On an average day in the life of a growing economy such as India’s, joint venture relationships are forged by the dozen in diverse ways— through multimillion dollar investments in companies by business moguls, by sale or lease of immovable property, and by procurement of goods or services, to name a few.
Illustration: Jayachandran / Mint
A variety of business relationships are created daily by individuals, private corporate entities and public sector corporations through commercial contracts, which not only specify the rights and obligations of the parties to the contract, but also the mechanism for exiting or terminating it.
The exit or termination mechanism is typically contained in the “termination clause” in most commercial contracts. While a termination clause may be drafted in several ways, broadly speaking, termination could occur “without cause” (that is, without assigning any reason) at the option of either party and/or the contract may also provide for the right of a non-defaulting party to terminate the contract on the occurrence of certain specified events. In case of wrongful termination of a contract, the party wronged by such breach can terminate the contract and ask for damages.
However, in many instances, the wronged party takes the position that damages would not suffice; rather, the other party should be compelled under law to keep its side of the bargain —in such cases, a wronged party would seek “specific performance” of the contract, that is, get an order of the court directing the other party to perform its obligations under the contract. While seeking specific performance, a party can also ask the court for interim relief by way of an injunction restraining the other party from committing breach of contract.
Under Indian law, the principles governing the grant of specific performance and injunctions are found under the Specific Relief Act of 1963. According to section 14(1)(d) of the Act, a contract which is in its nature “determinable” cannot be specifically enforced. Further, according to section 41(e) of the Act, an injunction cannot be granted to restrain a party from committing breach of a contract that cannot be specifically enforced.
Therefore, the question for a party claiming wrongful termination of contract and seeking specific performance and/or injunction against termination is whether the contract is “determinable” in nature and hence not specifically enforceable.
The Supreme Court has elaborated on “determinable” contracts in Indian Oil Corporation Ltd v. Amritsar Gas Service and Ors. (1991). In this case, the relevant contract was a distributorship agreement which contained a clause providing for termination on the happening of certain specified events and also contained a clause for terminating the agreement without specifying any reason by giving 30 days’ notice.