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ASSIGNMENT UNDER INDIAN CONTRACT ACT, 1872

Assignment means transfer of rights or obligations held by one party to another party.
The concept of assignability stems from Section 10 of the Indian Contract Act, 1872
that provides for agreements requiring free consent for a lawful consideration and a
lawful object.
In Khardah Company Ltd. v/s Raymon & Co, 1962, the SC defined rights and
obligations under the concept of assignment as under:
An assignment of a contract might result by transfer either of the rights or of the
obligations thereunder. But there is a well-recognised distinction between these two
classes of assignments. As a rule, obligations under a contract cannot be assigned
except with the consent of the promisee, and when such consent is given, it is really a
novation resulting in substitution of liabilities. On the other hand, rights under a
contract are assignable unless the contract is personal in its nature the rights are
incapable of assignment either under the law or under an agreement between the
parties.
On the distinction between Assignment and Novation, the England and Wales High
Court has observed that there are 4 differences; there are four main differences.
First, a novation requires the consent of all three parties involved; (here the original
creditor; the new creditor and the debtor). But (in the absence of restrictions) an
assignor can assign without the consent of either assignee or the debtor. Secondly, a
novation involves the termination of one contract and the creation of a new one in
its place. In the case of an assignment, the assignor's existing contractual rights are
transferred to the assignee, but the contract remains the same and the assignor
remains a party to it so far as obligations are concerned. Thirdly a novation involves
the transfer of both rights and obligations to the new party, whereas an assignment
concerns only the transfer of rights, although the transferred rights are always
"subject to equities". Lastly a novation, involving the termination of a contract and
the creation of a new one, requires consideration in relation to both those acts; but a
legal assignment (at least), can be completed without the need for consideration.

The ITAT, Bangalore in M/S Tellabs India Private Ltd v/s Assistant Commissioner of
Income Tax Circle (12), Bangalore [ITA Nos.1037 & 1038/Bang/2008] has also
observed that:
Section 62 in The Indian Contract Act, 1872 lays down the effect of novation,
rescission, and alteration of contract. It lays down 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. Assignment involves the transfer of an interest or benefit from
one person to another. However the 'burden', or obligations, under a contract cannot
be transferred. If one wants to transfer the burden of a contract as well as the benefits
under it, one has to novate. Like assignment, novation transfers the benefits under a
contract but unlike assignment, novation transfers the burden under a contract as

well. In a novation, the original contract is extinguished and is replaced by a new one
in which a third party takes up rights and obligations which duplicate those of one of
the original parties to the contract. Novation is only possible with the consent of the
original contracting parties as well as the new party.

NOVATION OF CONTRACT
When there is an agreement between parties to substitute the existing contract with a
new contract, it is called novation of contract. Basically, there is a discharge of the old
contract and a new contract substitutes it.

A novation could be of novation involving change of parties and a novation involving


substitution of a new contract in place of the old. Novation amounts to the extinction
of the old obligation, and the creation of a new one, rather than to the transfer of the
obligation from one person to another.

Section 62 of the Indian Contract Act, 1872 provides for the Effect of novation,
rescission and alteration of contract and mentions that there must be a substitution
of the original contract. There cannot be any substitution if the original contract was
breached before the substitution itself and this was observed by the Calcutta High
Court in Manohar Koyal vs. Thakur Das Nasker (1888) 15 Cal 319.

New Contract must be:


1. Not inconsistent with the previous contract
2. Original contract was not in breach of any terms
3. Not a supplementary contract only catering to few clauses like postponement
of termination of a contract.
If certain or more SC/HC cases required, please let me know.