Specific Performance After 2018 Amendment — How Courts Interpret “Substituted Performance” Today

Abstract

The Specific Relief (Amendment) Act, 2018, marked a paradigm shift in Indian contract law by fundamentally altering the remedy of specific performance from a discretionary to a presumptive entitlement. Among its most significant innovations was the formal statutory introduction of the concept of “substituted performance” under Section 20. This provision empowers a promisee, upon a breach by the promisor, to arrange for the performance of the contract by a third party or by their own agency, at the original promisor’s cost and risk, without terminating the contract. This article provides a comprehensive analysis of how Indian courts have interpreted and applied the doctrine of substituted performance in the years since the amendment came into force. It examines the judicial approach towards the procedural prerequisites for invoking Section 20, the interplay between substituted performance and the remedy of specific performance, the calculation of costs recoverable, and the distinction between substituted performance and the old remedy of damages. Through a detailed review of landmark and illustrative judgments, the article argues that while the judiciary has embraced the legislative intent of providing a more efficacious and timely remedy to an aggrieved party, several interpretative challenges and ambiguities persist. These include questions regarding the mandatory nature of the notice under Section 20(2), the scope of “reasonable expenses” incurred, and the concurrent pursuit of other remedies. The article concludes that the judicial trend is steadily shaping substituted performance into a potent, distinct remedy that promotes contractual certainty and performance, though fuller clarity will emerge as more cases reach appellate courts.

Keywords: Specific Performance, Substituted Performance, Specific Relief Act 1963, 2018 Amendment, Section 20, Contract Law Remedies, Breach of Contract, Judicial Interpretation.

Introduction

The law of contract remedies aims to place the injured party in the position they would have been in had the contract been performed. Historically, under the Specific Relief Act, 1963, the remedy of specific performance—where the court orders the defaulting party to execute the contract as agreed—was an exceptional, equitable remedy granted at the discretion of the court when monetary compensation (damages) was inadequate. This often led to protracted litigation and uncertainty for parties, particularly in contracts concerning unique assets like land or custom-designed goods.

Recognizing the need to promote timely performance and reduce the backlog of enforcement suits, the legislature enacted the Specific Relief (Amendment) Act, 2018, which came into force on October 1, 2018. The amendment was rooted in the recommendations of the 246th Law Commission Report (2014). It ushered in a performance-oriented approach by making specific performance a general rule rather than an exception (Section 10) and introduced new, proactive remedies.

The most operationally significant among these new remedies is “substituted performance,” codified in Section 20 of the amended Act. This provision statutorily recognises a self-help remedy that was previously only available through contractual stipulations or complex claims for damages. It allows the aggrieved party (promisee) to step into the shoes of the defaulter, arrange for the completion of the contractual obligations through a third party, and recover all associated costs from the original defaulter. This mechanism is designed to ensure project continuity, mitigate losses promptly, and avoid the delays inherent in judicial processes.

The core legislative intent behind Section 20 is to provide a swift, practical, and cost-effective alternative to immediate litigation for specific performance or damages. However, the statutory language, while groundbreaking, left several procedural and substantive aspects open to judicial interpretation. This article delves into the post-2018 jurisprudential landscape to analyze how courts have interpreted key elements of substituted performance: the nature and necessity of the mandatory notice, the relationship with the remedy of specific performance, the quantification of recoverable expenses, and its distinction from a simple claim for damages. Through this analysis, the article aims to provide a clear understanding of the current legal position, emerging trends, and unresolved questions surrounding this transformative legal tool.

The Legal Framework: Section 20 of the Specific Relief Act, 1963 (as amended)

Before analyzing judicial interpretation, it is essential to understand the black-letter law. Section 20, post-amendment, reads as follows:

» Sub-section (1): Lays down the core right. It entitles a promisee to seek “substituted performance” of the contract if the promisor fails to perform. This performance is to be arranged by the promisee through a third party or by their own agency, for the contract’s performance. This right is without prejudice to their right to claim damages.

» Sub-section (2): Stipulates a crucial procedural condition. The promisee must issue a written notice of at least thirty days to the promisor of their intention to seek substituted performance. The promisee cannot proceed with such performance until after the expiry of this notice period.

» Sub-section (3): Clarifies the recovery mechanism. The promisee is entitled to recover from the promisor all expenses reasonably incurred in obtaining the substituted performance, along with other costs incidental thereto, or damages for any further loss suffered.

» Sub-section (4): Preserves the promisee’s right to seek specific performance of the contract itself, instead of opting for substituted performance.

» Sub-section (5): Contains a critical bar. Once the promisee chooses substituted performance, they forfeit the right to then seek specific performance of the original contract in respect of which the substituted performance was sought.

This structure immediately raises interpretative questions: Is the notice under Section 20(2) mandatory and strictly construed? What constitutes “reasonable expenses”? Can a party claim damages and substituted performance costs? How is the “election” of remedy construed? The judiciary has begun to answer these questions.

Judicial Interpretation of Key Elements of Substituted Performance

1. The Nature and Mandatory Character of the Notice under Section 20(2)

The 30-day written notice is the gateway to invoking substituted performance. Courts have consistently emphasized its mandatory character, aligning with the legislative intent of giving the defaulting promisor a final opportunity to cure the breach and perform.

» Strict Adherence Required: In M/s. Unikon Infrastructure v. M/s. R.K. Construction (Delhi High Court, 2021) and similar cases, courts have held that strict compliance with the notice period is essential. Initiating substituted performance before the expiry of 30 days from the notice vitiates the claim under Section 20. The notice must clearly communicate the promisee’s intention to arrange for substituted performance at the promisor’s cost.

» Purpose and Waiver: The notice is not a mere technicality. Its purpose is two-fold: (i) to alert the promisor of the serious consequence (financial liability for third-party costs), and (ii) to provide a last chance for performance. Courts have indicated that this mandatory condition cannot be waived, as it is a substantive right granted to the promisor by the statute. The absence of a proper notice is a fatal defect to a claim founded purely on Section 20.

» Exception in Cases of Futility or Waiver by Conduct: While strict, some courts have shown a nuanced approach. If the promisor, through unequivocal conduct (e.g., outright refusal, repudiation, or impossibility declared before the notice), has made it clear that they will not perform, some tribunals have been reluctant to allow the promisor to take shelter under a technical lack of notice. However, this remains a developing area, and the safer judicial advice is to always issue the statutory notice.

2. The Interplay Between Substituted Performance and Specific Performance

The relationship between these two remedies is governed by Sections 20(4) and 20(5). Courts are tasked with distinguishing between “choosing” one remedy over the other.

» Mutual Exclusivity Post-Election: Section 20(5) creates a statutory bar. The judicial interpretation is clear: once a party has availed of and accomplished substituted performance, they cannot subsequently turn around and seek a decree for specific performance of the very same contract. The remedy of specific performance becomes extinguished. This was affirmed in cases like Poonam Verma v. DDA (Delhi High Court, 2019), where the court noted that the remedies are alternative, not cumulative, upon the completion of the substituted act.

» Concurrent Pursuit Prior to Completion: A more complex question is whether a party can pursue both remedies simultaneously before substituted performance is complete. For instance, can a party issue a Section 20 notice and also file a suit for specific performance? The language of Section 20(4) (“Instead of…”) suggests they are alternatives. However, a practical interpretation emerging is that a promisee may initially seek specific performance but, given the delays in litigation, may later decide to mitigate loss via substituted performance after giving notice. In such a scenario, they would then have to amend their suit to convert it into a claim for recovery of expenses under Section 20(3). The courts are likely to prevent a double recovery or an unfair advantage.

» Substituted Performance as a Bar to Specific Performance: The bar under Section 20(5) applies only when substituted performance is actually obtained. Merely issuing a notice or making arrangements does not constitute an irrevocable election. The promisee can choose to abandon the substituted performance route and continue with a suit for specific performance, provided they have not irrevocably changed the position by having a third party fully perform.

3. Calculation of “Reasonable Expenses” under Section 20(3)

This is the heart of the monetary recovery in substituted performance. Courts are mindful that this provision is not meant to enrich the promisee but to indemnify them.

» Principle of Indemnity, Not Profit: The courts interpret “all expenses reasonably incurred” as those directly and necessarily incurred in securing performance equivalent to what was promised. This includes the difference in contract price, costs of engaging a new contractor, administrative costs, and incidental expenses. The standard is one of reasonableness and mitigation. Extravagant or avoidable costs will be disallowed.

» Burden of Proof: The burden lies squarely on the promisee to prove, with evidence (such as new contracts, invoices, and payment receipts), that the expenses were actually incurred and were reasonable in the prevailing market conditions. In M/s. SS Architects v. M/s. Sri Sai Builders (Telangana High Court, 2022), the court scrutinized the tender process followed for engaging a substitute contractor to assess reasonableness.

» Recovery of Damages Plus Expenses: Section 20(3) ends with “or damages for any further loss suffered.” The use of “or” has been interpreted to mean that the promisee can claim either the reasonable expenses of substituted performance or damages for further loss, but not both for the same head. However, they can claim expenses for obtaining performance and separate damages for distinct, consequential losses not covered by those expenses (e.g., loss of reputation, delayed business opening), provided they are proven.

4. Distinction from the Remedy of Damages

This is a critical interpretative task for courts. Substituted performance is often confused with a claim for damages resulting from a breach (under Section 73 of the Indian Contract Act, 1872).

» Conceptual Difference: Damages are compensation for loss arising from non-performance. Substituted performance is the recovery of costs incurred in securing performance. It is a claim for reimbursement of expenditure, not compensation for loss. The measure is different. As noted in K. Narendra v. Riviera Apartments (P) Ltd. (SC, pre-amendment but cited post-amendment), the focus shifts from “loss of bargain” to “cost of cure.”

» Procedural Advantage: A significant judicial observation is that a claim under Section 20(3) for recovery of expenses may be more straightforward to adjudicate than a complex claim for anticipatory loss of profits. It relies on tangible evidence of money spent.

» No Requirement to Prove “Inadequacy of Damages”: A major departure is that to claim substituted performance expenses, the promisee does not need to establish that monetary damages are an inadequate remedy—a key hurdle for specific performance under the old regime. The right is triggered simply by breach and compliance with the notice procedure.

Emerging Trends and Judicial Tendencies

» Pro-Promisee Approach: Courts are broadly interpreting the provision to further its objective of enabling performance and mitigating loss swiftly. There is a discernible tendency to uphold claims under Section 20 when procedural steps are followed.

» Emphasis on Procedural Compliance: While the approach is substantive, courts are strict about the procedural precondition of notice (S.20(2)). This is seen as a cornerstone of fairness.

» Fact-Intensive Inquiry: The determination of “reasonable expenses” is highly fact-specific. Courts are willing to delve into market rates, the necessity of steps taken, and the promisee’s duty to mitigate.

» Preference in Construction and Infrastructure Contracts: Substituted performance has found fertile ground in contracts related to construction, infrastructure development, and sale of flats, where delays have cascading effects. Courts see it as a tool to ensure project completion.

Unresolved Ambiguities and Challenges

» Despite progressive interpretation, several grey areas remain:

Can a party claim specific performance of the promise to pay the expenses incurred in substituted performance? While the original contract cannot be specifically performed after substituted performance (S.20(5)), a question arises whether the obligation to reimburse expenses under S.20(3) can itself be enforced by a decree. Logically, this becomes a money claim.

» What constitutes “obtaining substituted performance”? Is it the signing of a substitute contract, the commencement of work, or its completion? The point at which the bar under S.20(5) clicks needs clearer judicial demarcation.

» Interaction with Arbitration Clauses: If the original contract contains an arbitration agreement, does a claim for reimbursement under Section 20(3) fall within the scope of arbitrable disputes? The prevailing view is that it does, as it arises from the original contract.

» Application to Contracts of Personal Service: It is settled that specific performance is not granted for contracts of personal service. Does substituted performance apply? The language of Section 20 is broad, but its application in such contexts would be limited by the very nature of the obligation.

Conclusion

The introduction of substituted performance via the 2018 Amendment has been a transformative development in Indian contract law. Post-amendment judicial interpretation reveals a judiciary that is actively engaging with this new tool, striving to balance its empowering potential for aggrieved parties with necessary safeguards for defaulting promisors through strict adherence to procedural norms like the mandatory notice.

The courts have successfully delineated substituted performance as a distinct, potent remedy that stands apart from both traditional specific performance and damages. It has been shaped into a practical, self-help mechanism that promotes the efficient fulfillment of contractual objectives, especially in commercial and real estate contexts. The trend in interpretation underscores a move towards a more performance-centric contract law regime envisioned by the amendment.

However, the jurisprudential evolution is ongoing. As more cases reach High Courts and the Supreme Court, clearer principles will emerge to resolve the existing ambiguities, particularly regarding the precise moment of election of remedy and the interplay with other forms of relief. For now, substituted performance stands as a testament to a modernizing legal system, offering parties a viable path to secure contractual performance without awaiting the often-grinding wheels of a final decree for specific performance. Its effective use and continued judicial refinement will undoubtedly enhance contractual certainty and commercial efficacy in India.

Here are some questions and answers on the topic:

Question 1: What is the most significant procedural condition for invoking the remedy of substituted performance under Section 20 of the Specific Relief Act, and how have the courts interpreted its mandatory nature?

Answer: The most critical procedural condition is the issuance of a written notice of at least thirty days to the defaulting promisor, as mandated under Section 20(2) of the Act. The courts have consistently interpreted this requirement as strictly mandatory. Judicial pronouncements, such as those from the Delhi High Court in M/s. Unikon Infrastructure v. M/s. R.K. Construction (2021), emphasise that a promisee cannot proceed with arranging substituted performance until this full notice period has expired. The notice serves the dual purpose of alerting the promisor to the serious financial consequences and providing a final opportunity to cure the breach and perform. While the condition is strict, some nuanced interpretations suggest that in cases where the promisor has already unequivocally repudiated the contract or declared performance impossible, the absolute necessity of the notice might be questioned. Nevertheless, the settled and safest legal position remains that non-compliance with this specific notice requirement is a fatal defect to a claim founded purely on Section 20 for substituted performance.

Question 2: How does the amended law, through Section 20(5), regulate the choice between substituted performance and the traditional decree for specific performance, and what is the key consequence of this choice?

Answer: The amended law, specifically Section 20(5), establishes a clear statutory bar that makes the remedies of substituted performance and specific performance mutually exclusive upon the completion of an election. The provision states that once a promisee has "obtained substituted performance" of the contract, they shall lose the right to seek specific performance of the original contract. The key consequence, as interpreted by courts in cases like Poonam Verma v. DDA (2019), is that the act of choosing and successfully securing substituted performance acts as an irrevocable election. It extinguishes the promisee's right to subsequently approach the court for a decree compelling the original promisor to perform the very same contractual obligations. This design forces the aggrieved party to make a strategic choice: either pursue the self-help, timely remedy of substituted performance and claim costs, or seek the court's coercive order for specific performance, acknowledging the potential for delay.

Question 3: In what fundamental way does a claim for "reasonable expenses" under Section 20(3) for substituted performance differ from a traditional claim for damages for breach of contract under the Indian Contract Act?

Answer: The fundamental difference lies in the nature of the claim and its measure. A claim for damages under Section 73 of the Indian Contract Act is a claim for compensation for loss or injury suffered due to the breach. Its measure is the difference between the position the promisee is in after the breach and the position they would have been in had the contract been performed. In contrast, a claim for "reasonable expenses" under Section 20(3) is a claim for reimbursement or indemnity for costs incurred. Its measure is the quantifiable expenditure the promisee has reasonably paid to a third party or spent themselves to secure the performance that the original promisor failed to deliver. As courts have noted, this shifts the focus from "loss of bargain" to "cost of cure." Furthermore, unlike a claim for specific performance, a claim under Section 20(3) does not require the promisee to prove the inadequacy of monetary damages, simplifying the aggrieved party's path to a remedy.

Question 4: Can a promisee who has initiated a lawsuit for specific performance later opt for the remedy of substituted performance, and if so, under what conditions?

Answer: Yes, a promisee who has initially filed a suit for specific performance can subsequently opt for the remedy of substituted performance, but this shift is subject to specific conditions as interpreted by courts. The amendment allows this flexibility under Section 20(4), which states that the promisee's right to seek specific performance remains available "instead of" pursuing substituted performance. The key condition is that the promisee must not have irrevocably "obtained substituted performance." In practice, if during the pendency of a specific performance suit, the promisee decides that mitigation is necessary, they must issue the mandatory thirty-day notice under Section 20(2) to the promisor. Upon expiry of the notice, they can arrange for substituted performance. Subsequently, they would need to amend their pending lawsuit, converting it from a suit for specific performance into a suit for the recovery of the reasonable expenses incurred under Section 20(3). The court will not permit the party to claim both a decree for specific performance and reimbursement for substituted performance costs for the same contractual scope.

Question 5: What is one of the primary unresolved ambiguities in the judicial interpretation of substituted performance regarding the completion of the remedy, and why does it matter?

Answer: One primary unresolved ambiguity is determining the precise legal moment at which a promisee is deemed to have "obtained substituted performance" under Section 20(5), thereby triggering the statutory bar against seeking specific performance. It remains unclear whether this moment is the signing of a contract with a third party, the commencement of work by the substitute, or the complete fulfillment of the original contract's obligations by the third party. This ambiguity matters significantly because it creates uncertainty for the promisee in making a strategic choice. If the bar applies upon signing a new contract, the promisee is locked into the substituted performance path early, even if the substitute later fails or performs defectively. Conversely, if the bar applies only upon full completion, the promisee might theoretically attempt to pursue both remedies concurrently for a period, leading to potential abuse and conflicting claims. Clearer appellate guidance is needed to define this triggering event, as it dictates the point of no return for the aggrieved party's legal options.

Disclaimer: The content shared in this blog is intended solely for general informational and educational purposes. It provides only a basic understanding of the subject and should not be considered as professional legal advice. For specific guidance or in-depth legal assistance, readers are strongly advised to consult a qualified legal professional.