Alteration of Contract

Understand alteration of contract under Section 62 of the Indian Contract Act, 1872, with essentials, examples, legal effects and case law.

Introduction

A contract establishes rights and obligations between the parties. However, the parties may later decide to modify certain terms of their agreement to reflect changing circumstances or their revised requirements. When the parties mutually agree to change the terms of an existing contract, the process is generally known as alteration of contract.

Alteration is an important concept in the law of discharge of contracts under the Indian Contract Act, 1872. It allows parties to modify their contractual arrangement without necessarily replacing the entire contract. Depending on the nature of the change, the original contract may continue with revised terms or, where the alteration effectively replaces the original arrangement, the original contract may no longer need to be performed.

The principal statutory provision is Section 62 of the Indian Contract Act, 1872, which deals with novation, rescission and alteration of contracts. The legal effect of a particular amendment depends on the terms of the agreement, the parties’ intention and whether the original contractual relationship continues or has been effectively replaced.

For law students, it is particularly important to understand the difference between alteration, novation and rescission, as well as the Supreme Court’s interpretation of Section 62 in cases involving amendments to commercial contracts.

Meaning of Alteration of Contract

Alteration of contract means a mutually agreed modification of one or more terms of an existing contract. The change may relate to the price, time of performance, quantity of goods, mode of payment, delivery arrangements or another contractual term.

In simple terms, alteration occurs when the parties agree to change the terms of their existing contract.

For example, A agrees to supply 500 chairs to B for ₹2,50,000, with delivery scheduled for 1 November. Before delivery, both parties agree to change the delivery date to 15 November while retaining the remaining terms.

This is an alteration of the contract because the parties have modified an existing term without necessarily replacing the entire contractual arrangement.

However, not every subsequent agreement amounts to an alteration under Section 62. The legal effect depends on whether the parties intended to modify the existing contract or replace it with a different contract.

Section 62 of the Indian Contract Act, 1872

Section 62 is titled “Effect of novation, rescission, and alteration of contract.”

It provides:

“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.”

The provision recognises three distinct methods by which contractual obligations may be discharged or modified:

• Novation: Substitution of a new contract for an existing contract.
• Rescission: Cancellation of an existing contract by agreement.
• Alteration: Modification of the terms of an existing contract.

Although these concepts are covered by the same section, they have different legal effects. Alteration ordinarily involves changes to the existing arrangement, whereas novation replaces the original contractual arrangement and rescission cancels it.

Illustration of Alteration

A agrees to supply 1,000 units of a product to B for ₹5,00,000, payable upon delivery. Before delivery, A and B agree to increase the quantity to 1,200 units and revise the price to ₹6,00,000.

If the parties intend to modify the existing agreement and retain the contractual relationship, the changes may constitute an alteration. The revised terms become part of the contract, and the parties must perform the contract as modified.

The legal effect may differ if the new arrangement is intended to replace and extinguish the original contract entirely.

Essentials of Alteration of Contract

1. Existence of an Existing Contract

Alteration presupposes an existing contractual relationship. The parties must have a contract containing terms that they intend to modify.

If no valid contract exists, there is no existing contractual arrangement to alter, although the parties may enter into a new contract.

2. Mutual Agreement Between the Relevant Parties

Alteration under Section 62 requires agreement between the parties whose contractual rights or obligations are affected.

One party cannot ordinarily change the terms of a contract merely by announcing a new price, extending a deadline unilaterally or imposing an additional obligation.

Example: A agrees to sell a laptop to B for ₹40,000. A cannot ordinarily increase the price to ₹45,000 simply by informing B that the price has changed. The alteration requires the necessary agreement.

The position may differ where the original contract itself contains a valid mechanism allowing specified adjustments or where a statutory rule applies.

3. Intention to Modify the Existing Contract

The parties must intend to modify the existing contractual arrangement. Their intention is determined from the agreement, its language and the surrounding circumstances.

A subsequent document may merely clarify an existing term, supplement the original agreement or create a separate obligation. It does not automatically establish alteration under Section 62.

4. Identification of the Terms Being Changed

The revised arrangement should make it possible to determine which contractual terms have changed and which continue to apply.

For example, if the parties agree to change only the delivery date, the remaining terms ordinarily continue unless the agreement indicates otherwise.

5. Compliance With Applicable Legal Requirements

The alteration must comply with the applicable law and any relevant contractual requirements. Where the original contract or the governing law requires an amendment to be in writing, signed by specified parties or completed through a prescribed procedure, those requirements must be considered.

A purported alteration that fails to satisfy an applicable mandatory requirement may not be legally effective.

Examples of Alteration of Contract

Alteration of Price

A agrees to supply 100 bags of cement to B for ₹40,000. Before delivery, both parties agree to revise the price to ₹42,000 while retaining the remaining terms.

If the agreement validly modifies the existing contract, the revised price becomes part of the contractual arrangement.

Alteration of Time

A agrees to deliver machinery to B on 1 December. Both parties later agree to extend the delivery date to 15 December.

The delivery date has been altered, but the remaining contractual obligations continue unless otherwise agreed.

Alteration of Quantity

A agrees to supply 500 books to B. Both parties agree to increase the quantity to 700 books and adjust the price accordingly.

If the existing contract continues with these revised terms, the arrangement may constitute alteration.

Alteration of the Mode of Payment

A agrees to supply goods to B for ₹1,00,000, payable in a single instalment. The parties later agree that the amount will be paid in four monthly instalments.

The payment arrangement has been modified. Whether the change amounts to alteration under Section 62 or another form of variation depends on the agreement and its legal effect.

Legal Effects of Alteration of Contract

The Revised Terms Become Part of the Contract

Where the parties validly alter the existing contract, the revised terms must be read together with the original terms that remain applicable.

The contract is therefore interpreted as a whole, incorporating the agreed modifications.

The Original Contract Generally Continues

An ordinary amendment does not automatically extinguish the entire original contract. Terms that are not changed generally continue to govern the parties, unless they are inconsistent with the agreed modifications or the parties intend a different result.

For example, if the parties change the delivery date but retain the original price, payment terms and dispute-resolution clause, those unchanged provisions ordinarily remain part of the contractual arrangement.

Inconsistent Original Terms May Cease to Apply

Where an original term conflicts with a valid alteration, the revised term governs to the extent of the inconsistency.

For instance, if the original contract requires payment on delivery but a valid amendment changes payment to 30 days after delivery, the revised payment term applies.

Alteration May Affect Existing Rights and Obligations

The consequences of an alteration depend on its terms. A change in the delivery schedule may affect when performance is due, while a change in price may affect the amount payable.

However, an amendment to one term does not automatically release a party from all other obligations under the contract.

Landmark Case Law on Alteration of Contract

All India Power Engineer Federation v. Sasan Power Ltd.

In All India Power Engineer Federation v. Sasan Power Ltd., (2017) 1 SCC 487, the Supreme Court of India examined the distinction between amendment of a contract and waiver of a contractual provision in a dispute involving a power purchase agreement. <Cite refs={[“turn145534search0″,”turn145534search1”]} />

The dispute concerned communications exchanged between the parties and whether they amounted to an amendment of the power purchase agreement or a waiver under its terms.

The Court explained that an amendment under Section 62 involves a modification of the contractual terms that becomes part of the original contract. It distinguished a bilateral amendment from a waiver, which may be exercised unilaterally where the contract permits it.

The Court held, on the facts before it, that the parties had not entered into the written bilateral amendment contemplated by the power purchase agreement. The issue instead fell to be considered under Section 63 of the Indian Contract Act, 1872.

Legal principle: An amendment to a contract modifies the existing contractual terms and must be incorporated into the original contract. Amendment and waiver are distinct concepts, and the applicable contractual provisions and the parties’ conduct must be examined to determine which has occurred.

This decision is important for understanding the difference between an agreed alteration and a unilateral waiver of a contractual requirement.

Chrisomar Corporation v. MJR Steels Private Limited

In Chrisomar Corporation v. MJR Steels Private Limited, (2018) 16 SCC 117, the Supreme Court examined the distinction between alteration under Section 62 and remission or variation under Section 63. <Cite refs={[“turn145534search3″,”turn145534search4”]} />

The dispute arose in the context of unpaid invoices for supplies made to a vessel and a subsequent arrangement relating to payment of the outstanding amounts.

The Court approved the principle laid down in Juggilal Kamlapat v. N.V. Internationale Crediet-En-Handels Vereeninging Rotterdam, AIR 1955 Cal 65. It explained that a material alteration falls within Section 62 where the change goes to the root of the original contract and changes its essential character, so that the modified arrangement effectively does away with the original contract.

Where the original contract continues to operate with certain modifications, its remaining terms continue to apply except to the extent that they are inconsistent with the changes.

Legal principle: The court must examine the substance of the modification and determine whether the original contract continues with revised terms or whether the change effectively replaces the original contractual arrangement.

This decision is especially useful for distinguishing alteration from novation and for determining whether provisions such as an arbitration clause survive a subsequent agreement.

Juggilal Kamlapat v. N.V. Internationale Crediet-En-Handels Vereeninging Rotterdam

In Juggilal Kamlapat v. N.V. Internationale Crediet-En-Handels Vereeninging Rotterdam, AIR 1955 Cal 65, the Calcutta High Court considered the effect of modifications to an existing contract that contained an arbitration clause.

The Court explained that modifications may be incorporated into the original contract while the remaining terms continue to operate. Original terms are not automatically extinguished merely because some contractual provisions have been modified.

The Court found that the modifications in question did not go to the root of the original contract or change its essential character. The original agreement therefore continued to operate with the modifications, and the arbitration clause remained effective because it was not inconsistent with the revised terms.

The Supreme Court later approved this reasoning in Chrisomar Corporation v. MJR Steels Private Limited.

Legal principle: Where modifications do not change the essential character of the original contract, the contract may continue with the revised terms. Its unaffected provisions, including a compatible arbitration clause, may remain operative.

Difference Between Alteration and Novation

Alteration and novation are both governed by Section 62, but they differ in their legal effects.

Basis	Alteration	Novation
Meaning	Modification of terms of the existing contract	Substitution of a new contract for the existing contract
Original contract	Generally continues with revised terms	Discharged to the extent it is replaced by the new contract
New contractual arrangement	The modified contract generally remains dependent on the original arrangement	A substituted contract replaces the original arrangement
Unchanged terms	Continue to apply unless inconsistent with the changes	Governed by the substituted agreement and the extent of the substitution
Example	Parties extend the delivery date under an existing supply contract	Parties replace the existing supply contract with an entirely new contractual arrangement

The decisive factor is the substance of the agreement and whether the parties intended the original contract to continue or to be replaced.

Difference Between Alteration and Rescission

Basis	Alteration	Rescission
Meaning	Modification of contractual terms	Cancellation of the existing contract by agreement
Legal effect	The contract generally continues with revised terms	The obligations validly rescinded come to an end
New contract	Not necessarily created	Not necessary
Example	Parties change the payment schedule	Parties mutually agree to cancel the contract before delivery

Difference Between Alteration Under Section 62 and Waiver Under Section 63

Alteration under Section 62 and waiver or remission under Section 63 must be distinguished carefully.

Section 62 addresses an agreed alteration of a contract. Section 63 provides that a promisee may dispense with or remit performance wholly or partly, extend time for performance or accept alternative satisfaction.

Basis	Alteration under Section 62	Waiver or remission under Section 63
Statutory provision	Section 62	Section 63
Nature	Modification of the contractual terms by agreement	Promisee dispenses with or remits performance, extends time or accepts alternative satisfaction
Mutual agreement	Required for an alteration under Section 62	A fresh bilateral agreement is not invariably required for the promisee to exercise the statutory power
Example	Parties agree to change the delivery date in their contract	A promisee extends the time for performance or accepts a different form of satisfaction

The distinction is not merely about terminology. The legal consequences depend on whether the parties have amended the contractual terms or whether the promisee has exercised a power recognised by Section 63.

Can a Contract Be Altered Unilaterally?

As a general rule, one party cannot alter an existing contract under Section 62 without the agreement of the relevant parties.

For example, if A agrees to supply goods to B for ₹50,000, A cannot ordinarily increase the price to ₹60,000 without B’s agreement.

However, the position may differ where the original contract expressly permits a particular adjustment, or where a statutory rule or another legally recognised principle applies. A contractual power to revise a term must itself be exercised in accordance with its conditions.

Similarly, a promisee may sometimes waive a requirement or remit performance under Section 63. Such an act should not automatically be described as a bilateral alteration under Section 62.

Important Points to Remember

• Alteration of contract means a mutually agreed modification of one or more terms of an existing contract.
• Section 62 of the Indian Contract Act, 1872, governs novation, rescission and alteration.
• Alteration ordinarily allows the contract to continue with revised terms.
• Original terms generally remain effective except where they are inconsistent with the agreed modifications or the parties intend a different result.
• A party cannot ordinarily impose an alteration unilaterally under Section 62.
• An alteration does not automatically amount to novation; the parties’ intention and the legal effect of the new arrangement must be examined.
• Section 63 separately governs remission, extension of time and acceptance of alternative satisfaction by the promisee.
• In All India Power Engineer Federation v. Sasan Power Ltd., the Supreme Court distinguished a contractual amendment from waiver.
• In Chrisomar Corporation v. MJR Steels Private Limited, the Supreme Court explained that a material alteration under Section 62 must change the essential character of the original contract to the extent that the original arrangement is effectively replaced.
• In Juggilal Kamlapat v. N.V. Internationale Crediet-En-Handels Vereeninging Rotterdam, the Court explained that compatible original terms may continue to operate after a contract is modified.

Conclusion

Alteration of contract is an important method of modifying contractual obligations under Section 62 of the Indian Contract Act, 1872. It allows parties to revise the terms of an existing agreement while generally preserving the remaining contractual relationship.

The key question is whether the parties have merely modified the existing contract or have changed it so fundamentally that the original arrangement has effectively been replaced. The Supreme Court’s decisions in All India Power Engineer Federation and Chrisomar Corporation demonstrate why the terms of the agreement, the intention of the parties and the legal effect of the changes must be examined carefully.

For examinations, remember that alteration ordinarily changes the existing contract, novation substitutes a new contract, and rescission cancels the contract. Section 63 must also be considered where the issue concerns remission, extension of time or acceptance of alternative satisfaction.