Specific Performance and Arbitration in Commercial Disputes

Two reforms, both rooted in the same impatience with slow, uncertain commercial litigation, sit at the heart of this chapter. The Specific Relief (Amendment) Act, 2018 recast specific performance from a discretionary equitable indulgence into a near-mandatory entitlement, so that a commercial party which has bargained for a particular performance — a factory delivered, shares transferred, a development carried out — can ordinarily insist on the thing itself rather than settle for damages. The Commercial Courts Act, 2015 in turn channels such high-value disputes into specialised fora and, through Section 10, hard-wires arbitration-related proceedings into the Commercial Division and Commercial Courts. The interaction is constant: a suit for specific performance of a commercial contract may be met with a Section 8 plea that the matter must go to arbitration; an arbitral tribunal may itself be asked to decree specific performance; and the Commercial Courts Act supplies both the forum and the appellate route. This chapter explains how these regimes mesh, where they clash, and what an exam answer must say about arbitrability, determinable contracts, the pecuniary threshold and pre-institution mediation.

Specific performance after the 2018 amendment: rule, not discretion

Before 2018, Section 10 of the Specific Relief Act, 1963 opened with the words that specific performance "may, in the discretion of the court, be enforced". Equity treated the remedy as exceptional, available only where damages were an inadequate compensation. The Specific Relief (Amendment) Act, 2018 (Act 18 of 2018, in force from 1 October 2018) substituted that language so that Section 10 now reads that the specific performance of a contract "shall be enforced" by the court, subject only to the provisions contained in sub-section (2) of Section 11, Section 14 and Section 16. The shift is from discretion to obligation. As the Supreme Court has since observed, the relief of specific performance of a contract is no longer discretionary after the amendment; once the contract falls outside the three carve-outs and the plaintiff proves readiness and willingness, the court is bound to grant it.

For commercial parties this matters enormously. A buyer of a going concern, an assignee of intellectual property, or a transferee of shares in a closely held company bargains for the asset, not for a sum of money that approximates its worth. The amended regime gives such a party a far stronger entitlement to the bargained-for performance. The carve-outs, however, do most of the heavy lifting, and it is in Section 14 that the bridge to arbitration is built. For the structural setting of the Act under which these disputes are heard, see the introduction to the Commercial Courts Act and the broader Commercial Courts Act hub.

Readiness, willingness and substituted performance

Section 16(c), as amended, continues to bar relief to a plaintiff "who fails to prove" that he has performed or has always been ready and willing to perform the essential terms of the contract. The amendment deleted the earlier dual requirement that the plaintiff "aver and prove"; the obligation to specifically plead the readiness-and-willingness mantra is relaxed, but the obligation to prove it remains intact. In Mehboob-ur-Rehman v. Ahsanul Ghani the Supreme Court reaffirmed that proof of continuous readiness and willingness, from the date of the contract to the date of decree, is indispensable — a principle traceable to Gomathinayagam Pillai v. Palaniswami Nadar. The plaintiff need not produce the money in court, as the Privy Council held in Bank of India Ltd. v. Jamsetji A.H. Chinoy; what is required is conduct evidencing a settled willingness to perform.

The 2018 amendment also introduced substituted performance in Section 20: where a contract is broken, the aggrieved party may have the contract performed through a third party or its own agency and recover the costs from the defaulter, after giving 30 days' written notice. The catch is that once a party elects substituted performance, it cannot thereafter sue for specific performance of the same contract. In a commercial setting — construction, supply, software development — substituted performance is often the more practical route, and an arbitral tribunal can award the recovery of substituted-performance costs as a money claim. The pleading discipline carries over to arbitration: a claimant before a tribunal seeking specific performance must establish readiness and willingness exactly as it would before a Commercial Court.

Section 14 and the determinable-contract bar

Section 14 lists contracts that cannot be specifically enforced. The most litigated head is the contract "which is in its nature determinable". The leading authority remains Indian Oil Corporation Ltd. v. Amritsar Gas Service, where a distributorship terminable by either side on 30 days' notice was held to be determinable; once an arbitral tribunal found the termination wrongful, the only competent relief was compensation for the notice period, not restoration of the distributorship. The Court reasoned that a reluctant party cannot be compelled to keep alive a contract it is entitled to end at will. The principle binds both courts and arbitrators: a tribunal cannot decree specific performance of a determinable contract any more than a Commercial Court can.

The practical lesson for commercial drafting is acute. A clause permitting termination without cause, or on short notice, may convert an otherwise enforceable agreement into a determinable one, defeating any future claim — whether in court or before a tribunal — for specific performance. Distribution, franchise, agency and many services contracts routinely founder on this rock. Conversely, agreements creating an interest in property, or where the consideration is so structured that termination is fettered, are more likely to survive. The distinction also feeds into arbitrability: the question is not whether the dispute can go to arbitration, but whether the relief sought is one a tribunal is competent to grant at all.

Development agreements and the special carve-out

Commercial real-estate disputes frequently turn on development agreements, where a builder undertakes to construct on an owner's land in exchange for a share of the built area or proceeds. In Sushil Kumar Agarwal v. Meenakshi Sadhu the Supreme Court analysed whether a developer could obtain specific performance of such an agreement, given the bar in the then Section 14(3)(c) on contracts involving continuous duties the court cannot supervise. The Court held that the answer depends on the structure of the bargain: where the developer acquires an interest in the land or the agreement is coupled with an interest, specific performance may lie; where the developer is merely engaged to construct in return for remuneration, with no interest in the land, the contract is closer to one for personal services and specific performance is harder to obtain.

The case is a useful exam vehicle because it shows the fact-sensitivity of the Section 14 inquiry and its survival, in substance, after the 2018 recasting of Section 14. For commercial purposes the takeaway is that the enforceability of a development agreement — and therefore whether an arbitral tribunal can decree it — depends on careful classification of the parties' rights, not on labels. These disputes will usually qualify as commercial disputes within the statutory definition, since they concern immovable property used in trade or the construction and infrastructure sector.

Arbitrability: the four-fold test in Vidya Drolia

The threshold question whenever an arbitration clause meets a specific-performance claim is whether the subject-matter is arbitrable at all. The foundational decision is Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532, which distinguished rights in rem from rights in personam: disputes about rights exercisable against the world at large — such as enforcement of a mortgage by sale — are non-arbitrable, while disputes about rights enforceable against determinate persons, the typical commercial contract, are arbitrable. The Court there enumerated categories of non-arbitrable disputes, including criminal offences, matrimonial matters, insolvency and probate.

The position was refined in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, where a three-judge Bench laid down a four-fold test for when a dispute is not arbitrable: (i) where the cause of action and subject-matter relate to actions in rem that do not pertain to subordinate rights in personam; (ii) where it affects third-party rights, has erga omnes effect and requires centralised adjudication; (iii) where it relates to the inalienable sovereign and public-interest functions of the State; and (iv) where arbitrability is expressly or impliedly barred by statute. Applying this, the Court held that landlord-tenant disputes governed by the Transfer of Property Act are arbitrable, overruling the contrary view in Himangni Enterprises v. Kamaljeet Singh Ahluwalia. Crucially for this chapter, Vidya Drolia confirmed that there is no prohibition in the Specific Relief Act or the Arbitration and Conciliation Act against referring a contract for specific performance of immovable property to arbitration; such claims assert rights in personam and are arbitrable.

Can an arbitral tribunal decree specific performance?

It follows from Vidya Drolia that an arbitral tribunal can, in principle, grant specific performance of a commercial contract — including a contract concerning immovable property — provided the contract is not determinable and the other Section 14 bars do not apply. The tribunal stands in the shoes of the court for the dispute referred to it and may mould the same reliefs, subject to the limits of the Specific Relief Act. The tribunal must apply Sections 10, 14 and 16 exactly as a Commercial Court would: it must satisfy itself that the contract is enforceable, that none of the carve-outs operates, and that the claimant has proved readiness and willingness.

Two practical limits deserve emphasis. First, a tribunal cannot grant relief that affects strangers to the arbitration agreement, because its mandate is consensual and binds only the parties — a constraint that maps onto the in rem limb of the arbitrability test. Secondly, where the contract is determinable, the tribunal, like the court in Amritsar Gas Service, is confined to compensation. Drafting therefore matters as much as doctrine: a well-advised commercial party that wants the option of specific performance from a tribunal will avoid open-ended termination clauses and will ensure the arbitration clause is broad enough to embrace claims for the performance itself, not merely for damages.

Section 8: referring a specific-performance suit to arbitration

When a party sues for specific performance in a Commercial Court and the contract contains an arbitration clause, the defendant may apply under Section 8 of the Arbitration and Conciliation Act, 1996 to have the matter referred to arbitration. As amended in 2016, Section 8(1) obliges the judicial authority to refer the parties to arbitration "notwithstanding any judgment, decree or order of the Supreme Court or any court", unless it finds that prima facie no valid arbitration agreement exists. The scrutiny is deliberately minimal and pro-arbitration; the detailed inquiry into arbitrability and validity is left to the tribunal under the kompetenz-kompetenz principle in Section 16 of the Arbitration Act.

The application must be filed not later than the date of submitting the first statement on the substance of the dispute, and must be accompanied by the original arbitration agreement or a certified copy. A Commercial Court faced with such an application in a specific-performance suit will ordinarily refer the parties to arbitration, leaving the tribunal to decide both arbitrability and the merits — including whether the contract is determinable. The court retains a narrow gatekeeping role: in Vidya Drolia the Supreme Court held that a court may decline reference only where it is manifest that the claim is non-arbitrable or the agreement is plainly invalid, applying the standard of "when in doubt, refer".

Prima facie review and accord-and-satisfaction defences

The limits of the court's gatekeeping role were tested in Indian Oil Corporation Ltd. v. NCC Ltd. (2023) 2 SCC 539, where the defendant resisted arbitration on the ground that the disputes had been settled by accord and satisfaction and the claims were therefore not arbitrable. The Supreme Court held that, even after the insertion of Section 11(6A), a court considering a reference may undertake a limited prima facie examination of whether the dispute is arbitrable, including whether it is dead or stale by reason of accord and satisfaction. But where that prima facie review is inconclusive — where genuine triable questions exist on whether the discharge was voluntary — the court must refer the matter and leave the tribunal to decide.

The decision is important for commercial practice because settlement-and-discharge defences are routinely raised to defeat specific-performance and damages claims under construction and supply contracts. IOCL v. NCC tells us that such defences will not ordinarily keep a dispute out of arbitration unless the discharge is incontestable on the face of the record. For the claimant seeking specific performance, this means the arbitral tribunal — not the Commercial Court — will usually be the forum that decides whether the contract survives to be enforced.

Section 10: arbitration matters within the Commercial Courts Act

The Commercial Courts Act, 2015 does not displace the Arbitration Act; it allocates the forum. Section 10 provides that where the subject-matter of an arbitration is a commercial dispute of a Specified Value, the related court proceedings under the Arbitration Act are routed to the commercial fora. If the arbitration is an international commercial arbitration, all applications and appeals filed in a High Court go to the Commercial Division (where one has been constituted). For arbitrations other than international commercial arbitrations, applications and appeals filed on the original side of a High Court go to the Commercial Division, while those that would ordinarily lie before a principal civil court of original jurisdiction in a district go to the Commercial Court exercising territorial jurisdiction.

The consequence is that Section 9 interim-measure applications, Section 11 appointment petitions on the original side, Section 34 set-aside petitions and Section 36 enforcement proceedings, all relating to commercial disputes above the threshold, are heard by the specialised commercial fora rather than ordinary civil courts. This is the structural backbone for the constitution of Commercial Courts and Commercial Divisions. The Specified Value test in Section 10 is the same pecuniary gateway examined in detail under specified value: the pecuniary threshold.

Specified Value and how it is computed in arbitration matters

Section 2(1)(i) read with Section 12 fixes the Specified Value — currently three lakh rupees and above following the 2018 amendment to the Act, raised from the original one crore for the purpose of conferring commercial-court jurisdiction in many states. For arbitration matters, what is measured is the value of the subject-matter of the arbitration, not merely the relief in the particular application before the court. In a specific-performance reference, the value is that of the asset or performance in dispute, computed under the Section 12 valuation rules — for immovable property, the market value; for movable property, its market value; for intellectual or intangible rights, the market value as estimated by the plaintiff.

This matters because a Section 9 application for an injunction worth little on its face may nonetheless belong to the Commercial Division if the underlying arbitration concerns a high-value contract. The pecuniary computation therefore looks through the immediate application to the dispute as a whole. Where the value falls below the threshold, the matter stays with the ordinary civil court and the Commercial Courts Act's accelerated procedures and appellate route do not apply. The mechanics are developed further in the chapter on the specified value pecuniary threshold.

Pre-institution mediation, urgent relief and arbitration

Section 12A of the Commercial Courts Act, inserted by the 2018 amendment, makes pre-institution mediation mandatory before a commercial suit "which does not contemplate any urgent interim relief" is instituted. In Patil Automation Private Ltd. v. Rakheja Engineers Private Ltd. (2022) 10 SCC 1 the Supreme Court held that Section 12A is mandatory, that a plaint filed in breach must be rejected under Order VII Rule 11 CPC, and that the bar operates prospectively from 22 August 2022. A commercial suit for specific performance that seeks no urgent interim relief must therefore first traverse pre-institution mediation.

The urgency exception was tightened in Yamini Manohar v. T.K.D. Keerthi (2024) 5 SCC 815, where the Court held that a plaintiff cannot dress up a plaint with a token prayer for interim relief to bypass mediation; the court must examine, with reference to the facts, pleadings and the relief actually sought, whether urgent interim relief is genuinely contemplated. Significantly, Section 12A has no application to arbitration. A party invoking an arbitration clause, or seeking Section 9 interim measures in aid of arbitration, is not obliged to undergo pre-institution mediation, because those are not "suits" within the Act. This is a further reason why an arbitration route can be procedurally swifter for a commercial claimant. The mediation regime is treated fully in the chapter on pre-institution mediation.

Appeals: the Commercial Courts Act and the Arbitration Act

The appellate interface generated early controversy. Section 13(1A) of the Commercial Courts Act confers a wide right of appeal from "judgments" and "orders" of a Commercial Court or Commercial Division, but its proviso confines appeals in arbitration matters to those orders specifically enumerated under Section 37 of the Arbitration Act and Order XLIII CPC. In Kandla Export Corporation v. OCI Corporation (2018) 14 SCC 715 the Supreme Court, per Nariman J., held that no appeal lies under Section 13 of the Commercial Courts Act against an order enforcing a foreign award where Section 50 of the Arbitration Act does not provide one. The reasoning is that the Arbitration Act is a self-contained special code on appeals, and the general appellate provision in the Commercial Courts Act cannot enlarge the limited appeal rights Parliament deliberately created in the arbitration regime.

The practical effect is that the Commercial Courts Act supplies the forum and procedure, but the Arbitration Act controls the substantive question of which arbitration orders are appealable. A litigant cannot use Section 13 to manufacture an appeal that the Arbitration Act withholds. This appellate architecture connects to the wider treatment of the Commercial Appellate Court and Commercial Appellate Division.

Infrastructure contracts: Section 20A and the no-injunction rule

The 2018 amendment added Section 20A to the Specific Relief Act, providing that no injunction shall be granted by any court in a suit relating to a contract for an infrastructure project specified in the Schedule, where granting the injunction would cause an impediment or delay in the progress or completion of the project. The companion provisions — Section 20B (designation of special courts) and Section 20C (disposal within twelve months, extendable by six months) — aim to insulate roads, power, ports and similar projects from being stalled by litigation. The Schedule, which the Central Government may amend by notification, lists the qualifying infrastructure sub-sectors.

The interaction with arbitration is twofold. First, large infrastructure contracts almost invariably contain arbitration clauses, so disputes over performance frequently go to a tribunal rather than to a suit; the Section 20A no-injunction bar nonetheless reflects a policy that courts should not freeze project execution. Secondly, when interim measures are sought under Section 9 of the Arbitration Act in aid of an infrastructure arbitration, the same policy concern informs the exercise of discretion, even though Section 20A in terms addresses suits. For commercial drafters, the message is that specific performance and injunctive relief are structurally constrained in the infrastructure space, pushing parties towards damages, substituted performance and arbitral compensation.

Exam synthesis: how the pieces fit together

For a judiciary or CLAT-PG answer, organise the analysis in steps. First, ask whether the relief sought is specific performance and whether the contract is enforceable under the amended Sections 10, 14 and 16 — in particular, is it determinable (Amritsar Gas Service) or a development/service contract requiring classification (Sushil Kumar Agarwal)? Secondly, ask whether the dispute is arbitrable under the four-fold test in Vidya Drolia, remembering that specific performance of an immovable-property contract is a right in personam and therefore arbitrable, while in rem claims like mortgage enforcement (Booz Allen) are not. Thirdly, if there is an arbitration clause, apply the minimal prima facie scrutiny under Section 8 and IOCL v. NCC, with the tribunal deciding arbitrability and the merits.

Fourthly, locate the forum: a commercial dispute of Specified Value routes arbitration applications to the Commercial Division or Commercial Court under Section 10 of the Commercial Courts Act, and engages the accelerated procedure. Fifthly, address procedure and remedy gateways: pre-institution mediation under Section 12A (Patil Automation, Yamini Manohar) for suits not seeking genuine urgent relief, the appeal limits in Kandla Export, and the infrastructure carve-out in Section 20A. Read together, the 2018 Specific Relief reforms and the Commercial Courts Act push commercial disputes towards the actual performance bargained for, while channelling them into specialised fora and, wherever the parties have so agreed, into arbitration. The well-prepared candidate keeps the doctrinal questions (enforceability, arbitrability) separate from the forum and procedure questions, and shows how each statute answers a distinct part of the problem.