Navigating Novation: Distinguishing Novation, Alteration, and Modification in Indian Contract Law

 Introduction

Contemporary legal disputes frequently draw upon contractual principles such as novation, alteration, and modification. Understanding these nuanced doctrines is critical for judges, advocates, and legal scholars engaged in the interpretation and enforcement of contracts under Indian law. This article unpacks the meaning, key differences, and situational applications of novation, alteration, and modification, drawing upon statutory provisions, judicial precedent, and practical illustrations relevant to today's legal ecosystem.

Novation of Contracts: Meaning and Statutory Basis

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Whether Arbitrator can foist unilateral addition or alteration of a contract upon an unwilling party?

However, when it comes to the public policy of India argument
based upon “most basic notions of justice”, it is clear that this ground
can be attracted only in very exceptional circumstances when the
conscience of the Court is shocked by infraction of fundamental
notions or principles of justice. It can be seen that the formula that was
applied by the agreement continued to be applied till February, 2013 –
87
in short, it is not correct to say that the formula under the agreement
could not be applied in view of the Ministry’s change in the base
indices from 1993-94 to 2004-05. Further, in order to apply a linking
factor, a Circular, unilaterally issued by one party, cannot possibly bind
the other party to the agreement without that other party’s consent.
Indeed, the Circular itself expressly stipulates that it cannot apply
unless the contractors furnish an undertaking/affidavit that the price
adjustment under the Circular is acceptable to them. We have seen
how the appellant gave such undertaking only conditionally and
without prejudice to its argument that the Circular does not and cannot
apply. This being the case, it is clear that the majority award has
created a new contract for the parties by applying the said unilateral
Circular and by substituting a workable formula under the agreement
by another formula de hors the agreement. This being the case, a
fundamental principle of justice has been breached, namely, that a
unilateral addition or alteration of a contract can never be foisted upon
an unwilling party, nor can a party to the agreement be liable to
perform a bargain not entered into with the other party. Clearly, such a
course of conduct would be contrary to fundamental principles of
justice as followed in this country, and shocks the conscience of this
Court. However, we repeat that this ground is available only in very

exceptional circumstances, such as the fact situation in the present
case. Under no circumstance can any Court interfere with an arbitral
award on the ground that justice has not been done in the opinion of
the Court. That would be an entry into the merits of the dispute which,
as we have seen, is contrary to the ethos of Section 34 of the 1996
Act, as has been noted earlier in this judgment.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4779 OF 2019

Ssangyong Engineering & Construction Co. Ltd.Vs  National Highways Authority of India (NHAI) 

R.F. NARIMAN, J.
Dated:May 08, 2019.

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What is basic concept of alteration of contract as mentioned in S 62 of contract Act?

Section 62. 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.
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, or may accept instead of it any
satisfaction which he thinks fit.”
14. Under Section 62, apart from novation of a contract and
rescission of a contract, alteration of a contract is mentioned.
Alteration is understood here, in the facts of the present case, in the
sense of amendment. It is settled law that an amendment to a
contract being in the nature of a modification of the terms of the
contract must be read in and become a part of the original contract in
order to amount to an alteration under Section 62 of the Indian
Contract Act. This is clear from Juggilal Kamlapat v. N.V.

Internationale Crediet-En-Handels Vereeninging ‘Rotterdam’, AIR
1955 Cal 65 in paragraph 15 of which it is stated:-
“The effect of the alterations or modifications is that there
is a new arrangement; in the language of Viscount
Haldane in Morris v. Baron & Co. (1) (1918 Appeal Cases,
1 at 17), “a new contract containing as an entirety the old
terms together with and as modified by the new terms
incorporated.” The modifications are read into and
become part and parcel of the original contract. The
original terms also continue to be part of the contract and
are not rescinded and/or superseded except in so far as
they are inconsistent with the modifications. Those of the
original terms which cannot make sense when read with
the alterations must be rejected. In my view the arbitration
clause in this case is in no way inconsistent with the
subsequent modifications and continues to subsist.” [para
15]
15. No such thing having occurred on the present facts, it is clear
that there is in fact no amendment by written agreement to the PPA.
To this extent, learned counsel for Sasan are correct.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.5881-5882 OF 2016
ALL INDIA POWER ENGINEER
FEDERATION & ORS. 
V
SASAN POWER LTD. & ORS. ETC.
DATED: December 08, 2016.

Citation:(2017) 1 SCC 487

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