Drafting, Pleadings and Appearances · Commercial Contract Management

Novation, Rescission and Alteration under Section 62

Updated 11 October 2026 · Fact-checked

Section 62 of the Indian Contract Act, 1872 says that if the parties agree to substitute a new contract, or to rescind or alter the original, the original contract need not be performed. To solve a question, identify what changed, check that all necessary parties agreed, and state the effect on the old contract.

Understand Novation, Rescission and Alteration (Section 62)

A contract is made by agreement, so the parties can also unmake or change it by agreement. Section 62 says this in one line: if the parties agree to substitute a new contract for the old one, or to rescind it, or to alter it, the original contract need not be performed.

There are three tools. Novation replaces the old contract with a new one. The new contract may be between the same parties or may bring in a new party. Rescission cancels the contract, so nobody has to perform. Alteration changes some terms of the contract. After a valid alteration, the contract is performed as altered.

The key word in the section is agree. Novation, rescission and alteration need the consent of the parties. A one-sided order does not work. Illustration (c) to the section shows this. B owes C ₹1,000 and tells A to credit C in his books. C does not assent. B still owes C, and no new contract exists. When a new party replaces an old one, the old party, the new party and the creditor all have to agree, as in illustration (a), where A, B and C agree that B will accept C as debtor instead of A.

A new contract can replace the old one even when it gives less. In illustration (b), A owes B ₹10,000 and gives a mortgage of his estate for ₹5,000 in place of the debt. This is a new contract and it extinguishes the old one.

In practice, you record these changes in writing. A deed of novation records a substitution. A deed or agreement of rescission (or termination by mutual consent) records cancellation. A supplemental agreement or deed of variation records an alteration. Each should identify the original contract, state the change, say what happens to existing rights and liabilities, and be stamped and executed as the law requires.

Key rules to remember

Core rule of Section 62: Agreement to substitute / rescind / alter ⇒ original contract need not be performed; The agreement must be between the parties to the contract. The section is about consent, not about unilateral change.
Novation: Old contract discharged + new contract in its place (same or new parties); If a new party comes in, the old party, new party and creditor all must assent. Illustration (a): A, B and C agree that C replaces A as debtor to B.
Rescission: Parties agree to cancel ⇒ no performance of the original contract is required; Do not confuse this with Section 64, where a party entitled to avoid a voidable contract rescinds it.
Alteration: Agreed change of terms ⇒ contract performed as altered; Draft it as a supplemental agreement or deed of variation. State which clauses change and that the rest continue.
No assent, no novation: Substitution without assent of the party concerned ⇒ no new contract; Illustration (c): C did not assent, so B still owes C ₹1,000.
Novation versus assignment: Novation: consent of all parties, old obligation ends. Assignment: transfers benefit of rights; burden cannot be passed on without consent; This distinction is general contract law, not stated in Section 62. Use it to answer comparison questions, without quoting a section number.

How to solve Novation, Rescission and Alteration (Section 62) questions

Use this method for any question on Section 62, whether it asks for advice, an opinion or a draft.

1Read the facts and identify the original contract, its parties and the change that is claimed or wanted.
2Classify the change: substitution of a new contract or party (novation), cancellation (rescission) or change of terms (alteration).
3Test the consent. Did every necessary party agree? For a change of debtor or counterparty, the creditor or other side must assent too.
4Check that a new contract or agreed change actually exists, not just an instruction or an intention by one party. Use illustration (c) if one party acted alone.
5State the effect from Section 62: the original contract need not be performed, or is performed as altered.
6Apply the section's illustrations that match your facts: (a) change of debtor, (b) new security replacing the debt, (c) no assent.
7If asked to draft, name the document, then give its parts: title, date, parties, recitals, operative clauses, effect on old rights and liabilities, execution, stamping.
8Conclude with a clear answer to the question asked: whether the original contract survives, who is now liable, and what to do next.

Quickest way: Four-line answer for Section 62 questions

When to use it: Use when time is short and the question asks you to advise whether the original contract still binds the parties.

Write the rule: parties agreed to substitute, rescind or alter, so the original contract need not be performed (Section 62).
Name the type of change and the consent of each party.
Match one illustration: (a) new debtor, (b) new security in place of the debt, or (c) no assent.
Conclude: old contract ended or altered, and say who is liable now. Add one line on the document to execute.

Common mistakes in Novation, Rescission and Alteration (Section 62)

Treating novation as possible with the consent of only the old and new party.
Students think a debtor can simply pass his obligation to someone else.
Fix: Remember illustration (a): A, B and C all agreed. The creditor must assent to the new party, otherwise the old contract continues.
Saying novation and assignment are the same.
Both involve a third party stepping in, so they look alike.
Fix: Novation ends the old contract and creates a new one with consent of all. Assignment transfers the benefit of rights, and the burden of obligations cannot be passed on without the other party's consent.
Confusing Section 62 rescission with Section 64 rescission.
Both use the word rescission.
Fix: Under Section 62 the parties agree to cancel. Under Section 64 one party rescinds a contract that is voidable at his option, and must restore any benefit received.
Assuming an alteration needs fresh consideration or a whole new contract in every case.
Students mix up alteration with novation.
Fix: Alteration changes terms of the same contract, which then continues as altered. Novation replaces the contract. Classify the change before answering.
Writing a deed of novation without dealing with accrued rights and liabilities.
Students focus on the new party and forget the past.
Fix: State clearly in the deed whether liabilities already accrued stay with the old party or pass to the new one, and whether the old party is released.
Citing a section number or a case from memory in the answer.
Students try to sound authoritative.
Fix: Quote Section 62 and its illustrations. Add other sections or cases only if you are certain of them.

Worked examples

Example 1

Meera Traders owes Rohan Steels ₹4,00,000 under a supply contract. Meera Traders is being taken over by Kiran Enterprises. All three parties sign an agreement that Rohan Steels will accept Kiran Enterprises as debtor in place of Meera Traders. Later, Rohan Steels sues Meera Traders for the money. Advise Meera Traders.

Show the solution

Rule: under Section 62, if the parties agree to substitute a new contract for the original, the original contract need not be performed.
Facts: all three parties, the creditor Rohan Steels, the old debtor Meera Traders and the new debtor Kiran Enterprises, agreed to the substitution.
Classification: this is novation, matching illustration (a), where A, B and C agree that B will accept C as debtor instead of A.
Effect: the old debt of Meera Traders is at an end, and a new debt from Kiran Enterprises to Rohan Steels is created.
Conclusion: Rohan Steels cannot enforce the original contract against Meera Traders.

Answer: Meera Traders is not liable under the original contract. The tripartite agreement is a novation under Section 62, and Rohan Steels must look to Kiran Enterprises for the ₹4,00,000, subject to what the agreement itself says.

Example 2

Anil owes Bhavna ₹1,00,000 under a contract. Bhavna owes Chetan ₹1,00,000. Bhavna writes to Anil asking him to credit Chetan with ₹1,00,000 in his books. Chetan is not told and has not agreed. Chetan demands payment from Bhavna. Is Bhavna still liable? Also state how you would document a valid change.

Show the solution

Rule: Section 62 requires the parties to agree to substitute a new contract. Consent is essential.
Facts: Bhavna instructed Anil to credit Chetan, but Chetan did not assent.
Application: illustration (c) has the same facts. B still owes C, and no new contract has been entered into.
Conclusion on liability: Bhavna remains liable to Chetan for ₹1,00,000, and Anil's debt to Bhavna also continues.
Documentation: to make it a valid novation, execute a tripartite deed of novation signed by Anil, Bhavna and Chetan.
Contents of the deed: identify the original contracts, record that Chetan accepts Anil as his debtor in place of Bhavna, state that Bhavna's liability to Chetan and Anil's liability to Bhavna are discharged to that extent, and provide for stamping and execution.

Answer: Bhavna is still liable to Chetan for ₹1,00,000, because Chetan did not assent and no new contract exists (Section 62, illustration (c)). To change this, all three should sign a tripartite deed of novation.

Exam tips

Begin with the rule of Section 62 in one sentence. Examiners reward the provision first, then the analysis.
Classify the change as novation, rescission or alteration before analysing. A wrong label spoils the whole answer.
Always test consent. Most fact patterns are built around a party who did not assent.
For drafting questions, give the document title, parties, recitals, operative clauses, release of old obligations and execution. State that the document must be stamped as the law requires.
If asked to distinguish novation from assignment, use a short two-column style list in lines, not a table, and avoid citing section numbers you are unsure of.

Practice questions from Commercial Contract Management

Novation, Rescission and Alteration (Section 62) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FoundationDischarge by Mutual Agreement, Novation and Rescission

Novation, Rescission and Alteration (Section 62): frequently asked questions

What is novation of a contract with an example?

Novation is the replacement of an existing contract by a new one with the agreement of the parties. For example, A owes B money, and A, B and C agree that B will accept C as debtor instead of A. The old debt ends and a new debt from C to B arises.

What is the difference between novation and assignment?

Novation ends the old contract and creates a new one, and it needs the consent of all parties. Assignment transfers the benefit of a right, and the burden of an obligation cannot be passed on without the other party's consent. These points come from general contract law, not from Section 62.

Does alteration of a contract need the consent of both parties?

Yes. Section 62 speaks of the parties agreeing to alter the contract. A change made by one party alone does not bind the other. Record the agreed change in a supplemental agreement or deed of variation.

What should a novation agreement contain?

It should name all parties, describe the original contract, record that the old contract is discharged, state the new obligations, deal with accrued rights and liabilities, and be executed and stamped properly. The creditor or counterparty must be a signatory.