The infrastructure sector is one of the key foundations for the growth of the Indian economy. Time-bound completion of infrastructure projects is crucial for India’s overall progress and development. Unfortunately, there are several issues afflicting the sector, which have led to sluggish growth of the sector and discouraged investment. Coupled with sector-specific issues, another impediment, which has hitherto been affecting the growth of the infrastructure sector, is the ease of doing business and enforceability of contracts.
The ease of doing business index of the World Bank has consistently been providing low ranking to India, but there has been significant improvement in these rankings since 2017. India was one of the 10 economies that improved the most in the areas measured by the World Bank.
India currently ranks 100th out of 190 countries in the ease of doing business index and 164th in the index for enforcing contracts. The government of India has initiated several key reforms that have contributed to this shift in perception, the most recent of which is the Specific Relief (Amendment) Act, 2018 (SR Amendment Act), which seeks to amend the Specific Relief Act, 1963 (SR Act) and simplify the process of enforcement of contracts.
The SR Act provided wide discretionary powers to the court to enforce specific performance of any contract, which was based upon two fundamental principles –
(a) when there existed no standard for ascertaining the actual damage caused by non-performance of the contract; or
(b) when compensation in money was not adequate to remedy the breach of contract. Hence, under the SR Act, monetary compensation (which is governed by the Indian Contract Act, 1872) was the norm and specific performance of contract (under the SR Act) was the exception to the norm.
The SR Amendment Act, was passed by the Rajya Sabha on July 23, 2018 and received the presidential assent on August 1, 2018. It has significantly amended the SR Act and brought about sweeping changes to the law on enforcement of contracts.
It provides for special provisions in relation to contracts relating to infrastructure projects. The schedule to the SR Amendment Act lists out the categories of projects as transport, energy, water and sanitation, communication, and social and commercial infrastructure. The schedule provides for infrastructure sub-sectors within each of these main categories of projects. The SR Amendment Act empowers the central government to amend the schedule relating to any category of projects or infrastructure sub-sectors, depending upon the requirement for development of any project.
The amendments, which have a significant impact on the development of infrastructure projects are as below:
*Courts have been prohibited from granting injunction in suits under the SR Amendment Act involving a contract relating to an infrastructure project, where grant of injunction would cause an impediment or delay in the progress or completion of such infrastructure project (Section 20A);
*Courts are prohibited from granting a perpetual injunction if it would impede or delay the progress or completion of any infrastructure projector interfere with continued provision of a related facility or service (section 41 (ha)); and
nIt requires each state government (in consultation with the chief justice of the high court) to constitute one or more civil courts as special courts to try suits under the SR Amendment Act, in respect of contracts relating to infrastructure projects (section 20B).
The infrastructure sector will most certainly benefit from the amendments introduced by the SR Amendment Act, which is a step in the right direction.
The legislature has provided hope that infrastructure projects will be completed on time, by recognising contracts relating to infrastructure projects as a special class of contracts and prohibiting the courts from granting temporary or permanent injunction in relation to such contracts if such relief would lead to delay.
Providing statutory recognition to the concept of substituted performance at the cost of the defaulting party, is likely to improve performance of project contracts by contractors/ concessionaires, without the interference of arbitrators and courts.
Steps such as empowering the court to appoint experts will enable speedy resolution of disputes, since infrastructure contracts typically involve complex technical and scientific issues, requiring specialised knowledge and expertise in various fields.
Setting up of specialised courts to hear suits involving infrastructure contracts, coupled with time bound resolution within 12-18 months will further ease the bottlenecks affecting the sector and boost investor confidence.
As of now, the amendments can undoubtedly be viewed as a silver lining. The true impact on the infrastructure sector would however depend upon how the SR Amendment Act is implemented.
(The writer is partner at J Sagar Associates, Advocates and Solicitors)