The Doctrine of Accord and Satisfaction (“Doctrine”) means discharge of one's contractual obligations by way of performing substituted obligations. It is a mode of one's discharge from its contractual obligations wherein parties to a contract perform a new set of obligations in substitution of older contractual terms. In the Boghara Polyfab Case1, the Supreme Court of India (“Supreme Court”) has explained the Doctrine as follows:
“27. While discharge of contract by performance refers to fulfilment of the contract by performance of all the obligations in terms of the original contract, discharge by “accord and satisfaction” refers to the contract being discharged by reason of performance of certain substituted obligations. The agreement by which the original obligation is discharged is the accord, and the discharge of the substituted obligation is the satisfaction.” A contract can be discharged by the same process which created it, that is, by mutual agreement.”
In the aforesaid matter, the Supreme Court has further explained that as the discharge of contract is also done by mutual consent, such discharge can happen either by performing modified obligations or by entering into a whole new contract in substitution of the original contract. Essentially, the discharge of one's contractual obligations by way of performing the original terms of the contract is substituted by either a whole new contract or a new set of obligations within the same contract.
Applicability of the Doctrine
The Doctrine has gradually taken shape under the Indian Jurisprudence. The Privy Council2 has applied the said Doctrine in a matter where one party had accepted the receipt of payment made in lieu of a settlement by the other party. The Supreme Court has also relied on the said judgment while adjudicating on the Boghara Polyfab Case.
Even though the Doctrine is wholly applicable to transactions governed by the Indian Contract Act 1872 (“Contract Act”), it has been mostly elaborated upon by the Supreme Court while dealing with cases related to the existence of an arbitrable dispute between the parties. The elaboration on the Doctrine by the Supreme Court in Boghara Polyfab Case was also done on the subject matter pertaining to the existence of an arbitrable dispute for the purpose of appointing an arbitrator by the Court.
Before the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) came into existence, matters have been adjudicated by the Supreme Court on the existence of an arbitration dispute as per the provisions of the older Arbitration and Conciliation Act, 1940 and the Doctrine have been squarely applied by the courts for adjudicating issues related to making reference to an arbitrator3. It was only after the Mayavati Trading Case4, that the Supreme Court adjudicated that the appointment of an arbitrator under Section 11 of the Arbitration Act has to be done institutionally and all the preliminary issues related to the existence of an arbitration agreement with the parties, which inter alia includes the plea of the said Doctrine, will be determined by the arbitrator itself. It may be noted that the Mayavati Trading Case only ousted the plea of Doctrine being entertained by the Court at the stage of reference under Section 11 of the Arbitration Act and did not negate the Doctrine itself. Meaning thereby, such a Doctrine, like any other legal plea, can still be raised before an arbitrator for the purpose of ascertaining the existence of an arbitration agreement between the parties.
According to Calcutta High Court5, the principle of discharge by way of ‘accord and satisfaction' is embodied in Section 63 of the Contract Act. While referring to the Boghara Polyfab Case, the Calcutta High Court determined that the Appellant had discharged its obligations against the Bank i.e. the Respondent, by way of ‘accord and satisfaction' as the Bank had already accepted certain payments made by the Appellant in lieu of discharge of the Appellant's obligations.
Difference between the Doctrine of ‘Waiver' and ‘Accord and Satisfaction'
Section 63 of the Contract Act envisages remittance as well as substitution of obligations of the original contractual terms entered between the parties. The section provides for mode of discharging one's obligations, either by way of performing substituted obligations or by dispensing with certain terms of the contract. In the context of contractual obligations, Section 63 of the Contract Act may be construed in a manner to suggest that both, ‘waiver' of contractual obligations and discharge by ‘accord and satisfaction' are covered thereunder. However, there are some differences between the two doctrines which can be pointed out as under:
- Waiver includes complete abandonment of contractual rights or obligations by mutual consent6, whereas ‘accord and satisfaction' involves replacement of an old set of obligations with new contractual obligations7.
- Waiver of contractual obligations does not require any consideration8, whereas discharge by way of ‘accord and satisfaction' requires new set of obligations to be performed and such substituted obligations have to adhere to the basic principles of contract i.e. offer, acceptance and consideration9.
- The doctrine of Accord and Satisfaction is a mode of discharge of contractual obligations as opposed to Waiver of Contractual Rights which only covers the liberty of a person to let go of certain obligations irrespective of the fact whether the remaining obligations have been fulfilled or not.
Essentially, both the doctrines involve a mutual change in the original contractual arrangement between the parties, but the doctrine of Accord and Satisfaction also covers subsequent conduct vis a vis the change in such arrangement. One can also say that the doctrine of Accord and Satisfaction goes a step ahead and encapsulates sanctioning of change in contractual obligations with subsequent mandate for performance of such new set of obligations, as opposed to the Doctrine of Waiver which only provides for a person to let go of its part of obligations in a contract.
Plea of Accord and Satisfaction
As the Doctrine seems to have an application on every contractual arrangement, there might be instances wherein one party may try to wriggle out of its contractual obligations on the basis of the plea of the Doctrine, in situations where actual facts might differ from the plea taken. One of the most common practice is the execution of a discharge voucher/ discharge certificate, which are, generally, obtained by the one party from the other in a works contract, for the purpose of putting a defence of discharge of the contract by way of applying the Doctrine. For the purpose of defending oneself against such a plea, the other party to the contract may raise a plea of obtaining such discharge voucher/ discharge certificate by way of ‘fraud', ‘coercion', ‘financial duress' etc.
The Supreme Court has come across such a situation in various instances. In R.L. Kalathia Case10, the Supreme Court has held that even if someone has signed a ‘no-dues certificate' or a discharge voucher, such person is still entitled to the claim amount if he/she can prove such entitlement with adequate supporting material in the nature of oral and documentary evidence, both.
With respect to the adjudication of an application for appointment of an arbitrator filed under Section 11 of the Arbitration Act, the Supreme Court, in the Master Construction Case11, has stated that where the Claimant contends that a discharge voucher or ‘no-claim certificate' has been obtained by way of fraud or coercion and challenges the genuineness of the discharge voucher, the Court will have to ascertain whether any prima facie case is being met out or not by the contending party. The Court had further held that if the contention lacks credibility at a prima facie level, it will not be necessary to refer the dispute for arbitration. A similar approach was adopted by the Supreme Court in the ONGC Mangalore Case12 while dismissing an Application filed under Section 11 of the Arbitration Act.
The Supreme Court, in the Bharat Coking Coal Case13 has also held that if a person has even accepted a final bill, such a person can still raise his unsatisfied claim under the contract agreement before an arbitrator. Similar directions have been passed in the Durga Charan Rautray Case14by the Supreme Court.
Going by the aforesaid discussion, it can be said that the said Doctrine has been applicable for a considerable period of time and therefore, is sacrosanct to the principles of contract. Even though there has been limited deliberation, it can still be said that the Doctrine is embedded in law of contract and applies to today's complex contractual relations. In fact, this Doctrine can prove to be a helping hand in situations that involves spontaneous alterations in contractual terms due to exigencies. The chances of misuse of the Doctrine have also been narrowed down by the Supreme Court making such Doctrine harmoniously applicable in cases relating to contractual arrangements.
1 National Insurance Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267
2 Payana Reena Saminathan and Anr. v. Pana Lana Palaniappa 1913 SCC OnLine PC 40
3 Union of India v. Kishorilal Gupta & Bros AIR 1959 SC 1362, M/s Bharat Heavy Electricals Limited, Ranipur v. M/s Amar Nath Bhan Prakash (1982) 1 SCC 625, M/s P.K. Ramiah and Company v. Chairman & Managing Director, National Thermal Power Corpn. 1994 Supp (3) SCC 126, State of Maharshtra v. Nav Bharat Builders 1994 Supp (3) SCC 83
4 Mayavati Trading Private Limited v. Pradyut Deb Burman (2019) 8 SCC 714
5 Snow View Properties Ltd. v. Punjab & Sind Bank AIR 2010 Cal 94
6 Waman Shriniwas Kini v. Ratilal Bhagwandas and Co. AIR 1959 SC 689
7 Damodar Valley Corporation v. K.K. Kar (1974) 1 SCC 141
8 Jagad Bandhu Chatterjee v. Smt. Nilima Rani & Ors. (1969) 3 SCC 445, Krishna Bahadur v. Purna Theatre (2004) 8 SCC 229
9 Ibid 2
10 R.L. Kalathia and Company v. State of Gujarat (2011) 2 SCC 400
11 Union of India v. Master Construction Company (2011) 12 SCC 349
12 ONGC Mangalore Petrochemicals Limited v. ANS Constructions Limited and Anr. (2018) 3 SCC 373
13 Bharat Coking Coal Ltd. v. Annapurna Construction AIR 2003 SC 3660
14 Durga Charan Rautray v. State of Orissa (2012) 12 SCC 513
Originally published 27 August, 2020
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