Substituted Performance in Contract Law: An Analysis

Abstract

One of the most prominent clauses in Government contracts in India is the risk purchase or the risk and cost clause. This authorises the promisee to get the promise fulfilled either by itself or through a third person in case of the promisor’s default and allows the promisee to be compensated for the increased costs and effort. Till now, the legal framework of such risk and cost contracting was not clear, leading to difference in decisions in courts and arbitral tribunals on various aspects of risk and cost contracting. Now, the Parliament has attempted to lay down the framework for such risk and cost contracting under the rubric of “substituted performance” by enacting the Specific Relief (Amendment) Act, 2018. This paper analyses the law on the subject and evaluates the provisions in the said Act. It concludes by providing suggestions to contract drafters on how to modify their existing risk and cost contracting clauses and to courts on how best to construe Section 20 to ensure consonance with the salutary objectives behind enactment of the amendments.

Keywords: Contract Law, Indian Contract Act, Specific Performance, Substituted Performance, Contract Remedies, Specific Relief

JEL Classification: K10, K12