Section 62 of the Indian Contract Act, 1872: Novation, Rescission and Alteration of Contract
Section 62 explains when parties may replace, cancel or alter an existing contract by agreement, with the result that the original contract need not be performed.
Section 62 - Effect of novation, rescission and alteration of contract
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 be performed.
Official text: Indian Contract Act, 1872 - India Code.
Meaning and scope of Section 62
Section 62 is part of the provisions dealing with contracts which need not be performed. It recognizes the freedom of contracting parties to discharge an existing contractual obligation by mutual agreement. The section identifies three forms of consensual change: novation, rescission and alteration.
The essential feature is agreement between the parties. A party cannot ordinarily invoke Section 62 merely by making a unilateral change to the bargain. Where the parties validly substitute a new contract, rescind the existing contract or alter it by agreement, performance of the original contract is no longer required to the extent contemplated by that agreement.
What is novation?
Novation means substitution of a new contract for an existing contract. The new arrangement may change the contractual obligations or, where all necessary persons consent, substitute a party. The statutory illustration in which a creditor accepts a new debtor in place of the original debtor demonstrates this form of novation.
What is rescission under Section 62?
Rescission in Section 62 refers to the parties mutually agreeing to discharge or cancel their existing contract. Once the contract is rescinded by agreement, the original contractual obligations need not be performed, subject to applicable law and any terms governing the consequences of the rescission.
This consensual rescission should be distinguished from judicial rescission under the Specific Relief Act, 1963, which separately provides circumstances in which a court may adjudge rescission of a contract.
What is alteration of a contract?
Alteration means an agreed change to the terms of an existing contract. When the parties agree to alter contractual terms, their rights and obligations are thereafter governed by the contract as validly altered. The requirement of agreement distinguishes an alteration under Section 62 from a unilateral attempt to rewrite the contract.
Illustrations to Section 62
(a) A owes money to B under a contract. A, B and C agree that B will accept C as debtor instead of A. A's old debt to B ends and a new debt from C to B arises.
(b) A owes B 10,000 rupees. A and B agree that A will give B a mortgage of A's estate for 5,000 rupees in place of the debt of 10,000 rupees. The new contract extinguishes the old contract.
(c) A owes B 1,000 rupees and B owes C 1,000 rupees. B directs A to credit C with 1,000 rupees, but C does not assent. B continues to owe C because no new contract has been entered into.
The illustrations emphasize that substitution depends on the necessary agreement of the persons whose contractual rights or liabilities are to be changed.
Related provisions
Section 62 should be read with nearby provisions dealing with discharge and consequences of contracts. Section 63 concerns remission or dispensation of performance by a promisee; Section 64 addresses consequences of rescission of a voidable contract; and Section 65 concerns restoration of advantage received under a void agreement or a contract that becomes void.
Official legal resources
For the current statutory text, amendments and official legislative material, refer to India Code and the Legislative Department, Ministry of Law and Justice.
Disclaimer: This article provides general legal information and is not a substitute for legal advice on the facts of a particular contract or dispute.