Commercial transactions often give rise to disputes where a debtor pays less than what was originally owed, and the creditor accepts this reduced amount. Can the creditor later demand the remaining balance?
Under Indian Contract Law, this question is governed by Section 63 of Indian Contract Act, 1872, which empowers a promisee (creditor) to accept any satisfaction he thinks fit in discharge of a promisor’s obligation. Once such acceptance occurs voluntarily, the creditor cannot later insist on the balance.
This doctrine—commonly referred to as “discharge by accord and satisfaction”—differs from English law, where payment of a lesser sum cannot discharge the whole debt without additional consideration. The Indian approach, more equitable and pragmatic, recognises freedom of the promisee to remit or modify obligations.
The recent Delhi High Court judgment in M/s B S Enviro N Infracon Pvt Ltd v. Vij Contracts Pvt Ltd (2025) reaffirmed this principle, holding that once a creditor accepts a lesser amount in full satisfaction, it is inequitable to reopen the claim.
Statutory Basis: Section 63 of the Indian Contract Act, 1872
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.
Key Features
- Unilateral Power of the Promisee: The section allows the promisee to unilaterally dispense with performance or accept any satisfaction, even without consideration.
- Departure from English Law: Under Pinnel’s Case and Foakes v. Beer, part payment of a debt does not discharge the entire debt unless supported by fresh consideration. Indian law departs from this, aligning with principles of fairness and practicality.
Forms of Remission:
- Complete remission: Full waiver of the obligation.
- Partial remission: Acceptance of lesser sum or modified performance.
- Substitution: Acceptance of another satisfaction, such as goods or service, instead of money.
No Consideration Required:
- The promisee’s decision is binding even without a reciprocal act by the promisor.
Relation to Section 62:
- Section 62 deals with novation, where both parties agree to substitute a new contract. Section 63, however, involves a unilateral act of the promisee dispensing with performance.
Concept of Accord and Satisfaction
“Accord” denotes the agreement whereby the creditor agrees to accept something different from or less than originally due. “Satisfaction” is the performance of that accord. Together, they result in the discharge of the original obligation.
In the Indian context:
- Accord = Promisee’s acceptance of a lesser sum or different satisfaction.
- Satisfaction = Debtor’s performance of that lesser obligation.
Once both elements occur voluntarily, the creditor cannot revive the original claim.
Delhi High Court Decision (2025): B S Enviro N Infracon Pvt Ltd v. Vij Contracts Pvt Ltd
Background of the Dispute
The appellant (a subcontractor) supplied and installed sewage-treatment plant components for the respondent contractor. A dispute arose regarding the non-payment of ₹50.41 lakh under the subcontract.
A meeting on 26 September 2019 produced a written statement showing all dues reconciled and a balance of ₹ 14.68 lakh, accompanied by the condition that the appellant would withdraw its MSME complaint before further payment. The appellant accepted and encashed two cheques totalling this amount, but later sued for the remaining balance
Trial Court Findings
The Trial Court dismissed the suit, holding that the 26 September 2019 document recorded a full and final settlement—an accord and satisfaction—binding on both parties.
Issues on Appeal
- Whether the document constituted a complete settlement or was merely an interim payment.
- Whether acceptance of the lesser amount prevented the appellant from seeking further sums.
Court’s Reasoning
The High Court analysed Sections 62 and 63 in tandem. It found that:
- The signed document clearly computed payments and reflected mutual acknowledgement.
- The appellant encashed cheques without protest, evidencing acceptance of satisfaction.
- The plea that the payment was “to keep the contract alive” was inconsistent with the records.
- Once the creditor accepted and encashed the amount, it was inequitable to demand the balance.
The Court relied on Central Bank of India v. V. Guruviah Naidu & Sons (1991 SCC Online Mad 311), where acceptance of a compromise barred further claims.
Outcome
The appeal was dismissed, affirming that acceptance of a lesser sum constitutes complete satisfaction of the claim, unless proved to be coerced, conditional, or obtained under fraud.
Legal Principles Emanating from the Case
Voluntary Acceptance Equals Discharge: Once the creditor voluntarily accepts a lesser amount in satisfaction, the debt stands discharged under Section 63.
Written Acknowledgement Strengthens Finality: Signed settlements or cheques endorsed as “full and final” carry high evidentiary value.
No Fresh Consideration Required: Indian law validates remission solely on the promisee’s acceptance.
Conduct Matters: Encashing the cheque or accepting the benefit without protest implies consent.
Equitable Estoppel: The creditor is estopped from claiming more after enjoying the benefit of remission.
Exceptions:
- If consent is obtained by fraud, coercion, or mistake.
- If the settlement expressly states it is provisional or “without prejudice.”
- If subsequent obligations arise beyond the date of settlement.
Relationship Between Sections 62 and 63
| Section 62 (Novation/Alteration) | Section 63 (Remission/Acceptance) |
|---|---|
| Requires mutual consent of both parties | May be exercised unilaterally by the promisee |
| Creates a new contract | Discharges or modifies existing obligation |
| Consideration presumed through mutual agreement | No consideration necessary |
| Used when the terms of the contract change | Used when the creditor waives or reduces the obligation |
Conclusion
Delhi High Court’s ruling in M/s B S Enviro n Infracon Pvt. Ltd. v. VIJ Contracts Pvt. Ltd. reaffirms the enduring principle of Section 63 of the Indian Contract Act—that a creditor, by consent, may accept a lesser sum in full satisfaction of a larger debt, and such acceptance extinguishes the entire claim. Once the promisee voluntarily accepts part performance as full discharge and acts upon it, he cannot later demand the balance.
In commercial life, compromise is often wiser than insistence. Section 63 ensures that the law respects such pragmatic choices. The case illustrates how part payment, coupled with clear consent, can lawfully and conclusively extinguish full debt, fostering certainty and fairness in contractual dealings.