Remission of Contract

Learn remission under Section 63 of the Indian Contract Act, 1872, including reduced payments, waiver of performance, legal effects and case law.

Introduction

A contract creates legal obligations that the parties are expected to fulfil. However, a promisee may decide that the promisor need not perform the entire obligation, may allow additional time for performance, or may accept something different from what was originally promised. This is known as remission of performance.

Remission is an important concept in the law of discharge of contracts under the Indian Contract Act, 1872. It enables a promisee to release the promisor from the whole or part of a contractual obligation or to accept a different form of satisfaction. It is particularly relevant to debt settlement, reduced payments, delayed performance and the acceptance of alternative satisfaction.

The principal statutory provision is Section 63 of the Indian Contract Act, 1872, titled “Promisee may dispense with or remit performance of promise.” Unlike novation under Section 62, remission under Section 63 does not invariably require a fresh agreement supported by consideration. The promisee may exercise the powers recognised by the section, subject to the facts and applicable law.

For law students, the key is to understand when a reduced payment discharges an entire debt, how remission differs from alteration and novation, and why an actual remission must be distinguished from a mere promise to remit an obligation in the future.

Meaning of Remission

Remission means the voluntary relinquishment or reduction of a contractual obligation by the promisee. It may involve releasing the promisor from the whole promise, reducing the extent of performance required, extending the time for performance or accepting alternative satisfaction.

In simple terms, remission occurs when a promisee agrees to accept less, waive some or all of the required performance, or otherwise exercise the powers granted by Section 63.

For example, A owes B ₹50,000. B accepts ₹30,000 from A in full satisfaction of the debt. If B validly accepts the reduced amount as full satisfaction, the entire debt may be discharged under Section 63, even though A has paid less than the original amount.

However, if B accepts ₹30,000 only as part payment, without remitting the balance, A may remain liable for the remaining ₹20,000. The legal effect depends on the terms and circumstances of the acceptance.

Section 63 of the Indian Contract Act, 1872

Section 63 provides:

“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.”

The section recognises four important powers of a promisee:

1. To dispense with performance wholly or partly.
2. To remit performance wholly or partly.
3. To extend the time for performance.
4. To accept alternative satisfaction instead of the original performance.

These powers allow the promisee to determine whether the original obligation must be fulfilled in full or whether a different arrangement will satisfy the promise.

Dispensing with Performance

A promisee may release the promisor from the obligation to perform a promise.

Example: A promises to paint a picture for B. B later tells A not to paint the picture. Under Illustration (a) to Section 63, A is no longer bound to perform the promise.

This illustrates that a promisee may dispense with performance rather than insist on completion of the original obligation.

Remitting Performance Wholly or Partly

A promisee may reduce the extent of performance required from the promisor.

Example: A owes B ₹50,000. B accepts ₹30,000 in full satisfaction of the debt. If the payment is accepted as full satisfaction, the entire claim may be discharged.

Alternatively, B may remit only part of a non-monetary obligation. For example, if A promises to deliver 100 units to B and B validly agrees to accept 80 units in full satisfaction, the obligation may be discharged upon fulfilment of the revised requirement.

Extending the Time for Performance

Section 63 allows a promisee to extend the time within which the promisor must perform.

Example: A agrees to repay B ₹20,000 on 1 December. B allows A until 31 December to make the payment. This extension of time falls within the power recognised by Section 63.

The extension does not necessarily discharge the underlying obligation. It changes the time allowed for performance.

Accepting Alternative Satisfaction

A promisee may accept something different from the original performance as satisfaction of the promise.

Example: A owes B ₹40,000. B accepts a specified item of property in full satisfaction of the debt. If the alternative satisfaction is validly accepted, the original obligation may be discharged.

The alternative satisfaction must be considered in the context of the parties’ arrangement and the applicable law.

Illustrations of Remission Under Section 63

Section 63 contains illustrations that demonstrate how remission operates.

Acceptance of a Lesser Amount from the Debtor

A owes B ₹5,000. A pays ₹2,000 to B, and B accepts that amount in satisfaction of the whole debt.

Under Illustration (b) to Section 63, the entire debt is discharged.

This is a key feature of Indian contract law. Where the promisee accepts a lesser amount in satisfaction of the whole debt, the promisor may be discharged from the balance without the need for fresh consideration for the remission itself.

Acceptance of Payment from a Third Person

A owes B ₹5,000. C pays B ₹1,000, and B accepts the payment in satisfaction of the claim against A.

Under Illustration (c) to Section 63, the whole claim is discharged.

This illustration shows that the promisee may accept satisfaction from a third person and discharge the original obligation. Section 41 is also relevant where the promisee accepts performance of a promise from a third person, because the promisee cannot thereafter enforce that same promise against the original promisor.

Acceptance of an Unascertained Amount

A owes B a sum of money under a contract, but the exact amount has not been determined. A pays ₹2,000, and B accepts that amount in satisfaction of the entire claim.

Illustration (d) to Section 63 provides that the acceptance discharges the whole debt, whatever its amount may have been.

The important factor is that the amount is accepted in satisfaction of the entire obligation.

Composition with Creditors

A owes B ₹2,000 and is also indebted to other creditors. A enters into an arrangement with the creditors, including B, to pay a composition of eight annas in the rupee on their respective claims.

Under Illustration (e) to Section 63, payment to B of ₹1,000 discharges B’s demand.

This illustration demonstrates how a creditor may accept a reduced amount in satisfaction of a claim as part of an arrangement with multiple creditors.

Essentials of Remission

The Existence of a Promise

Remission presupposes a contractual promise or obligation that the promisee can dispense with, reduce, extend or satisfy differently.

For example, where A owes B money under a contract, B may exercise the powers recognised by Section 63 in relation to that obligation.

The Promisee Must Exercise the Relevant Power

Section 63 grants the relevant powers to the promisee. The legal effect arises from the promisee’s effective decision to dispense with performance, remit it, extend time or accept alternative satisfaction.

A mere request by the promisor for a reduced obligation does not, by itself, establish that remission has occurred.

The Extent of Remission Must Be Determined

Remission may be total or partial. The scope of the release depends on what the promisee has actually remitted or accepted.

For example, if B accepts ₹30,000 in full satisfaction of A’s debt of ₹50,000, the entire debt may be discharged. If B accepts the amount merely as part payment, the remaining debt may continue.

Fresh Consideration Is Not Required for the Statutory Act

Section 63 does not require fresh consideration for the promisee’s exercise of the powers specified in the section.

This distinguishes remission under Indian contract law from certain rules developed under English common law concerning the discharge of a debt through payment of a lesser sum.

However, a mere promise to remit an obligation in the future must be distinguished from an actual remission. The legal effect of a future promise depends on its terms and the applicable principles governing enforceability.

Remission of Debt Without Fresh Consideration

One of the most important features of Section 63 is that a promisee may accept a lesser amount in satisfaction of the entire debt without requiring fresh consideration for the remission.

Suppose A owes B ₹1,00,000. B accepts ₹70,000 from A in full satisfaction of the debt. If B validly accepts the amount as full settlement, A may be discharged from the remaining ₹30,000.

The rule is significant because it allows creditors to settle claims on revised terms without requiring additional consideration for the act of remission itself.

However, the intention to accept the reduced payment in full satisfaction must be established. A receipt showing only that ₹70,000 was received may not necessarily prove that the remaining ₹30,000 was remitted. The wording of the receipt, the circumstances of payment and the parties’ conduct may be relevant.

Actual Remission Versus a Promise to Remit in the Future

A critical distinction exists between an actual remission and an agreement or promise that a debt will be remitted later.

An actual remission occurs when the promisee effectively releases the obligation or accepts satisfaction in a manner that discharges it.

By contrast, a statement such as “I will forgive the remaining debt if you make a payment next month” may raise questions about whether the promisee has already remitted the debt or merely promised to do so in the future.

In Kedarnath Lal v. Sheonarain Ram, AIR 1958 Pat 22, the Patna High Court explained that Section 63 permits an actual remission without consideration, while a transaction that merely promises a future discharge may require separate consideration to be enforceable as a contract.

Legal principle: Section 63 permits an effective remission without fresh consideration, but a mere promise to remit in the future must not automatically be treated as an already completed discharge.

Landmark Case Law on Remission

Kapur Chand Godha v. Mir Nawab Himayatalikhan Azamjah

In Kapur Chand Godha v. Mir Nawab Himayatalikhan Azamjah, AIR 1963 SC 250; (1963) 2 SCR 168, the Supreme Court of India examined the effect of accepting payment in full satisfaction of a claim. <Cite refs={[“turn203828search0″,”turn203828search1”]} />

The dispute concerned jewellery supplied to the Prince of Berar and a claim relating to the outstanding amount. The parties ultimately accepted a payment of ₹20 lakh in full satisfaction of the claim, and the promissory notes were endorsed as fully satisfied.

The Supreme Court held that the acceptance of payment in full satisfaction discharged the claim. It applied Section 63 and referred to Illustration (c), which provides that a promisee may accept payment from a third person in satisfaction of the claim against the original promisor.

The Court also referred to Section 41, under which a promisee who accepts performance from a third person cannot afterwards enforce the same promise against the original promisor.

Legal principle: Where the promisee accepts payment in full satisfaction of a claim, the entire claim may be discharged under Section 63. The promisee cannot subsequently recover the balance merely because the amount accepted was less than the original claim.

This decision is a leading authority on remission and acceptance of a lesser amount in full satisfaction.

National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.

In National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267, the Supreme Court considered the legal effect of a full and final discharge voucher in an insurance dispute. <Cite refs={[“turn203828search6″,”turn203828search9”]} />

The dispute concerned an insurance claim and the effect of documents recording full and final settlement. The Court examined whether the discharge voucher genuinely reflected a voluntary settlement or whether the insured’s acceptance had been procured under circumstances such as coercion or financial duress.

The Court recognised that a valid and voluntary full and final settlement may discharge the claim. However, where the discharge voucher is alleged to have been obtained through coercion, undue influence or other legally relevant pressure, the circumstances must be examined rather than treating the document as automatically conclusive.

Legal principle: A full and final discharge voucher may operate as remission or accord and satisfaction where it represents a valid and voluntary settlement. A genuine dispute about coercion or financial duress may affect whether the settlement is legally effective.

This case is important in insurance disputes, commercial settlements and situations where a party signs a discharge voucher after accepting a reduced payment.

Difference Between Remission and Novation

Remission under Section 63 must be distinguished from novation under Section 62.

Basis	Remission	Novation
Statutory provision	Section 63	Section 62
Meaning	Promisee dispenses with or reduces performance, extends time or accepts alternative satisfaction	Existing contract is replaced by a new contract
Nature	The promisee exercises a statutory power concerning performance	The relevant parties agree to substitute a new contract
Fresh consideration	Not required for the statutory act of remission	A valid substituted contract must satisfy the applicable requirements for contract formation
Example	A creditor accepts ₹70,000 in full satisfaction of a ₹1,00,000 debt	A creditor agrees to accept C as the new debtor in place of A, discharging A’s original debt

The main distinction is that novation replaces the original contract, whereas remission concerns the promisee’s treatment of performance under the existing obligation.

Difference Between Remission and Alteration

Basis	Remission	Alteration
Provision	Section 63	Section 62
Meaning	Release or reduction of performance, extension of time or acceptance of alternative satisfaction	Mutual modification of the terms of an existing contract
Mutual agreement	A fresh bilateral agreement is not invariably required for the promisee to exercise the statutory power	Agreement of the relevant parties is required
Example	A creditor accepts a lesser amount in full satisfaction of a debt	Parties mutually change the price or delivery date in an existing contract

A reduced payment accepted in full satisfaction is a common example of remission. A revised price agreed upon by both parties as a change to an ongoing supply contract is more appropriately analysed as alteration.

Difference Between Remission and Waiver

Remission and waiver are related concepts, but they are not always identical.

Remission under Section 63 specifically concerns dispensing with or reducing performance, extending time or accepting alternative satisfaction. Waiver generally refers to the intentional relinquishment of a right or requirement.

For example, a promisee may remit a debt by accepting a reduced payment in full satisfaction. Separately, a party may waive a contractual requirement where the law and contract permit that waiver.

The correct classification depends on the nature of the obligation, the conduct of the parties and the legal consequences of the act.

Legal Effects of Remission

Discharge of the Original Obligation

Where the promisee validly remits the entire obligation, the promisor is released from the performance that has been remitted.

For example, if B accepts ₹30,000 in full satisfaction of A’s debt of ₹50,000, A may be discharged from the entire debt.

Partial Discharge

Remission may be limited to part of the obligation. Where the promisee remits only a portion, the remaining obligation continues unless it is otherwise discharged.

For example, if B expressly remits ₹10,000 of A’s ₹50,000 debt, A remains liable for the balance of ₹40,000, subject to the terms and legal effect of the arrangement.

Extension of Time

Where the promisee extends the time for performance, the promisor is permitted to perform within the extended period. The original obligation is not necessarily extinguished.

Acceptance of Alternative Satisfaction

If the promisee accepts an alternative form of satisfaction in place of the original performance, the original obligation may be discharged in accordance with the arrangement.

Inability to Recover a Remitted Balance

Once a claim has been validly discharged through full remission or acceptance of full satisfaction, the promisee cannot ordinarily recover the remitted balance merely because the original obligation was larger.

However, a dispute about whether full satisfaction was actually accepted, whether the settlement was voluntary or whether the remission was conditional may affect the outcome.

Important Points for Exams

• Remission is governed by Section 63 of the Indian Contract Act, 1872.
• A promisee may dispense with or remit performance wholly or partly, extend time or accept alternative satisfaction.
• Fresh consideration is not required for an effective remission under Section 63.
• A creditor may accept a lesser amount in full satisfaction of a debt, thereby discharging the entire claim.
• Acceptance of part payment does not automatically establish remission of the balance.
• A promise to remit a debt in the future must be distinguished from an actual remission.
• Section 41 is relevant where performance is accepted from a third person.
• In Kapur Chand Godha v. Mir Nawab Himayatalikhan Azamjah, the Supreme Court held that payment accepted in full satisfaction discharged the claim.
• In National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., the Supreme Court considered the effect of full and final discharge vouchers and the importance of whether the settlement was voluntary.
• Remission differs from novation because remission concerns performance under an existing obligation, while novation replaces the original contract with a new one.

Conclusion

Remission is an important method of dealing with contractual obligations under Section 63 of the Indian Contract Act, 1872. It permits a promisee to dispense with or reduce performance, extend the time for performance or accept alternative satisfaction.

The most significant feature of Section 63 is that an effective remission does not require fresh consideration. A creditor may therefore accept a lesser amount in full satisfaction of a debt and discharge the entire claim. However, the distinction between actual remission and a mere promise to remit in the future remains important.

The Supreme Court’s decision in Kapur Chand Godha v. Mir Nawab Himayatalikhan Azamjah demonstrates how acceptance of payment in full satisfaction can discharge an entire claim. For examinations, remember the statutory wording of Section 63, its illustrations and the distinction between remission, novation, alteration and waiver.