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How to deal with a breach of contract in India; and why legal remedies are easier said than done

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How to deal with a breach of contract in India; and why legal remedies are easier said than done


Proving a case of breach, as well as rebutting it, requires one to overcome a plethora of challenges. Nothing is easy.

How to deal with a breach of contract in India; and why legal remedies are easier said than done
Breach of contract is nothing but a failure to live up to the terms of a contract. In essence, a breach may be actual or anticipatory. An actual breach is one in which there is actual non-performance of the contractual obligations. Section 39 of the Indian Contract Act, 1872 has laid out anticipatory as one where a party has refused to perform or disabled himself from performing the contractual obligations, i.e., repudiation.
Straight off the bat, there lie three challenges in front of the parties. First is the challenge for the aggrieved party to prove that there has been a legal breach of contract and for the other party to prove otherwise. Section 39 of the Act states that anticipatory breach does not stand if the aggrieved party has signified acquiescence, i.e., acceptance, of the continuance of such contract even with the repudiation. Hence the second challenge becomes one for the other party, to prove that there had been such acquiescence. The third challenge is one for the aggrieved party. They need to prove that there has been a repudiation. Every deviation or departure from the terms of the contract would not be a repudiation. A repudiation would need an intentional denial to fulfill contractual obligations.
Essentially there are three kinds of remedies upon breach of contract, namely, Damages, Specific Performance and Injunction. The availability of all of these remedies is subjective; however. in the case of anticipatory breach, such remedies are only available once the repudiation has been accepted and treated as an immediate breach of contract. Herein lies quite a challenge for the parties as to the incidence of breach of contract. In cases of continuous breach where there are repeated breaches or acts of repudiation, it becomes quite a challenge to point out the incident from which damages shall be computed.
Section 73 of the Act provides for compensation in terms of damages arising due to a breach of contract. As per this section compensation would be awarded only for the loss in regular course of business or such loss which the parties knew would likely occur because of such breach. Here the challenge lies in proving actual loss or damage suffered as only such loss can be recovered and remote or indirect loss or damages are specifically excluded from the purview of this section. Further, Section 74 of the Act provides for liquidated damages. Where the contract specifically states the sum to be paid in case of a breach, or provides for a stipulation by the way of penalty then the aggrieved party is entitled to reasonable compensation not exceeding the amount or, the penalty, stipulated for in the contract. Further proof of actual loss or damage is not a condition precedent for awarding such compensation.
An uphill task
In case of a fundamental breach of contract, a party is entitled to terminate the contract and to claim damages for the entire contract, i.e. for the part, which was performed, and also for the part of contract, which it was prevented from performing. In Maharashtra State Electricity Distribution Company Ltd. v. Datar Switchgear Ltd. (2018 SCC OnLine SC 20), it was observed by the Supreme Court that an innocent party is entitled to claim damages for the entire contract, wherein the contract is terminated on account of fundamental breach. Herein the challenge lies in proving that there has been a fundamental breach of contract, i.e., a failure to complete an obligation do essential to the contract that the other parties could not complete their responsibilities.
In furtherance and/or in place of damages, a suit for specific performance may also be filed. Based on the principle of equity and enshrined in section 14 of the Specific Relief Act, 1963 (SRA), as amended in 2018, a contract shall be enforced by the contract unless it falls under the situations specified in the section such as substituted performance, continuous duty, etc. However, in Kamal Kumar v. Premlata Joshi and Ors (2019 SCC online SC 12) the Supreme Court held that the issue of readiness and willingness to perform is one of the most important issues for considering the grant of specific performance of the contract and if the plaintiff is neither ready nor willing to perform his part of contract, he is not entitled to claim the relief of specific performance of contract. The judgement also lists out a few other requirements such as validity of contract, availability of alternate relief, etc.
Section 20 of the SRA provides that where the contract is broken due to non-performance of promise by any party, the party who suffers by such breach shall have the option of substituted performance of the contract through a third party, or his own agency, in order to recover, from the party committing such breach, the expenses and other costs actually incurred, spent or suffered by him. This substituted performance, however, does not prevent the aggrieved party from claiming compensation from the party in breach.
The remedy of specific performance is quite challenging for both the sides, specially the defaulting party. They are required to prove that the situation falls under section 14 of the SRA or has been substituted for. The burden is significantly heavy as the onus of proof lies on them. Once the onus has been shifted, the aggrieved party has to rebut remove the same.
The third remedy is that of injunction. As per section 36 of the SRA an injunction is a preventive remedy which may be temporary or perpetual. Temporary injunctions can be obtained at any stage of the trial, as per section 37 of the SRA, and are to be regulated by the Code of Civil Procedure, 1908. In M. Gurudas and Ors. Vs. Rasaranjan and Ors. (AIR 2006 SC 3275), the Supreme Court of India was of the view that while considering an application for injunction, the Court would pass an order thereupon having regard to prima facie, balance of convenience and irreparable injury. The challenge here is to prove a prima facie case which makes it probable that the aggrieved party would suffer an irreparable injury, should the injunction not be granted.
Permanent injunction
Under section 38 of the SRA, a perpetual injunction may be granted to the aggrieved party to prevent the breach of an obligation existing in his favour, whether expressly or by implication. However, as per section 40 of the SRA, the aggrieved party may claim damages in addition to, or in substitution of, such injunction. Getting a permanent injunction is much harder than a temporary one. There are a number of challenges to overcome while pleading for a permanent injunction and most of them lie in section 41 of the SRA which provides for the situations where injunction may not be granted.
As per section 39 of the SRA, if the court finds it necessary, and within its powers, to compel the performance of an act in order to prevent the breach of a contractual obligation, it may do so granting a mandatory injunction to the plaintiff, compelling the defendant to perform the requisite acts.
As it can be seen, there are quite a number of remedies available in case of breach of a contract, but none are a cakewalk. Proving a case of breach, as well as rebutting it, requires one to overcome a plethora of challenges. Nothing is easy.
Kumar Shashwat Singh Sawno is with Singh and Associates.
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