The document discusses the Indian Contract Act 1872's provisions on novation and Section 62 regarding discharge of original contracts. It provides explanations and examples of different types of novation: 1) Change in terms of the original contract where the parties remain the same but new altered terms substitute the old contract. 2) Complete substitution of parties where a new party takes responsibility of an obligation in place of the original party, with consent of all parties. It also discusses provisions of Section 63 allowing a promisee to dispense with performance, accept alternate satisfaction, or extend time for performance without consideration. Key requirements and case laws are presented.

2. Novation: INDIAN CONTRACT
ACT, 1872
Section 62
– If the parties to a contract agree to substitute a
new contract for it, or to rescind or alter it, the
original contract need not to be performed.

4. – “ Original Contract need not be performed” clearly indicate that by virtue of the three
circumstances specified in Section 62 , the old original contract is discharged completely and it is
not to be performed.
– This Section requires assent of both the parties in respect of novation, alteration or recession.
– Unilateral novation can take place but only if this is envisaged in original contract or novation
accepted by “sub silentio”.

5. NOVATION IS OF TWO KINDS:

6. CHANGE IN TERMS OF THE CONTRACT:
– The parties to a contract are free to alter the contract which they
had originally entered into. If they do so, their liability as regards
the original agreement is extinguished, and in its place they become
bound by the new altered agreement.
– This becomes a new contract and extinguishes the old. In this
illustration the parties to the contract remain the same but there is
a substitution of a new contract with altered terms in place of the
old one. It may be noted that novation is valid when both the parties
agree to it. As the parties have a freedom to enter into a contract
with any terms of their choice, they are also free to alter the terms
of it by their mutual consent.
Illustration: b) A owes B
10,000 rupees. A enters
into an agreement with
B. and gives B a
mortgage of his (A’s)
estate for 5,000 rupees
in place of the debt of
10,000 rupees. This is a
new contract and
extinguishes the old.

7. LATA CONSTRUCTION v. DR. RAMESHCHANDRA
RAMNIKLAL SHAH A.I.R. 2000 S.C. 380
1. The judgment passed by the Commission, the
entire total due from the appellants has
effectively been paid to the respondents
including interest at the speed of 18% per
annum on the principal proportion of
Rs.9,51,000/ - . That being thusly, we are not
set up to entertain the request of the
appellants that the affirmation passed by the
Commission in see of Rs.1 lakh as
compensation due to the pain and suffering
gone through by the respondents
2. The court finds no merit in the appeal and the
same is accordingly dismissed with no order as
to costs
MADHUSUDAN
INDIRA JOSHI
National Consumer
Dispute Redressal
Commission

8. – One of the essential requirements of “novation”, as
contemplated by S.62, is that there should be complete
substitution of a new contract in place of the old.
– The original contract need not to be performed then.
– Substitution of a new contract in place of old contract
which would have the effect of rescinding or altering the
terms of contract.
– But if the terms of the two contract are inconsistent and
they cannot stand together, then the subsequent contract
cannot be said to be in substitution of the earlier contract.
– Novation can only be done with the agreement of both
parties of a contract.
• IMP CASE LAWS.
• Salima Jabeen v. National
Insurance Co. Ltd., A.I.R.
1999, J&K 110.
• D.D.A. v. Joint Action
Committee, A.I.R.
2008S.C. 1343.
• CITI Bank N.A. v.
Standard Chartered
Bank, (2004) 1 S.C.C. 12.

9. – It is possible that by novation an obligation may be
created for one party in place of another. If under an
existing contract A is bound to perform the contract in
favour of B , the responsibility of A is bound to
perform the contract in favour of B, the responsibility of
A could be taken over by C. Now instead of A being
liable towards B, by novation C becomes liable
towards B.
– It may be noted here that in such cases there should be
consent of all the three persons, viz., the person who
wants to be discharged from the liability, the person
who undertakes to be liable in place of the person
discharged, and the person in whose favour the
performance of the contract is be liable to be made.
Thus, if A and B agree that in place of A, now C will
be liable, but C does not consent to it, there would be
no novation.
illustrations
(a) A owes money to B under a
contract. It is agreed between A, B
and C, that B shall thenceforth
accept C as his debtor, instead of A.
The old debt of A to B is at an end,
and a new debt from C to B has
been contracted.
(c) A owes B 1,000 rupees under a
contract, B owes C 1,000 rupees. B
orders A to credit C with 1,000
rupees in his books, but C does not
assent to the agreement. B still
owes C 1, 000 rupees, and no new
contract has been entered into.

10. There was novation of contract
whereby the original debtor
Gopinatha Menon ceased to be
a debtor and the appellant
undertook the liability as the
principal debtor to pay the
outstanding dues.
Kerala Financial
Corpration
1,26,000
Gopinatha menon

11. • Satish Chandra jain v.
National Small Industries
corporation, A.I.R. 2003,
S.C. 623.
• Ayodhya Prasad v. Phlesra
Bhagwan Das, A.I.R. 2008,
All. 169.
• M.P.S.E.B, v. M/s. Anand
Transformers Pvt. Ltd.,
A.I.R. 2008 (NOC) 1279
(M.P.)

12. Section 63. Promisee may dispense with or
remit performance of promise
Every promisee may dispense with or remit, wholly
or in part, the Performance of the promise made to
him, or may extend the time for such performance,
for may accept instead of it any satisfaction which
he thinks fit.

13. Illustrations
a) A promises to paint a picture for B. B afterwards forbids him to do so.
A is no longer bound to perform the promise.
b) A owes B 5,000 rupees. A pays to B and B accepts, in satisfaction of
the whole debt 2,000 rupees paid at the time and place at which the
5,000 rupees were payable. The whole debt is discharged.
c) A owes B 2,000 rupees, and is also indebted to other creditors. A
makes an arrangement with the creditors including B, to pay them a
composition of eight annas in a rupee upon their respective demands.
Payment to B of 1,000 rupees is a discharge of B’s demand.
d) A owes B, under a contract, a sum of money, the amount of which has
not been ascertained. A, without ascertaining the amount, gives to B,
and B, in satisfaction thereof accepts, the sum of 2,000 rupees. This is
a discharge of the whole debt, whatever may be its amount.
e) A owes B 2,000 rupees, and is also indebted to other creditors. A
makes an arrangement with his creditors including B, to pay them a
14[composition] of eight annas in the rupee upon their respective
demands. Payment to B of 1,000 rupees is a discharge of B's demand.

14. The section permits a party, who is entitled to the
performance of a contract, to
a. Dispense with or remit, either wholly or in part, the
performance of the contract, or
b. accept any other satisfaction instead of performance.
c. Extend the time of performance.

15. i) DISPENSING WITH OR
REMITTING PERFORMANCE
– The promisee has been authorised, by the above stated provision, to remit or
dispense with the performance of the contract without any consideration. He
may fully forgo his claim, or may agree to a smaller amount in full satisfaction of
the whole amount.
– if A promises to paint a picture for B, B may forbid him to do so, or if A owes
Rs. 5,000 to B, B may accept from A only Rs. 2,000 in satisfaction of the
whole of his claim. In such cases A is discharged so far as the performance of
that contract is concerned. It means that if B agrees to accept Rs 2.000 in lieu
of Rs 5,000 from A, he cannot thereafter ask a to pay the balance of Rs. 3,000.

16. Mohammad Usman v. Union of India, A.I.R. 1982, Raj. 100
- Held that the unilateral revocation of the contract
by the railway authorities might be unjustified and
illegal.
- A having accepted the refund of the entire amount
deposited by him with the railway authorities in
respect of the sale price, he must be held to have
acquiscesed in revocation of contract.
- No subsisting right to maintain the present writ
petition.
25% + 75%

17. Lala khapurchand v. Himayatali
Khan, A.I.R. 1963, S.C. 250.
Union of India v. Navilakha, A.I.R.
1997 Bom. 209.
Amar nath v. Bharat Heavy
Electricals, A.I.R. 1972 All. 176

18. ACCEPTING ANY OTHER SATISFACTION
INSTEAD OF PERFORMANCE
– Section 63 permits the promisee to accept any other
satisfaction in lieu of agreed performance, and this would
discharge the promisor. For example, a owes B, under a
contract, a sum of money, the amount of which has not been
ascertained. A without ascertaining the amount gives b, and
B, in satisfaction thereof, accepts, the sum of Rs. 2000. This is
a discharge of the whole debt, whatever may be its amount.
– If the promisee pays less than the amount claimed and the
promisor does not consider it to be in full and final
satisfaction of his claim, the promisee’s liability under the
contract is not discharged, and the promisor is free to sue for
the balance.

19. – In Union of India Vs. Babulal Uttamchand, AIR 1968 Bom.
– Some goods belonging to the plaintiffs were lost during transit due
to the negligence of the railway administration.
– The Plaintiffs’ made various claims and the railway administration
sent cheques along with printed letters mentioning that the said
payments were in full and final satisfaction of the plaintiffs’ claims.
– The plaintiffs, however, informed the railway administration that this
payment was being accepted only as part payment of their claims. In
an action to recover the balance of the amount of claims, the
defendants pleaded that the plaintiffs could not sue for the balance
as the payment already made was in full and final satisfaction of the
claims.
– It was held that the plaintiffs’ suit for the balance of the amount was
maintainable, as the amounts were not accepted in full satisfaction
of the claim.
Important case laws:
1. M/s. AK. Construction
Banda v. U.P. Power
Corpn. Ltd, A.I.R. 2008
All. 117.
2. National Insurance co.
ltd. V. M/s. Boghara
Polyfab Pvt. Ltd., A.I.R.
2009 S.C. 170.

20. EXTENDING THE TIME OF
PERFORMANCE
– Section 63 permits a party to extend the time of performance, and no consideration is needed for
the same.
– The extension of time must be by a mutual understanding between the parties. A promisee
cannot unilaterally extend the time of performance for his own benefit. Thus, if a certain date of
delivery of goods has been fixed in a contract of sale of goods and the seller fails to supply the
goods on such date, the buyer cannot unilaterally extend the time of delivery so as to claim
compensation on the basis of rates prevailing on the extended date.
– He will be entitled to compensate only on the basis of the rates prevailing on the actual date of
performance. If the promisee grants the extension of time be becomes bound thereby.
– Therefore, if the creditor allows some time for making the payment to a debtor, he cannot bring
an action against the debtor to recover the debt, and if such an action is brought it will be
dismissed by the court as being premature.