Why Section 62 Matters: Indian Contract Act Insights
Section 62 of the Indian Contract Act, 1872 is a very significant provision as it deals with the effect of novation, rescission and alteration of contract.
Novation is a process by which an existing contract is replaced by a new contract between the same parties or between different parties. For example, if A owes B ₹10,000 and B agrees to accept C as his debtor instead of A, then there is a novation of the contract. The old contract between A and B is extinguished and a new contract between B and C is created.
Rescission is the cancellation of a contract by mutual agreement of the parties. For example, if A and B enter into a contract for the sale of goods and A later decides that he does not want to sell the goods, then he can rescind the contract by mutual agreement with B.
Alteration is any change in the terms of a contract. For example, if A and B enter into a contract for the sale of goods and A later decides to increase the price of the goods, then he is altering the terms of the contract.
Section 62 of the Indian Contract Act states that 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. This means that once there is a novation, rescission or alteration of contract, the parties are no longer bound by the terms of the original contract.
Section 62 is a very important provision as it allows the parties to a contract to change or even terminate the contract if they mutually agree to do so. This flexibility is essential for the smooth functioning of commerce.
Here are some examples of the significance of Section 62 of the Indian Contract Act:
- It allows businesses to adapt to changing circumstances. For example, if a business is facing financial difficulties, it can negotiate with its creditors to restructure its debt. This can be done by novating the existing debt contracts and creating new contracts with more favourable terms.
- It allows businesses to resolve disputes without having to resort to litigation. For example, if two businesses have a dispute over a contract, they can rescind the contract and enter into a new contract with more clearly defined terms.
- It allows businesses to terminate contracts that are no longer in their best interests. For example, if a business has entered into a contract with a supplier who is unable to meet its needs, it can terminate the contract.
Overall, Section 62 of the Indian Contract Act is a very important provision that promotes flexibility and fairness in commercial transactions.