Contract Law

M. Sham Singh v. State of Mysore

AIR 1972 SC 2440; (1973) 2 SCC 303

Facts

The State of Mysore granted Sham Singh an overseas scholarship.
He executed a bond requiring him:
to complete his studies;
to return to Mysore;
to serve the Government for five years if called upon;
to refund the scholarship and other amounts upon breach.
After completing one course, he returned to India.
He later requested permission to go back to the United States for further studies at his own expense.
The Government granted permission subject to the condition that he would serve the Government for five years after returning.
Sham Singh went abroad and never returned to serve.
The State sued to recover money under the bond.
He argued that the Government’s later permission created a new arrangement and discharged the original contract.

Whether the subsequent permission amounted to novation, rescission or alteration under Section 62.
Whether Sham Singh remained liable under the original bond.

Under Section 62, an original contract need not be performed where the parties:
substitute a new contract;
rescind it; or
alter it.
Novation requires a clear intention to substitute the old contract with a new one.
A later permission, extension or supplementary arrangement does not discharge the original contract unless the two obligations are inconsistent or substitution is clearly intended.
The contracts and communications must be read together.

The Government did not release Sham Singh from the service obligation.
Its permission expressly repeated that he must serve for five years after returning.
The subsequent arrangement therefore confirmed, rather than extinguished, the essential condition of the original bond.
Allowing further studies at his own cost only modified the timetable and circumstances of performance.
It did not substitute an entirely new obligation.
The Court found no intention to:
cancel the original bond;
waive repayment;
abandon the Government’s right to service.
Sham Singh’s failure to return was a direct breach of the continuing obligation.
The fact that the Government initially did not provide employment within six months of his first return did not release him after he voluntarily sought and obtained permission to continue his studies subject to renewed service conditions.
The original and subsequent arrangements formed part of one continuing contractual relationship.

The Supreme Court held that the original bond had not been discharged by novation.
Sham Singh was liable to refund the amounts in accordance with the enforceable terms of the bond.
Use this case for: novation under Section 62 requires clear substitution; a supplementary arrangement consistent with the original contract does not discharge it.