Substituted Performance of the Contract

Contracts are the foundation of modern commercial dealings. They ensure that parties know their rights and duties and can expect the other side to act accordingly. However, breaches of contract are not uncommon. Traditionally, Indian law offered two main remedies for breach: compensation (damages) and, in certain situations, specific performance. But as commercial transactions became more complex, these remedies sometimes failed to serve the real needs of the aggrieved party.

The concept of “substituted performance,” especially after the 2018 amendment to the Specific Relief Act, 1963, has emerged as a practical solution. It helps the aggrieved party get the work done through someone else and recover the costs from the defaulting party. This article explains the meaning, legislative framework, procedure, judicial interpretations, and practical implications of substituted performance under Indian law.

Background: The Specific Relief Act, 1963

Traditional Remedies

Before 2018, Indian law primarily provided for:

• Damages (compensation) under the Indian Contract Act, 1872.
• Specific performance under the Specific Relief Act, where a court could direct the defaulting party to carry out their contractual promise.

Specific performance was an equitable remedy, given at the discretion of the court, and only when damages were not an adequate remedy.

The Need for Change

With time, it became clear that:

• Courts were overburdened, and litigation was slow.
• Inflexibility in granting specific performance often delayed justice.
• Businesses required quicker and more efficient solutions.

Substituted performance was introduced to address these gaps and promote a business-friendly environment in India.

What is Substituted Performance?

Substituted performance means that when one party breaches the contract, the other (aggrieved) party may get the contractual work done through a third party or by its own agency, and then recover the costs and expenses from the defaulting party.

This remedy:

• Gives immediate relief to the aggrieved party.
• Reduces dependence on lengthy court processes.
• Encourages the defaulting party to fulfil their obligations within a stipulated notice period.

Legal Basis

Substituted performance is governed by Section 20 of the Specific Relief Act, 1963, as amended in 2018.

Legislative Framework: Section 20 of the Specific Relief Act

Section 20 of the Specific Relief Act, 1963, lays out the process and conditions for substituted performance:

Key Features

1. Right to Substitute: If a party breaches the contract, the aggrieved party can have the contract performed by a third party or by itself.
2. Notice Requirement: The aggrieved party must serve a written notice of at least 30 days to the defaulting party, demanding performance. Only if the defaulting party does not perform within this period can the aggrieved party opt for substituted performance.
3. Recovery of Costs: The aggrieved party can recover actual costs and expenses incurred in getting the contract performed from the defaulting party.
4. No Specific Performance Thereafter: Once the aggrieved party opts for substituted performance, they cannot subsequently seek specific performance of the contract from the defaulting party.
5. Right to Claim Damages: The aggrieved party can still claim compensation for any additional loss caused by the breach, even after substituted performance.
6. Contractual Exclusion: If the original contract expressly excludes substituted performance, the parties must follow their agreement.

Why was Substituted Performance Introduced?

The main objectives were:

• To enhance business efficiency by providing quick and effective remedies.
• To minimise litigation and ensure disputes are resolved without overburdening courts.
• To provide flexibility in enforcement of contracts.
• To promote fairness and discourage default by making the defaulting party bear the cost of completion.

How is Substituted Performance Different from Specific Performance?

Procedural Requirements for Substituted Performance

To avail substituted performance under Section 20, the following steps must be followed:

1. Identifying the Breach: There must be a clear failure by one party to perform its contractual obligations.
2. Issuing Notice: The aggrieved party must serve a written notice to the defaulting party, specifying the breach and requiring performance within 30 days.
3. Waiting Period: The aggrieved party must wait for the notice period to expire. If the defaulting party still does not perform, substituted performance can be arranged.
4. Arranging Performance: The aggrieved party can engage a third party or do the work itself, ensuring it matches the original contract’s standards.
5. Documentation: All expenses incurred must be properly documented, as these will be claimed from the defaulting party.
6. Claim for Recovery: If the defaulting party does not reimburse the expenses, the aggrieved party can file a suit for recovery in the civil court.

Landmark Judgements on Substituted Performance of the Contract

Indian courts have clarified several aspects of substituted performance:

Mukesh Singh and Others v. Saurabh Chaudhary and Another (2019), Allahabad High Court

Specific performance is not an absolute right. The party seeking performance must show readiness and willingness, performance of essential terms, and absence of default on their part.

Sushil Kumar Agarwal v. Meenakshi Sadhu and Others (2019), Supreme Court

Specific performance remains subject to certain judicial considerations like fairness and hardship, even after the 2018 amendment. Courts will also consider the conduct of both parties and the prevailing market conditions.

M. Sakhunthala Manuelraj v. T. Anbalagan Alexander (2023), Madras High Court

Parties can claim substituted performance under Section 20. Proper notice is essential, and the original contract’s terms remain relevant when determining performance and costs.

Substituted Performance and Damages

Substituted performance does not bar a claim for damages. The aggrieved party may claim additional compensation if they have suffered a greater loss than what was spent on substituted performance. For example, if the delay in work causes business losses, the aggrieved party may also claim these losses, subject to proving them.

Substituted Performance and Indian Contract Act, 1872

Section 20 of the Specific Relief Act must be read alongside Section 73 of the Indian Contract Act, which deals with compensation for loss or damage caused by breach of contract. The courts ensure that any recovery of expenses or damages is in line with the principles laid out in the Contract Act.

Conclusion

Substituted performance has brought much-needed flexibility to Indian contract law. It enables quick and cost-effective resolution of disputes and encourages commercial discipline. By making the defaulting party liable for the real costs of non-performance, it reduces frivolous litigation and delays. However, parties must carefully follow the statutory process, especially the requirement of notice, to avail this remedy.