Novation - Indian Laws - General

Mr. Sumit Binani, (RP of M/S Ksk Mahanadi Power Company Ltd.) Versus Mr. V. Venkatachalam, RP, M/S Ksk Water Infrastructures Pvt. Ltd. Ors. - 2022 (4) TMI 432 NCLAT, Chennai Bench Para 59. Reference to Section 62 of Indian Contract Act, 1872 Section 62 reads as: Effect of novation, rescission, and alteration of Contract- 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. one of the essential requirements of novation as contemplated under Section 62 is that there should be complete substitution of a new contract in place of the old, it is in that situation that the original contract need not be performed. As per Black s Law Dictionary, Sixth Addition at page 1064 defines novation thus Novation - A type of substituted contract that has the effect of adding a party, either as obligor or obligee, who was not a party to the original duty. Substitution of a new contract, debt or obligation for an existing one, between the same or different parties. The substitution by mutual agreement of one debtor for another are of one creditor for another, whereby the old debt is extinguished. A novation substitutes a new party and discharges one of the original parties to a contract by agreement of all parties. The requisites of a novation are a previous valid obligation, an agreement of all the parties to a new contract, the extinguishment of the old obligation, and the validity of the new one. Blyther vs. Pentagon federal credit union, d.c.mun. App. 182 A.2d 892, 894 . Sasan Power Limited Versus North American Coal Corporation India Private Limited - 2016 (8) TMI 1508 - SUPREME COURT Para 22. In law, novation means - there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties, the consideration mutually being the discharge of the old contract. Lord Selborne L.C. in Scarf v. Jardine (1882) 7 App. Cas. 345, 351. Para 67. In other words, the novation of contract comprises of two elements. First is the discharge of one debt or debtor and the second is the substitution of a new debt or debtor. The novation is not complete unless it results in substitution, recession or extinguishment of the previous contract by the new contract. Mere variation of some terms of a contract does not constitute a novation . (See Pollock Mulla Indian Contract and Specific Relief Acts, 13th Edition, pages 1225-1226).