What are the determinable contracts under Specific relief act of 1963?

The article discusses the meaning of the determinable contract. This article will also talk about the position of the determinable contract under the specific relief act of 1963.
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Introduction

The term determinable refers to anything which can be brought to an end under a given condition. A determinable contract is that which enables the parties to the contract to terminate the contract in different ways. The Specific Relief Act, 1963 provides the remedy for the situation where the contract is terminated by any of the parties. This article discusses the meaning of the determinable contract. This article will also talk about the position of the determinable contracts under specific relief act of 1963.

Meaning of determinable contract

Determinable contracts are the contracts that can be terminated at the will of one of the parties without any conveying any reason. It is also said that the contracts which can be terminated on the occurrence of certain events are also considered as the determinable contracts. The provision for termination of contract gives rise to the determinable contracts. There are several ways of termination of a contract such as termination at the option of the parties, termination upon expiry of the term of the contract, termination on breach of contract, or upon happening of an event. The determinable contract is the contracts that can be terminated by the party on their convenience and upon happening of any event. It means all the contracts which can be terminated without cause are the determinable contracts.

For the breach of contract, the law provides various remedies to the party who suffers the loss. There are certain kinds of remedies like the specific performance of the contract, damages for breach of contract, and an injunction to a party not to commit a breach of contract.

Remedy of specific performance of contract

As the specific performance of the contract is considered. This remedy was not available before the year 2018, the grant of specific performance of the contract was only based on the discretion of the Court. But after the amendment of 2018, the Act has provided that the Court shall enforce the specific performance of the contract. The amended Act in its section 10 provides the enforcement of specific performance of the contract by the Court. But it is subject to the provision of section 11(2), section 14, and section 16. The specific performance of the contract is the primary relief in case of the breach of the contract for a party in a contract. This remedy compels the party to perform the obligations that he has failed to perform inthe first place.

As per section 14 of the Specific Relief Act of 1963, there are certain contracts that are not specifically enforceable. Those type of contracts are as following:[1]

  1. When the substituted performance of the contract has been obtained as per the provision of Section 20 by a party to the contract.
  2. Such types of contracts, the performance of which includes the performance of a continuous duty which the Court cannot supervise.
  3. Such types of contract that are dependent on the personal qualifications of the parties that the Court is not able to enforce specific performance of its material terms.
  4. Such types of contract which is by their nature are a determinable contract.

Indian Judiciary on specific performance of determinable contracts

There are several decisions and judgments pronounced by the Indian judiciary in which the definition of determinable contracts and the specific performance of the determinable contracts are discussed. Let us take a look at these cases.

In the case of Indian Oil Corporation Ltd. Vs. Amritsar Gas Service and Ors.[2], the matter of specific performance of the determinable contract was discussed. In the present case,Indian Oil Corporation Ltd. terminated a distributorship agreement due to the reason that the Amritsar Gas Service was selling unauthorised gas connections. The termination of the agreement was regulated by the two clauses mentioned in  the agreement:

  1. The first clause provided for termination of the agreement on the happening of certain specified events.
  2. The second clause entitled either party to terminate the agreement by delivering 30 daysnoticesto the other party and without assigning any reason for such termination.

Indian Oil Corporation Ltd. terminated the agreement under the second clause. An arbitral tribunal observed that the termination was a breach of contract and held that Indian Oil Corporation Ltd. was liable to restore the distributorship along with the payment of compensation. The Supreme Court held an opinion that the agreement was revocable and therefore determinable in nature under the Act. The Supreme Court also held that once the arbitral tribunal found that the termination for the alleged breach was wrongful.The only remedy which could be granted was the compensation for the 30-day notice period because the agreement was revocable without assigning any reason. The agreement cannot be enforced specifically.[3]

The above observation of the Supreme Court has also been reaffirmed in the case of Her Highness Maharani Shanti Devi P. Gaikwad v. Savijbhai Haribhai Patel[4]. The Supreme Court had a chance to deal with an agreement for the construction of dwelling units on a portion of land. The agreement provided that it shall not be unilaterally revoked by either party after the plaintiff has been provided with the possession of the property. The Courtinterpreted that the contract could be unilaterally terminated before delivery of possession and held that the contract could not be specifically enforced as it was determinable.[5]

The definition of determinable contract has also been discussed by the High Court of Delhi and the Court has increased the ambit of the definition, such decisions and judgment of the Supreme Court are discussed here. In many judgments of Delhi High Court, it is observed that the mere existence of the termination clause can makea determinable contract.

In the case of Rajasthan Breweries Ltd. v. The Stroh Brewery Company[6], the division bench of the Delhi High Courtfound that the agreements, in this case, specified certain events which would entitle each party to terminate. The Court held that the agreements, in this case, were determinable. Thus, it not capable of specific performance. The Court also held that even in the absence of a specific clause authorising either party to terminate the agreement on the happening of specified events, the very nature of the agreement (being a private commercial transaction) made it liable to termination without assigning any reason by serving a reasonable notice. In the event, such termination is held to be wrongful or bad in law, the only remedy available to the aggrieved party is to seek compensation for wrongful termination and not specific performance.[7]

In Spice Digital Ltd. v. Vistaas Digital Media Pvt. Ltd.[8], the contract in question empowered parties to terminate it without assigning any reason,only by giving a 30-day notice and also immediately upon breach by the other party by giving 14 days period to cure the breach. The contract specified for a lock-in period during which the parties were entitled to terminate. A Single Judge of the Bombay High Court observed Amritsar Gas and Rajasthan Breweries to be applicable in the facts of the case and held that the contract could not be specifically enforced as it was determinable. But the Court did not clarify whether it found the contract to be determinable because it could be terminated without assigningreasons, or simply because it could be terminated.[9]

In Turnaround Logistics (P) Ltd. v. Jet Airways (India) Ltd. & Ors.[10], the Delhi High Court held that all revocable and voidable contracts are determinable contracts. The Courtheld that specific performance of such agreements would not be granted because the Court will not go through the idle ceremony of ordering the execution of a deed or instrument, which is revocable and ultimately cannot be enforced. Furthermore, the Courtheld that not only voidable contracts but even contracts which provide for termination on the happening of a specific event would be determinable in nature.[11]

Inthe case of Rattan Lal v. S.N. Bhalla and Anr.[12], the Hon’ble High Court of Delhi observed an agreement to sale with a clause that the same shall be terminated if the requisite approvals are not received within six months, such agreements are determinable. Therefore, they are not specifically enforceable under the Specific Relief Act. However, the Supreme Court in its decision of the appeal against Delhi High Court’s decision, in this case, observed that the relevant clause of the agreement in question was never meant to provide the obligated party with an escape route if they themselves failed to discharge their responsibility. Also, in the absence of any material on record to show that they had made positive efforts for procuring the necessary sale permission and clearance certificates, they were not entitled to determine the agreement, and hence the agreement was held to be wrongly terminated. But due to the steep hike in the real estate prices, the Court instead of passing a decree for specific performance in the suit decreed the suit for compensation to the Appellant.[13]

In Indian Oil Corporation Ltd. & Ors. v. Bhagawan Balasai Enterprises & Ors.[14], a division bench of the Madras High Court agreed with the interpretation done by the Delhi High Court in Turnaround Logistics Case. The Courtobserved that all voidable and revocable contracts are determinable in nature. But, recently in Jumbo World Holdings Ltd. & Ors. v. Embassy Property Developments Private Ltd. & Ors.[15], a Single Judge of the Madras High Court while dealing with a termination clause in a Share Purchase Agreement which provided for termination on the happening of certain specified events or in case of a breach, held that such a clause did not enable either party to terminate the contract on a ‘no-fault’ basis and therefore cannot be said to be ‘inherently unilaterally determinable’ in nature. In Jumbo World Case, it was also held that Section 14 clause (c) of the Act does not make it essential that all contracts that could be terminated are not specifically enforceable. It was observed that if this were the case then no commercial contract would be specifically enforceable. The Court listed five broad categories into which contracts can be placed on the basis of ease of determinability:[16]

  1. Contracts that are unilaterally and inherently revocable or capable of being dissolved such as licenses and partnerships at will.
  2. Contracts that are terminable unilaterally on ‘without a cause’ or ‘no-fault basis’
  3. Contracts that are terminable instantly for the cause or that cease to exist for cause without provision for remedying the breach.
  4. Contracts that are terminable for cause subject to a breach. Notice and opportunity to cure the breach should be provided to the party.
  5. Contracts without a termination clause, which could be terminated for breach of a condition but not a warranty, as per applicable common law principles.

The first and second categories are considered as determinable contract. The third will not be determinable though the relative ease of determinability may be a relevant factor in deciding whether to grant specific performance. The fourth and fifth categories will not be determinable in nature.[17]

In the case of  T.O. Abraham v. Jose Thomas & Ors.[18], the Kerala High Courtexamined the meaning of the Determinable Contract. In a suit for specific performance of an agreement for the sale of equity shares, the Court laid down the following principles:

  1. In order to prove that a contract is a determinable contract. The defendant has to first prove that its clauses and terms are such that it would become possible for either of the parties to terminate it without assigning any reason,
  2. A contract that can be terminated by either of the parties at their own will, without assigning any further reason and without having to explain any cause, such type of contract isfundamentally determinable.[19]

In the case of  Narendra Hirawat & Co. v. Sholay Media Entertainment Pvt. Ltd. & Anr.[20], a Single Judge of the Bombay High Courtheld an opinion similar to that of the Kerala High Court. The Court rejected the contention that agreements which contain a termination clause must be treated as being determinable by their very nature and held that the expression ‘a contract which is in its nature determinable’ in Section 14(d) of the Act means that the contract is determinable at the ‘sweet will’ of a party to it i.e. without reference to the other party, or to any breach committed by the other party or to any eventuality or circumstance. The Courtalso held that determinable contracts indicate a unilateral right in a party to determine the contract without assigning any reason or without having any reason. The Court discovered that the contract before it was evidently not ‘in its nature determinable’ as it was determinable only in the event of the other party committing a breach and was dependent on happening of an event which may or may not happen.

Conclusion

The Indian Courts have provided the definition of the determinable contract in their various judgments. Thus it can be said that a determinable contract is a contract in which a unilateral right to determinate the contract without assigning any reasons is given to a party of the contract. The judgement of the Indian Court indicates that revocable and voidable contracts are also determinable contracts. As per section 14 (d) of the Specific Relief Act 1963, determinable contracts are not specifically enforceable. Therefore no specific performance of the determinable contract can be enforced by the Court. In other words, the remedy of specific performance of the contract in not available for a party in case of the determinable contracts. But a party is entitled to claim damages for the loss incurred by him/her due to the non-fulfilment of the contractual obligation of the other party to the contract. The provision of termination indicates that due deliberation must be provided by the parties for the termination clause of the contract because it can decide the remedy in case of breach of contract.

Also read Member of the Company under the Companies Act


[1] Section 14 of the Specific Relief Act 1963.

[2] (1991)1SCC533

[3]Determinable contracts under the Specific Relief Act, 1963 – Part I, https://corporate.cyrilamarchandblogs.com/2020/06/determinable-contracts-under-the-specific-relief-act-1963-part-i/#_ftn3

[4]AIR 2001 SC1462.

[5] Determinable contracts under the Specific Relief Act, 1963 – Part I.

[6](1991) 1 SCC 533

[7] Determinable Contracts Under the Specific Relief Act, 1963 – Part II, https://corporate.cyrilamarchandblogs.com/2020/06/determinable-contracts-under-the-specific-relief-act-1963-part-ii/

[8](2012) 114 (6) BomLR 3696

[9] Ibid.

[10]Civil suit (OS) 5742006

[11] Ibid.

[12]AIR 2012 SC 3094

[13] India: Determinable Contracts, https://www.mondaq.com/india/contracts-and-commercial-law/408322/determinable-contracts

[14]AIR 2012 SC 3094

[15]2020 SCC Online Mad 61

[16] Determinable Contracts Under the Specific Relief Act, 1963 – Part II

[17] Determinable Contracts Under the Specific Relief Act, 1963 – Part II

[18](2018) 1 KLJ 128

[19]Ibid

[20]2020 BOM 39