Legal Question in Business Law in India

Re: novation

Novation means that there being a contract in existence, some new contract is substiuted 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. Substitution of a new contract is the core of novation. If the new contract suffers from legal flaw, such as want of registration, stamps, etc. on account of which it becomes unenforceable, the original contract will not be extinguished and there would be no novation.

Re: novation

When the parties to a contract agree to substitute the existing contract between them with a new contract this process of changing the contract is called novation. Novation is of two types viz

1. involving change of parties

2. involving substitution of the old contract by a new contract

Thus, you can change a contract either by changing the parties like you do when you assign your debt to someone else or you can do novation by making a new contract in place of the old.

According to section 62 of the Indian Contract Act, 1872 when a new contract is made in place of an old one the obligations of the parties of the old contract are terminated and in place of it they are according to the new contract.

A contract is made between two parties and only the parties to that contract can change it. The right of novation is a collective right available to all the parties to a contract collectively. Thus the right of novation can be enforced by the parties to the contract collectively by changing the contract.

The right of novation is like the right to make a contract. Thus all the requirements to be fulfilled to make a contract are to be fulfilled for novation as well.

As stated above novation is like making a new contract. Thus, the concept of defense against the right of novation does not arise. It is a mutual right of the contracting parties and it is on the sweet will of these parties to either make use of this right or not. You just have to say that you do not want to make a new contract and want the old contract to be binding. Thus, no one can force you to enter into novation.