Act, 2018

Guided by the established principles of common law which has viewed damages as a pre-emptive remedy and specific performance as an alternate discretionary remedy under the Specific Relief Act culminated into the 2018 amendment in the Specific Relief Act, 1963. The said 2018 amendment has made a significant change in the guiding principle whereby it seeks to enforce specific performance as a rule and damages as an alternate remedy. This 2018 amendment strengthens confidence in the minds of the national and international players, as in case of any breach of contract, the contracting parties can seek specific performance of the contracts. The 2018 amendment also provides an option to the parties concerned for substituted performance of the contract from a third party by recovering the expenses incurred from the defaulting party, and additionally claim compensation from the defaulting party.

The enactment of the Commercial Courts Act, 2015, Commercial Court Amendment Act, 2018, and Specific Relief (Amendment) Act, 2018 ensures that the Indian Legislative and Judicial system mirrors the international best practices, and creates a secure environment for national and international players at all levels of commercial transactions. These initiatives will attract more international players to invest in India.