Determinability of Contracts under Specific Relief Act, 1963

Section 14 of the Specific Relief Act, 1963 [“the Act”] sets out classes of contracts which are not specifically enforceable under the Act viz.-

1. Where a party to the contract has obtained substituted performance of contract in accordance with the provisions of Section 20;
2. A contract the performance of which involves the performance of a continuous duty which the court cannot supervise;
3. A contract which is so dependent on the personal qualifications of the parties that court cannot enforce specific performance of its material terms; and
4. A contract which is in its nature determinable.

This article is confined to Section 14(d) i.e. a contract which is in its nature determinable and consequently not enforceable under the Act. The Act does not specifically define “determinability” or lays down any test to ascertain the determinability of a Contract which has led to several High Courts laying down their own meaning, interpretation and tests to ascertain the determinability of a contract. The oxford English Dictionary defines “determinable” as “that can be found out or calculated”. In other words, a determinable contract is a contract which by its very terms can be found to be terminable, in which case, no formal termination notice is required to be issued from either party to bring the performance of a contract to an end.

JUDICIAL INTERPRETATIONS OF DETERMINABILITY

The Hon’ble Madras High Court, in A. Murugan and Ors. Vs Rainbow Foundation Ltd. and Ors.¹2019 SCC OnLine Mad 37961 , [“A. Murugan”] succinctly classified contracts in a non-exhaustive five categories on the basis of ease of determinability, viz-

Determinable Contracts

i. Contracts that are unilaterally and inherently revocable or cable of being dissolved such as licenses and partnership at will;

ii. Contracts which are terminable unilaterally on “without cause” or “no fault” basis;

Prima facie not determinable contracts, subject to consideration on ease of determinability

iii. Contracts that are terminable forthwith “for cause” or that cease to subsist “for cause” without  provision of remedying the breach;

Non-determinable Contracts

iv. Contracts that are terminable for cause subject to a breach notice and an opportunity to cure the breach;

v. Contracts without termination clause, which could be terminated for breach of a condition but not a warranty as per applicable law and principles.

The aforementioned categories drawn out by the Madras High Court, although non-exhaustive, in absence of any provision/rule laid down in the Act to ascertain determinable contracts, become guiding principles for ascertaining the determinability of contracts for the purposes of Section 14 of the Act. Additionally, the Delhi High Court in DLF Home Developers Ltd. v. Shipra Estates²2021 SCC OnLine Del 4902 has observed that contracts of agency, partnerships, contracts to provide service, employment contracts, contracts of personal service, contracts where standard of performance are subject, contracts that require a high degree of supervision to enforce and contracts in perpetuity are, subject to exceptions, in their nature determinable as per Section 14(d) of the Act and cannot be specifically enforced.  The rationale behind refusal of specific performance in cases of contracts which are determinable is found in Treitel “The law of Contract”³7th Edition; G.H.Treitel, at page 797 as follows-

“Terminable Contracts

If a party against whom specific performance is sought is entitled to terminate the contract, the order will be refused as the defendant could render it nugatory by exercising his power to terminate. This principle applied where the contract is terminable under its express terms or on account of the conduct of the parties seeking specific performance.”

IMPACT OF 2018 AMENDMENT 

The determinability of contracts also ought to be examined in the backdrop of Specific Relief Amendment Act, 2018 [“the 2018 Amendment”] which has introduced a paradigm shift in law regarding contractual enforcement in India. The 2018 Amendment has made specific performance a general rule rather than an exception in contrast to the pre amended Act which conferred wide discretionary powers upon the courts to grant specific performance and gave primacy to damages as a relief over the decree of specific performance. Resultantly, the courts, in majority of cases, eschewed from granting specific performance as a relief and leaned in favour of awarding damages. Consequently, the pre amended Act provided a window of opportunity to the errant parties, who found it more viable to breach a contract than perform it as the cost of damages may still be less than the cost of performance. However, the 2018 Amendment Act has mandated the decree of specific performance subject to exceptions carved out in Section 14 and Section 16 of the Act and the wordings the aforesaid effect can be found in Section 10 of the Act as follows-

“10. Specific performance in respect of contracts-The specific performance of a contract shall be enforced by the court subject to the provisions contained in subsection (2) of Section 11, Section 14 and Section 16”         (emphasis supplied)    

As a corollary, Section 14(a) of the pre amended Act which made a contract not specifically enforceable if the nonperformance of which could be compensated with adequate money, has been removed by the 2018 Amendment in order to give primacy to the decree of specific performance over damages. Such drastic changes in the Act were also necessary in view of the fact that the World Bank, in its ‘Ease of Doing Business’ 2018 report ranked India at 100 out of 190 countries making India not a desirable destination to execute infrastructure projects. Therefore, with the object of promoting public interest, ‘Ease of doing business’ and providing an effective remedy to the parties, the 2018 Amendment Act was introduced by the Government of India.

DIVERGENT JUDICIAL APPROACHES

Insofar, the law governing the field of determinability of contracts under the Act is concerned, the views of several High Courts are divided and oscillates between extremities. While there is one line of cases which take the extreme view that private commercial contracts are determinable in nature and can be terminated by either party even in absence of a termination clause in the agreement. Per contra, there is a line of cases which inter alia hold the view that contracts providing for termination “for cause” or “on fault” or where there is an element of contingency and eventuality for termination, such contracts are not determinable in nature, and therefore, capable of being specifically enforced under the Act.                                                                                                

Over two decades ago, a division bench of the Delhi High Court in Rajasthan Breweries vs the Stroh Brewery Company⁴AIR 2000 Delhi 450 [“Rajasthan breweries”] held that all private commercial contracts are determinable in nature and the same could be terminated by either party to the contract even in absence of a specific clause in the contract authorizing either party to terminate it. The sum and substance of the said judgment is that a contract could be terminated at the absolute whim of a party to the contract. It is immaterial whether the contract has a specific termination clause or whether the same authorises termination of contract “with or without cause”. While arriving at the conclusion, the Delhi High Court placed reliance upon the judgment in Indian Oil Corporation Ltd. vs Amritsar Gas and Ors⁵(1991) 1 SCC 533 [“Indian Oil”] rendered by the Supreme Court. However, the reliance seems to be misplaced. In Indian Oil, the Supreme Court, was dealing with the terms of the distribution agreement, clause 27 whereof stipulated termination “for cause” or on happening of a particular event. Additionally, clause 28 of the said agreement permitted either party to terminate the contract “without cause” by merely issuing thirty days’ notice. Therefore, the Supreme Court held the agreement to be determinable in nature. However, in Rajasthan Breweries, the agreement provided for termination on happening of certain events i.e. “termination with cause”. It, however, did not stipulate or authorized either party to unilaterally terminate the contract without giving a cause like clause 28 in Indian Oil.

In Beoworld Pvt. Ltd. vs Bang &Olufesn Expansion⁸MANU/DE/1453/2020 the Delhi High Court was dealing with an agreement between the parties, clause 12.2 whereof, entitled the parties to terminate the agreement by issuing a 6 months’ prior notice to the other party notifying the other party the valid reasons as to why it does not wish to renew the agreement.  Additionally, clause 12.4 of the agreement empowered the defendant to terminate the contract if plaintiff’s conduct came within the circumstances set forth therein. Clearly, the termination clauses provided for termination with cause and did not give unbridled right to either party to unilaterally terminate the agreement without assigning any reason. The defendant, in facts and circumstances of the this case, terminated the contract by serving a six month prior notice upon the plaintiff in terms of clause 12.2. The court placed reliance upon Indian oil and Rajasthan Breweries and found the Agreement to be determinable. The Court held that a determinable contract is not only one which can be terminated at will by a party against whom specific performance is sought, without any cause, by furnishing a reasonable notice, but is also one which can be terminated on account of the conduct of the party which is seeking specific performance.

In Times Internet Ltd. vs ALT digital media Entertainment Ltd.⁹2019 SCC OnLine Del 11948  a single judge bench of Delhi High Court was dealing with the an agreement between the parties, clause 11 whereof entitled either party to terminate the contract by issuing 7 days’ notice to the other party in case of any of the eventualities arising as laid down in the clause therein. In essence, the agreement, provided termination “for cause”. The Delhi High Court found itself to be bound by the ratio laid down in Rajasthan Breweries, however, expressed its reservations in following the ratio laid down therein. The Court observed that determinable contracts are those contracts which can be determined at the will of either party i.e. without any reason and consequently specific performance of such contracts is barred. The Court further added that if the courts are to hold that even those agreements which provide for termination for cause, are not specifically enforceable even if the same are terminated without assigning any reason, then it would lead to a situation where no agreement would be specifically enforceable.

The Delhi High Court in Royal Orchids vs Kulbir Singh¹⁰2022 SCC OnLine Del 4902 strictly followed the ratio laid down in Rajasthan Breweries, while considering a MoU which was terminated in the absence of a termination clause entitling parties to terminate the Contract. The Court held that the MoU, which was in the nature of a construction re-development agreement is a commercial transaction between two private parties and hence the same is by its very nature determinable, even if there is not termination clause in the MoU. Thus, the court declined specific performance.

The following position of law emerges from the aforementioned line of judgments, viz.

1. All commercial contracts are determinable in nature.
2. A commercial contract is determinable in nature even in absence of a termination clause in the agreement.
3. A contract is determinable in nature if it provides for termination without assigning any reason, with immediate effect.
4. Even contracts which provide termination “for cause” or on happening of some contingency, are determinable in nature.
5. A determinable contract is also one which can be terminated on the account of the conduct of the party seeking specific performance.

Per contra, there are another line of judgments which hold a contrary view. The Delhi High Court in Tarun Sawhney vs Uma Lal & Ors.¹¹2011 (125) DRJ 527, while dealing with a contract pertaining to an immovable property, clause 17 whereof provided for termination of contract by efflux of time, if the agreement is not implemented within the period envisaged in the Contract. The Court held that a clause of such nature would not make the agreement determinable. Similarly, a division bench of Delhi High Court in Upma Khanna vs Tarun Sawhney & Ors.¹²2012 SCC Online Del 2716  [“Upma Khanna”] while dealing with a similar termination clause, held that contracts providing termination for cause or on fault basis are not determinable contracts. The Delhi High Court, in both the aforesaid judgments did not consider the ratio laid down in Rajasthan Breweries.

A similar view is echoed in Orissa Manganese and Minerals (Pvt.) Ltd. vs. Adhunik Steel Ltd¹³AIR 2005 Ori 113  [“Adhunik Steel”] judgment rendered by Orissa High Court, which was dealing with a termination clause in a agreement which entitled either party to terminate the contract if after issuing 90 days notice to remedy the breach, the same is not cured. The court held that the contract is not determinable as it provides termination for cause viz. only in the event either party fails to remedy the breach, the agreement could be terminated. This decision was carried in appeal before the Supreme Court which did not upset the finding given by the High Court¹⁴(2007) 7 SCC 125 . Rajasthan Breweries was again, not considered by the High Court while forming its conclusion.

The judgment of Kerala High Court in T.O. Abraham vs Jose Thomas and Ors.¹⁵2017 SCC OnLine Ker 19872 [“T.O. Abraham”]  is also a guiding authority and landmark judgment in navigating the realm of determinability of contracts under the Act. In the said judgment, the court was dealing with a termination clause in an agreement which envisaged that if the agreement could not be implemented for reasons attributable to the defendants then the defendants shall refund the advance amount paid by the plaintiff along with 12 % interest. The Court observed that a clause of aforesaid nature does not entitle either party to terminate the contract at their will without assigning any reason, therefore, not determinable. The court further laid down a guiding principle for ascertaining determinability of a contract-

 “For a contract to become determinable, it has to be first shown by the defendant that its clauses and terms are such that it would become possible for either of the parties to determine and terminate it without assigning any reason. The words used in section 14(1)(c) is “inherently determinable”. The effect of the use of the word “inherently” in the section is to make it unambiguously clear that a contract which can be terminated by either of the parties on their own will without any further reason and without having to show any cause, would ones are inherently determinable. However, if an agreement is shown to be determinable at the happening of an event or on the occurrence of a certain exigency, then it is ineluctable that on such event or exigency happening or occurring alone that the contract would stand determined. In order to see if a particular contract is inherently determinable or otherwise, we have to first see whether the parties to the said contract have the right to determine it or to terminate it on their own without the junction of any other party and without assigning any reason. This is akin to a partnership at will, where one of the partners can notify the others of his intention not to continue in the said firm and the partnership itself then dissolves.”

The aforementioned approach adopted by the High Court is also referred to as “clause-oriented approach”. It is pertinent to mention that the aforesaid ratio in T.O. Abraham was challenged by way of SLP before Supreme Court which came to be dismissed¹⁶SLP(C)No.23060of2018, Order dated 31.08.2018. However, the ratio laid down in Rajasthan Breweries line of judgments is again not considered in this judgment. Similarly, Delhi High Court, in Ascots Hotels and Resorts Pvt. Ltd. vs Connought plaza Restaurants Pvt. Ltd.¹⁷2018 SCC Online Del 7940 while dealing with a license agreement, the termination clause whereof stipulated termination upon issuing 90 days notice and failure to remedy breach, the Court observed that the agreement provided termination for cause and does not permit parties to terminate the contract without cause, at their will, therefore, not determinable. Acknowledgement of Rajasthan Breweries line of judgments is again missing here.

Intercontinental Hotels Group vs Shiva Satya Hotels Pvt. Ltd¹⁸MANU/GJ/0705/2013 is one peculiar case wherein even though the Gujrat High Court found the agreement to be not determinable, however, declined to decree specific performance owing to the norms of the pre amended act which gave primacy to damages over specific performance. Similarly, in A. Murugan, (supra) the Madras High Court was dealing with an agreement clause 11 whereof stipulated time is of essence of the contract and in case of default, the vendors are entitled to forfeit the advance amount paid by the purchaser, further making it clear that the agreement was not to subsist beyond 07.07.2006. The court observed that since the clause stipulated termination for cause forthwith and is therefore not determinable. However, in facts and circumstances of the said case, court noted that since time is of essence has been conspicuously made clear in the termination clause, therefore, intention of the parties was clear that the agreement would end on 07.07.2006. The court, therefore, declined specific performance. It is pertinent to mention that the court considered the ratio in Rajasthan Breweries, however, rebutted the same by referring to the ratio laid down in Upma Khanna (supra) rendered by Delhi High Court wherein the court held that the agreements stipulating termination with cause are not determinable.

The ratio in A. Murugan was followed by the Madras High Court in Jumbo World Holding v. Embassy Properties Development Pvt. Ltd.¹⁹2020 SCC Online Mad 61 which similarly provided termination with cause and thus, the court found the agreement not determinable and capable of being specifically performed. In Narendera Hirawat vs Sholay Media Entertainment Pvt. Ltd.²⁰2020 SCC Online Bom 391 [“Narednra Hirawat”] the Bombay High Court was dealing with a license agreement containing a termination clause empowering parties to terminate the same on happening of any contingency. The court placed reliance upon T.O. Abraham (supra) and held that the agreement stipulates termination for cause, therefore, not determinable. The court expounded upon the meaning of determinable contract viz. a contract which provides a unilateral right in a party to a contract to determine the contract without assigning any reason. The said decision was later appealed before the Supreme Court which  affirmed which affirmed the aforementioned ratio.²¹ Civil Appeal Nos. 1867-1866 of 2022; Judgment dated 07.03.2022.

Interestingly, the Delhi High Court, in Global Music Junction Pvt. Ltd.  vs Shatrughan kumar²²2023 SCC Online Del 5479 while considering the import of the 2018 Amendment held that “the judgments in similar lines of Infintiy Optimal Solutions Pvt. Ltd. (IOS) v. Vijender Singh to the extent that they hold that there is a presumption that any commercial transaction can be terminated in the absence of a termination clause by giving a reasonable notice and/or contracts for the non-performance of which  compensation in money was an adequate relief would not be specifically enforced are no longer good law.” Notably, the court, in Infinity Optimal Solutions, relied upon the ratio in Rajasthan Breweries for forming its conclusion. Therefore, in essence, it can be said that the extreme view laid down in Rajasthan Breweries line of judgments is no longer applicable, at least to the agreements executed pursuant to the 2018 Amendment coming into force i.e. 01.10.2018 as the Supreme Court in Katta Sujatha Reddy v. Siddamsetty Infra Projects Pvt. Ltd.²³2022 SCC OnLine SC 1079 has categorically held that the 2018 Amendment to the Specific Relief Act, 1963 is prospective and cannot apply to those transactions that took place prior to it coming into force.

The following position of law emerges from the aforementioned line of judgments, viz.

1. It is wrong to state that commercial contracts are determinable in nature, such contention would render all commercial contracts unenforceable.
2. Contracts providing for termination “for cause” or “on fault” basis are not determinable in nature.
3. For a contract to become determinable, it has to be first shown by the defendant that its clauses and terms are such that it would become possible for either of the parties to determine and terminate it without assigning any reason. (clause oriented approach)
4. The question of determinability ought to be examined by scrutinizing the nature of the agreement. (nature of agreement approach)
5. Post 2018 Amendment, the ratio laid down in Rajasthan Breweries line of judgments is no longer a good law.

Before advancing further, it is pertinent to mention that this article leans towards the view taken by Tarun Sawhney line of judgments which inter alia hold that contracts providing for termination “for cause” or “on fault” basis are not determinable in nature. If a contrary view is taken and the ratio in Rajasthan Brewries line of judgments is upheld and followed, then it would lead to devastating consequences as it would render all commercial contracts unenforceable. Therefore, in the interest of justice, it is imperative that the ratio in Rajasthan Brewries line of judgments is read down and distinguished.

DETERMINABILITY OF CONTRACT SHOULD NOT BE ALLOWED TO BE USED AS A SHIELD

Termination clauses in the nature of “without cause” or “no fault” basis, without assigning any reason, grant an unfettered right to the parties to bring the contract to an abrupt end at their own sweet will. The consequence being, even if the Plaintiff is ready and willing to perform the contract and has made significant investments in furtherance of it, the Defendant can seek cover behind the no fault termination clause and escape performance of contract by pleading determinability. Contracts containing such clauses provide an exit route to the parties to escape their liabilities when the performance of the terms of contract prove to be onerous. It is admitted that Section 14(d) of the Act precludes a contract which is determinable in nature from being specifically enforced. However, the determinability of contract ought not to be ascertained by merely referring to a “no fault” termination clause in the agreement. The determinability of contract ought to be examined by scrutinizing the nature of the agreement i.e. whether the parties intended the contract to be determinable. For example, if a contract provides that the obligations of the parties to the contract would continue to operate from effective date till perpetuity, the same ought to be construed as a contrary indicia to the claim of the Defendant that the contract is determinable or a specific clause in the Agreement empowering parties to terminate the contract without assigning any reason. In the aforesaid backdrop, it is important to analyze fact situation of Golden Tobacco Ltd. vs Golden Tobie Pvt. Ltd, rendered by Delhi High Court-

Golden Tobacco Ltd. vs Golden Tobie Pvt. Ltd.²⁴2021 SCC Online Del 4506

Golden Tobacco Ltd [“GTL”] is owner of exclusive cigarette brands which have acquired significant reputation and goodwill in domestic and international market. On 16.08.2019, GTL and Golden Tobie Pvt. Ltd. [“GTPL”] entered into a Master Long Term Supply Agreement whereby GTL agreed to supply cigarettes under its exclusive brands to GTPL and GTPL agreed to purchase and distribute the same in domestic and international markets. Subsequently, the parties entered into a trademark license agreement dated 12.02.2020 whereby GTL granted exclusive non-transferrable and non-assignable license in respect of the exclusive brands to GTPL. The parties further entered into an Amendment Agreement dated 29.08.2020 whereby GTPL agreed to pay a minimum monthly royalty for an initial period commencing from August 2020 through November 2020 to the GTL. The said Amendment Agreement dated 29.08.2020 envisaged that the parties would again meet in December 2020 to discuss and agree upon a minimum turnover  and payment of royalty.

Relevant clauses of Trademark Agreement dated 12.02.2020

Clause 8.1 – The Agreement in respect of exclusive brands shall continue from effective date till perpetuity.

 

Clause 8.2 – Till one year following the production date, the parties shall not terminate this Agreement.

 

Clause 8.3- Notwithstanding Clause 8.2, Licensor shall have the right to terminate this Agreement by giving thirty (30) days written notice upon the Licensee in the event Licensee commits any default in payment of monthly Royalty in the manner provided in this Agreement and has failed to cure such breach within thirty (30) days after written notice of such default has been provided.

 

Clause 8.4.- Notwithstanding Clause 8.2, either Party shall have the right to terminate this Agreement by giving ninety (90) days written notice upon the other Party committing a material breach of this Agreement (other than breach by the Licensee in respect of payment of Royalty) and has failed to cure such breach within ninety (90) days after written notice of such breach has been provided.

Relevant clause of Amendment Agreement dated 29.08.2020

Clause 5. At any point of time, if the conditions mentioned in TMLA as amended by this Amendment Agreement are not met by the Licensee, the Licensor shall have unrestricted right to terminate the TMLA after a notice period of 3 (three) months by issuance of a termination notice, which will not be contested or disputed by the Licensee.

From the aforementioned clauses of the Agreements it is abundantly clear that the agreement could not be terminated unilaterally without assigning any reason. The termination clauses envisage a cure period and only upon failure to cure the defects within the said period, the parties would be entitled to terminate the contract. Barring the aforesaid termination, as per clause 8.1 of the agreement the parties intended to perform obligations under the said agreement till perpetuity. Additionally, clause 5 of the Amendment Agreement entitled GTL the right to terminate the Agreement by issuing a 3 months’ notice but only in the event if the conditions mentioned in the Trademark License Agreement or the Amendment Agreement are not met by the GTPL.

However, GTL terminated the Trademark License Agreement and the Amendment Agreement vide notice dated 13.02.2021, with immediate effect, on the premise that the GTPL failed to meet in December 2020, in terms of the Amendment Agreement dated 29.08.2020, to discuss and agree upon a minimum turnover and payment of royalty. Being aggrieved, on 14.04.2021, GTPL instituted a suit against GTL for specific performance of the Trademark License Agreement and the Amendment Agreement. However, on an application filed by GTL under Section 8 of the Arbitration and Conciliation Act, 1996, the case was referred to arbitration by the Delhi High Court vide order 04.06.2021. Subsequently, GTL filed a Petition under Section 9 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court inter alia praying that GTPL be restrained from manufacturing, selling and supplying to the market, cigarettes under the exclusive brands owned by GTL.

Case of GTL

1. GTPL violated terms of the Trademark Agreement dated 29.08.2020 by not entering into further discussions regarding payment of royalty, targets of sale, turnover and other terms and conditions applicable from December 2020 onwards. Therefore, GTL terminated the agreements vide issuing notice dated 13.02.2021 with immediate effect.
2. As per clause 5 of the Amendment Agreement dated 29.08.2020, GTL had unrestricted rights to terminate the Agreements and the same could not be disputed or contested by GTPL.
3. Denial of injunction as sought for would amount to specifically enforcing the Trademark License Agreement which is impermissible as the said agreement is determinable in nature.
4. Since the Trademark License Agreement contained provisions for its termination, therefore, it was by its nature determinable and could not be specifically enforced.

Case of GTPL

1. GTPL is ready and willing to perform the contract and has made significant investments to establish capabilities of manufacturing cigarettes on the strength of the Trademark License Agreement which granted GTPL license to use the Exclusive Brands in perpetuity. In the circumstances, irreparable loss would be caused to the GTPL in the event an injunction as sought for was granted.
2. There was no default on the part of GTPL in complying with its obligations under the Trademark License Agreement and the Amendment Agreement.
3. GTPL is ready and willing to pay royalty to GTL in terms of the Agreements.
4. Despite termination of the Agreement, GTPL continued to deposit royalty in the bank account of GTL.

Findings of Court

1. GTL’s contention that GTPL has violated terms of the agreement is unpersuasive.
2. In terms of clause 2 of the Amendment Agreement, GTPL has paid royalty to GTL and in terms of clause 3 of the Amendment Agreement, the minimum sales turn over from August, 2020 was required to be carried forward as the minimum sales turn over to be achieved by GTPL for the next month. Undisputedly, the conditions as set out in Clause 2 and 3 of the Amendment Agreement were duly met.
3. GTL has not placed on record any communication (letter or email) whereby it had invited GTPL for any discussion regarding targets for payment of future royalty after November 2020.

Court Held

1. The court held that the Agreements nowhere grant a unilateral right to either party to terminate the Agreements without assigning any reason. Therefore, the agreement is not determinable. The court relied upon the ratio laid down in O. Abraham, Narendra Hirawat, Tarun Sawhney, intercontinental Hotels, A. Murgan, and Jumbo World (supra) in order to arrive at the aforesaid conclusion.
2. The court also frowned upon the argument that since the trademark license agreement contained provisions for its termination, therefore it was by its very nature determinable and could not be specifically enforced. The court noted that the import of such contention would be that all agreements irrespective of their nature would be determinable, as a party not in default would have the right to terminate the agreement if the other party commits fundamental breach of its obligations.
3. The court further deprecated the contention that commercial contracts are in their nature determinable and noted that if such contention is to be accepted then no commercial contract could be specifically enforced. Therefore, the court took a stark departure from the ratio laid down in Rajastan Brewries, although no reference was made to the said judgment by the court.
4. The court applied “nature of agreement” approach in order to ascertain the determinability of contract viz. the determinability of contract is required to be understood in the context of the nature of that agreement. Notably, clause 8.1 of the Agreement granted rights to the Respondent, GTPL, to use to use exclusive brands of the Petitioner, GTL, in perpetuity. Therefore, the court concluded that a contract of this nature cannot be considered determinable in absence of any agreement entitling the party to terminate the same without cause or default on the part of the other party.
5. Termination notice dated 13.02.2021 issued by the GTL is illegal as it is not in conformity with the terms of the Agreements as GTL has terminated the Agreements with immediate effect contrary to the termination clauses which envisage a 3 month notice period before terminating the contract.
6. In view of above, the Court dismissed the petition filed by GTL.

Analysis/Comments

The above is fitting case which shows gross abuse of the plea of determinability envisaged in Section 14(d) of the Act. GTL terminated the Agreements despite GTPL placing every foot right and obliging with all the terms and conditions of the Agreements and the Delhi High Court has given a categoric finding to that effect. However, GTL terminated the Agreement on an absolute whim, in violation of the terms of the Agreements by terminating the Agreements with immediate effect, solely on the premise that since the Agreements contain provisions for its termination, therefore, the Agreements are determinable in nature and cannot be specifically enforced. The Delhi High Court invoked the nature of agreement approach and scrutinized the intention of the parties by specifically referring to clause 8.1 of the Trademark License Agreement which granted GTPL the right to use the exclusive brands of GTL in perpetuity and concluded that an agreement of such nature cannot be considered as determinable in absence of any clause empowering parties to terminate the contract unilaterally without assigning any reason.

It is interesting to note that had the termination clause in the Agreement granted a unilateral right to the parties to terminate the contract without assigning any reasons, then scales would have tilted in favour of allowing the Petition filed by GTL as in that situation the Court would have been bound by the earlier decisions viz. clause giving unilateral right to parties to terminate the contract without assigning any reason is a determinable contract and not specifically enforceable. The question, however, is, would that have been justified in the facts of the present case? Since Delhi High Court has categorically noted that there was no default committed by GTPL. The Court, although invoked the nature of agreement approach and found the Agreement to be not determinable, however, the court also added a caveat to the said approach, i.e. it is subject to there being no clause in the agreement granting an unfettered right to the parties to terminate the agreement without assigning any reason. If examination of determinability is carried out on the touchstone of whether there is a clause in the agreement empowering parties to terminate the contract without assigning any reasons, then it would defeat the rights of a bonafide Plaintiff who has been diligently working in terms of the agreement and has invested hefty sums of money for performance of contract.

Suggestions

It is imperative for the courts to scrutinize fact situations like these and examine whether the plea of determinability set up by the Defendant is being taken to illegally terminate the contract and defeat the rights of Plaintiff or escape from performing its obligations under the contract. Even if the Agreement contains a termination clause empowering either party to terminate the contract without assigning any reason, the court ought not to cede to that clause and in a mechanical fashion declare the contract to be a determinable one and not specifically enforceable. The court must dissect the contract, adopt a holistic approach and find out whether the parties actually intended to enter into a contract which could be terminated on an absolute whim of a party, leaving the innocent party without any remedy. Like in Golden Tobacco, clause 8.1 of the Agreement showed intention of the parties to continue performance of the Agreement till perpetuity. Clauses of such nature ought to be construed as a contrary indicia to the claim of the Defendant that the contract is determinable or a specific clause in the Agreement empowering parties to terminate the contract without assigning any reason.  The court must not read a clause in isolation, completely divorced from the other terms and conditions of the contract.

Another significant factor which ought to be examined by the Court is that which party is bringing the suit for Specific Performance? In certain contracts only one of the parties has the exclusive power to terminate the contract. In that fact situation if suit for specific performance is filed by the party which does not have the right to terminate the contract, then the other party, having the right to terminate, can determine the contract by terminating it. It is exactly on the basis of this rationality, that the principle that determinable contracts are not enforceable, is grounded upon, which is also found in Treitel “The law of Contract” (supra). However, what if suit for specific performance is filed by the Plaintiff, having the right to terminate the contract against a Defendant who does not have the right to terminate the contract under the terms of the Agreement, can the Defendant in this situation take the plea of determinability by stating since contract is unilaterally terminable, therefore unenforceable, even if the Defendant does not have the exclusive power to terminate the contract? None of the judgments quoted hereinabove, discusses this issue. Only Golden Tobacco (supra) makes a passing reference to this issue in the following terms-

“…There may be agreements where the right to terminate the contract is reserved for a specified party or parties. Plainly, in such cases, the contracts are determinable but only at the instance of the said party and that party cannot be compelled to specifically perform the contract…”

 

CONCLUSION AND FUTURE OUTLOOK

From a conspectus of the aforementioned discussion on the landmark cases it can be fairly discerned that there is no uniform approach to ascertain determinability of a contract. The Courts have laid down two tests to determine the contracts viz. clause-oriented approach and the nature of agreement approach which are non-exhaustive. However, the opinion of courts is divided. While it is most certainly clear that an agreement providing for termination for cause or on happening of certain events is not determinable in nature as the said position has been upheld by the Supreme Court in Adhunik Steel, T.O. Abraham and Narendra Hirawat (supra), however, the extreme ratios in Rajasthan Breweries line of judgments continues to hold the field and is still relied upon by courts while declining specific performance. Notably, the ratio laid down in Rajasthan Breweries has been read down, diluted, distinguished and in some cases sub-silentio. Moreover, the 2018 Amendment has restricted the applicability of the ratio in Rajasthan Brewries in view of the progressive import of the 2018 Amendment leaning towards enforceability of contracts. However, contracts governed by the pre amended act would continue to be bound by the ratio in Rajasthan Breweries line of judgments which would disentitle the Plaintiff to claim specific performance of the contract if nonperformance of the same could be adequately compensated by the award of damages. The 2018 Amendment Act was introduced to promote performance of contracts by the parties and not escape performance by paying damages. However, since the effect of 2018 Amendment Act is only prospective in nature, resultantly a large number of cases would continue to be governed rigorous provisions of the pre amended act which would work against the letter and spirit of the object and purpose of the 2018 Amendment Act. Therefore, in order to maximize the benefits of the 2018 Amendment Act, it is imperative for the legislature to make the Act retrospectively applicable.