Holding

The 1991 agreement did not extinguish the 1987 agreement; the cause of action remained continuous and the claim was not barred by limitation.

Summary

The respondents entered into a 1987 agreement with Lata Construction for the purchase of a flat, paid substantial sums, but the flat was never delivered and was later occupied by another. In 1991 the parties executed a fresh agreement providing for compensation of Rs.9,51,000 in lieu of the flat, expressly stating that the 1987 agreement would remain unaffected and would terminate only upon full payment of the compensation. The respondents filed a complaint before the National Consumer Disputes Redressal Commission for deficiency in service and were awarded the compensation amount with interest and additional damages. The appellants appealed, contending that the claim was barred by the two‑year limitation under Section 24A of the Consumer Protection Act, 1986 and that the 1991 agreement had novated the 1987 contract, thereby extinguishing the cause of action. The Supreme Court held that the 1991 agreement did not constitute a full novation; the rights under the 1987 agreement persisted until the compensation was fully paid, making the cause of action continuous and the claim timely. Consequently, the appeal was dismissed and the Commission's award upheld.

Issues considered

Whether the complaint filed before the Consumer Commission was barred by the two‑year limitation period under Section 24A of the Consumer Protection Act, 1986.
Whether the 1991 agreement novated the 1987 agreement, thereby extinguishing the respondents' rights under the earlier contract.
Whether the respondents could invoke the deficiency in service provision under the Consumer Protection Act despite the existence of the 1991 compensation agreement.

Legislation cited

Consumer Protection Act, 1986s. 24A
Indian Contract Act, 1872s. 62

Subjects

limitation periodconsumer protectiondeficiency in servicenovationcontract lawcontinuing cause of actionspecific performancecompensation

Judgment

A LATA CONSTRUCTION AND ORS.
v.
DR. RAMESHCHANDRA RAMNIKLAL SHAH AND ANR.

AUGUST 12, 1999

B [S. SAGHIR AHMAD AND R.P. SETHI, JJ.]

Consumer Protection Act, 1986-Section 24A-Respondents entered
into an Agreement with Appellant No. I in 1987 for purchase of a flat to be
built by the appellants afterwards-Part payment made by the respondents-
C Appellants failed to deliver possession of the flat-later the flat found to be
in possession ofsome other person-Appellants entered into a fresh Agreement
with (he Respondents in 1991-Agreed to pay compensation to the
Respondents in lieu of the flat on or before 30-05-1991-New Agreement ...
stipulated that the 1987 Agreement would remain unajfected-1987 Agreement
D was to be treated as terminated only on full payment of compensation-
Appellants neither delivered possession of the flat nor paid the said amount-
Complaint fi/ed before the Natienal Commission in July, 1993-Claim decreed
for the compensation amount in lieu offlat-Order ofthe National Commission
appealed on ground of limitation-Held, as 1991 Agreement not complied
with, the 1987 Agreement remained in force-Appellants were under a
E constant obligation to provide a flat to the Respondents under the previous
Agreement-Appellants failing to provide a flat, cause of action continued
to exist-Claim was not beyond time. .
.

Contract Act, 1872-Section 62-Agreement between Appellant No. I
and the Respondents in 1987-Respondents to purchase flat from Appellants
F to be built later-Appellants failed to deliver possession ofthe flat-Appellants
entered into afresh Agreement with the respondents in 199/_:_Agreed to pay
compensation to the respondents in lieu of the flat on or before 30-05-1991-
New Agreement stipulated that the 1987 Agreement would remain unaffected-
1987 Agreement was to be treated as terminated only on full payment of
G compensation-Appellants neither delivered possession of the flat nor paid
the said amount-Complaint filed before the National Commission for the
amount of compensation-Claim decreed for compensation amount-Order
of the National Commission appealed against-Contended that after 1991
Agreement, the rights under the 1987 Agreement could not be claimed-No
remedy available to the respondents before the National Commission-
H 412
LATA CONSTRUCTION v. DR. R.R. SHAH 413
; Respondents could approach civil court for recovery of the compensation A
amount-Held, as 1991 Agreement not complied with, the terms of 1987
Agreement remained in force-Respondents could legally claim enforcement
of right under the 1987 Agreement-Entitled to file a complaint before the
.... National Commission for compensation on account of deficiency in service.
The respondents who were in Libya had entered into an agreement B
dated 27-01-1987 with Appellant No. 1 according to which the appellants
were to develop, construct and hand over possession of flat No. AG-2 on the
ground floor with an area of 670 sq. ft. situated in a building named
"Madhusudan" in Ville Parle, Bombay. On 27th of January, 1987, the
respondents paid a sum of Rs. 3,38,000 to the appellants in cash but without C
any receipt and a sum of Rs. 32,000 by cheque against receipt. The respondents
also paid a further sum of Rs. 2,00,000 to the appellants on various dates
as demanded by them. In June, 1988 when the appellants returned from
Libya, they requested the appellants to deliver, on payment of balance amount
~f sale consideration, possession of the flat to them as the construction of D
the building was complete. However, the appellants refused to accept the
payment and deliver the possession on the plea that the building was still
under construction particularly as the electricity, plumbing etc. work was
in progress. The appellants assured the respondents that as and when the
building would be completed in all respects, they would deliver the possession
by accepting the balance amount. In April, 1990, when the respondents again E
came back from Libya and visited the building, they found the flat locked,
with a name plate ofsome other person on the main door. In January, 1991
after returning from Libya, the respondents demanded the possession of the
flat, but the appellants expressed their inability to give possession of the Oat
to the respondents in compliance of the agreement dated 27-01-1987. The F
appellants, however, entered into a fresh agreement with the respondents on
23-02-1991 agreeing to pay to the respondents a sum of Rs. 9,51,000 in lieu
of the Oat in three instalments on or before 30-05-1991. The said agreement
was without prejudice to their right under the 1987 agreement. Since the
appellants failed to honour the commitments under both the agreements, the G
respondents approached the National Consumer Disputes Redressal
Commission. The Commission decreed the claim of the respondents for a
sum of Rs. 9,51,000 together with costs and interest at the rate of 18% per
annum with effect from 23-02-1991. A further sum of Rs. 1,00,000 w1;1s
a\\owed as compensation whereas a sum of Rs. J 0,000 was allowed as costs
of the proceedings. Hence this appeal. · H
414 SUPREME COURT REPORTS [1999) SUPP. I S.C.R.

A The appellants contended that the claim.of the respondents before the
National Commission was barred by limitation as it was filed beyond the
period of two years prescribed under Section 24-A of the Consumer Protection
Act, 1986. ~ccording to the appellants, since the respondents had entered
into a fresh agreement with the appellants under which the entire amount ....
B of Rs. 9,51,000 had to be paid on or before 30th May, 1991, the respondents,
if the amount was not paid, could have instituted a claim petition before the
National Commission before 30-05-1993, and since the claim was filed in
July, 1993, it was clearly beyond time. This plea had been rejected by the
National Commission on the ground that as the right under the 1987
agreement had not been given up by the respondents, there was a continuing
C cause of action running against the appellants and, therefore, the claim was
not beyond time. It was further contended that in view of the substitution of
the 1987 agreement by a fresh 1991 agreement wherein the respondents
themselves had agreed to receive Rs. 9,51,000 as compensation for Oat
having not been provided to them under the earlier agreement, they could
only approach the civil court for recovery of that amount and could not
D legally institute the claim petition before the National Commission for
compensation on ground of"deficiency in service". This plea had also been
rejected by the National Commission. In addition to the above, the appellants
also contended that the amount of compensation allowed by the National
Commission was unjustified.
E Dismissing the appeal, this Court

HELD : 1.1. In the agreement dated 23-02-1991 it was specifically
stipulated that the rights under the agreement dated 27-01-1987 would
remain unaffected. It was for this reason that in the claim petition filed
F before the Commission, it was clearly mentioned that their right under the
agreement dated 27-01-1987 as also those underthe agreement dated 23-02-
1991 may be enforced. It was also specifically mentioned in the second
agreement that the first agreement of 1987 would be treated as terminated
only on full payment of the _stipulated amount of Rs. 9,51,000 to the
respondents. Since the rights under the agreement of 1987 had not been
G given up and the appellants were constantly under an obligation to provide
a Oat to the respondents and deliver possession thereof to them, the
Commission rightly treated "cause of action" to be a "continuing cause of
action" and came to the right conclusion that the 'claim was not beyond time.
(418-C-D-E).

H 1.2. Under the terms of the agreement dated 23-02-1991, it was
LAT A CONSTRUCTION v. DR. R.R. SHAH 415'

- stipulated that ifthe entire amount of Rs. 9,Sl,000 was not paid by 30-05-
1991, the whole of the amount would become payable at once and it would be
open to the respondents to claim payment of full amount together with
A

interest after giving seven days' notice to the appellants. It was further
stipulated that in case of default, the amount already paid by the appellants
shall stand forfeited. Since the whole of the amount had not been paid to the B
respendents who could recover the whole of the amount together with interest
from the appellant on giving seven days' notice, the rights under the old
agreement did not come to an end and they could legally claim specific
performance of that agreement for a Oat being provided to them. Their claim
was, therefore, not barred by time. [418-E-F-GJ

2. One of the essential requirements of'Novation', as contemplated by
c
Section 62 of the Indian Contract Act, 1872, is that there should be complete
substitution of a new contract in place of the old. It is in that situation that
the original contract need not be performed. Substitution of a new contract
in place of the old contract which would have the effect of rescinding or
completely altering the terms of the original contract, has to be by agreement D
between the parties. A substituted contract should rescind, alter or extinguish
the previous contract. But if the terms of the two contracts are inconsistent
and they cannot stand together, the subsequent contract cannot be said to be
in substitution of the earlier contract. In the instant case, the rights under
tl'!e original contract were not given up as it was specifically provided that E
the rights under the old contract shall stand extinguished only on payment
of the entire amount of Rs. 9,Sl,000. Since the amount was not paid by the
appellants as stipulated by the subsequent contract, the rights under the
original contract -were still available to the respondents and they could
legally claim enforcement of those rights. Obviously, under the original F
contract, the appellants were under an obligation to provide a Oat to the
respondents. This right would come to an end only when the appellants had,
in pursuance of the subsequent contract, paid the entire amount of Rs.
9,51,000 to the respondents. Since they had not done so, the respondents
could legally invoke the provisions of the earlier contract and claim before
the Commission that there was "deficiency in service" on the part of the G
appellants. (419-E-F-G-H; 420-A)
3. In terms of the judgment passed by the Commission, the entire
amount due from the appellants has already been paid to the respondents
including interest at the rate of 18% per annum on the principal of Rs. 9,
51,000. That being so, the plea of the appellant that the decree passed by the H
416 SUPREME COURT REPORTS (1999) SUPP. 1 S.C.R.

A Commission in respect of Rs. 1 lakh as compensation on the account of the
pain and suffering undergone by the respondents may be reversed c8iinot be
entertained. [420-D]

f.,ucknow Development Authority v. MM Gupta, [1994) l SCC 243,
relied on. . - ·
B
. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2418of1996.

From the Judgment and Order dated 22.11.1995 of the National Consumer
Disputes Redressal Commission, New Delhi in O.C. No. 202 of 1993.
c Shekhar B. Prabhavatkar, Nikhil Sakhardande and A. M. Khanwilkar for
the Appellants.

Sandeep Narain for the Respondents.

D The Judgment of the Court was delivered by

S. SAGHIR AHMAD, J. This appeal is directed against the judgment
and order dated 22nd November, 1995 passed by the National Consumer
Disputes Redressal Commission, New Delhi (for short, 'the National
E Commission').

The respondents had approached the Commission with the complaint
that the appellants who were developers and had promised, under a written .....'
•
agreement dated 27. l.1987, to provid~ a flat to them, had failed to do so and,
therefore, they were guilty of "deficiency in service." It was indicated in the
F complaint that the respondents who were, at that time, in Libya and wanted
to settle in India, had entered into an agreement. dated 27. l .1987 with M/s.
Lata Construction, the appellant No. I, which stipulated that the appellants
would develop, construct and hand over possession of flat No. AG-2 on the
ground floor with. an area of 670 sq. ft. situated in a building named
I.
"Madhusudan", on Plot No. 138, T.P.S. 11 and C.T.S. No. 1166 and 1166(1) in
G Vile Par'te, Bombay 400057. It was indicated that the appellants had earlier
entered into a developme~t agreement on 9.12.1985 with the owners in respect
of the said property to develop, construct and to sell flats in the proposed
building which was to be constructed on ownership basis. On 27th of January,
1987, the respondents had paid a sum of Rs. 3,38,000 to the appellants in cash
H but without any receipt and a sum of Rs. 32,000 by cheque against receipt.

•
~
I
LATA CONSTRUCTION v. DR. R.R. SHAH [S. SAGHIR AHMAD, J.] 417
The respondents also paid to the appellants on various dates, as and when A
demanded by them, a further sum of Rs. 2,00,000 against receipt. In June, 1988
when the respondents returned from Libya, they requested the appellants to
deliver, on payment of balance amount of sale consideration, possession of
the flat to them as the construction of the building was complete but the
appellants refused to accept the payment and deliver possession on the plea
that the building was still under construction particularly as the electricity, B
plumbing, tiling and fencing work was in progress. The appellants, however,
assured the respondents that as and when the building would be completed
in all respects, they would accept the balance amount of sale consideration
and deliver possession to them. In April, 1990, when the respondents again
came back from Libya on a short visit to India and visited the building, they C
found that the flat was locked and outside the main door of the flat, a name
plate of"Indira Joshi" had been put up. The respondents returned from Libya
/ in January, 1991 and when they demanded the possession of the flat, the
appellants expressed their inability to give possession of the flat to the
respondents in compliance of the agreement dated 27. l.1987. The appellants, D
however, entered into a fresh agreement with the respondents on 23.2.1991
agreeing to pay to the respondents a sum of Rs. 9,51,000 in lieu of the flat
in three instalments on or before 30.5.1991 as under:-
l. Rs. 3,00,000 on or before 20.3.1991
2. Rs. 3.00.000 on or before 20.4.1991 E
3. Rs. 3,51,000 on or before 30.5.1991

The respondents had entered into a fresh agreement with the appellants ·
without prejudice to their rights under the earlier agreement dated 27. l .1987.
Since the appellants did not honour the commitments under both the F
agreements, the respondents approached the National Commission which,
decreed the claim of the respondents for a sum of Rs. 9,51,000 together with
interest at the rate of 18% per annum with effect from 23 .2.1991 till the date
of payment. Another sum of Rs. 1,00,000 was allowed as compensation for
pain and suffering undergone by the respondents. The Commission also
allowed a sum of Rs. l 0,000 to the respondents as costs of the proceedings. G

Learned counsel appearing on behalf of the appellants has contended
that the claim instituted by the respondents before the Commission was
beyond time inasmuch as it was filed beyond the period of two years prescribed
under Section 24-A of the Consumer Protection Act, 1986 (for short, 'the
Act'). It is contended that since the respondents had entered into a fresh H
418 SUPREME COURT REPORTS [1999] SUPP. 1 S.C.R.

A agreement with the appellants under which the entire amount of Rs. 9,51,000
·had to be paid on or before 30th of May, 1991, the respondents, if the amount
was not paid, could have instituted the claim petition before the Commission
within the period ofHmitation starting from 31.5.1991, and since the claim was
filed in July, 1993, it was clearly beyond time. This plea has been negatived
B by the Commission on the ground that since the right under the agreement
of 1987 had not been given up by the respondents, there was a continuing
cause of action running against the appellants and the claim was, therefore,
not beyond time.
A perusal of the agreement dated 23rd of February, 1991 would show
C that it was specifically stipulated therein that the rights under the agreement
dated 27th of January, 1987 would remain unaffected. It was for this reason
that in the claim petition filed before the Commission, it was clearly mentioned
that their rights under the agreement dated 27th of January, 1987 as also those
under the agreement dated 23rd of February, 1991 may be enforced. It was
also specifically mentioned in the second agreement that the first agreement
D of 1987 would be treated as terminated only on full payment of the stipulated
amount of Rs. 9,51,000 to the respondents. Sine~ the rights under the agreement
of 1987 had not been given up and the appellants were constantly under an
obligation to provide a flat to the respondents ar{d deliver possession thereof
to them, the Commission rightly treated "cause of action" to be a "continuing
E. cause of action" and came to the right conclusion that the claim was not
beyond time.
Moreover, under the terms of the agreement dated 23rd of February,
1991, it was stipulated that if the entire amount of Rs; 9,51,000 was not paid
by 30th May, 1991, the whole of the amount would become payable at once
F and it would be open to the respondents to claim payment of full amount
together with interest after giving seven days' notice to the appellants. It was
further stipulated that in case of default, the amount already paid by the
appellants shall stand forfeited. Since the whole of the amount had not been
paid to the respondents who could recover the whole of the amount together
with interest from the appellant on giving seven days' notice, the rights under
G the old agreement did not come to an end and they could legally claim specific
performance of that agreement for a flat being provided to them. Their claim
was, therefore, not barred by time.
It was next contended that the agreement dated 27 .1.1987 having been
substituted by a fresh agreement dated 23 .2.1991, under which the respondents
H themselves had agreed to receive Rs. 9,51,000 as compensation for the flat not
LATA CONSTRUCTION v. DR. R.R. SHAH [S. SAGHIRAHMAD, J.] 419

having been provided to them under the earlier agreement, they could only A
approach the civil court for recovery of that amount but could not legally
institute the claim petition before the Commission for compensation on the
ground of "deficiency in service."

This plea has been rejected by the National Commission by placing
reliance upon the decision of this Court in Lucknow Development Authority B
v. MM Gupta, [1994] l SCC 243.

We have already held above _that the rights under the earlier agreement
of 1987 were kept alive even after the second agreement. The rights under the
first agreement had not been given up and there was no substitution of the C
earlier agreement in its entirety by the new agreement.

We may, at this stage, refer to the provisions of Section 62 of the Indian
Contract Act which provides as under :

"If the parties to a contract agree to substitute a new contract for it, D
or to rescind or alter it, the original contract need not be performed."

This provision contains the principle of "Novation" of contract.

One of the essential requirements of 'Novation'; as contemplated by
Section 62, is that there should be complete substitution of a new contract E
in place of the old. It is in that situation that the original contract need not
be performed. Substitution of a new contract in place of the old contract
which would have the effect of rescinding or completely altering the terms of
the original contract, has to be by agreement between the parties. A substituted
contract should rescind or alter or extinguish the previous contract. But if the
terms of the two contracts are inconsistent and they cannot stand together, F
the subsequent contract cannot be said to be in substitution of the earlier
contract.

In the instant case, the rights- under the original contract were not given
up as it was specifically provided in the subsequent contract that the rights G
under the old contract shall stand extinguished only on payment of the entire
amount of Rs. 9,51,000. Since the amount was not paid by the appellants as
stipulated by the subsequent contract, the rights under the original contract
were still available to the respondents and they could legally claim enforcement
of those rights. Obviously, under the original contract, the appellants were
under an obligation to provide a flat to the respondents. This right would H
420 SUPREME COURT REPORTS [1999) SUPP. 1 S.C.R.

A come to an end only when the appellants had, in pursuance of the subsequent
contract, paid the entire amount of Rs. 9,51,000 to the respondents. Since they
had not done so, the respondents could legally invoke the provisions of the
earlier contract and claim before the Commission that there was "deficiency
in service" on the part of the appellants.

B We may also point out that the appellants had filed only a written
statement before the Commission but had not produced any evidence in
support of their pleas. Even an affidavit in support of what they had stated
in the written statement was not filed before the Commission. Their case, thus
was not supported by any evidence and the Commission, in the facts and
C circumstances of the case, was justified in decreeing the claim of the
respondents.

Learned counsel for the parties have stated before us that in terms of
the judgment passed by the Commission, the entire amount due from the -·
\.
appellants has already been paid to the respondents including interest at the
D rate of 18 per cent per annum on the principal amount ofRs.9,51,000. That
being so, we are not prepared to entertain the plea of the appellants that the
decree passed by the Commission in respect of Rs.1 lakh as compensation
on account of the pain and suffering undergone by the respondents may be
reversed.

E We find no merit in the appeal and the same is accordingly dismissed
with no order as to costs.

R.C.K. Appeal dismissed.