Quantified Settlement Notes as Accord and Satisfaction of Accrued Claims: Delhi High Court clarifies the reach of Sections 62 and 63 of the Contract Act

Introduction

This commentary analyzes the Delhi High Court’s decision in M/S B S Enviro N Infracon Private Limited v. VIJ Contracts Pvt. Ltd., Citation Code: 2025 DHC 9230-DB, decided on 17 October 2025 by a Division Bench comprising Hon’ble Mr. Justice Anil Kshetarpal and Hon’ble Mr. Justice Harish Vaidyanathan Shankar. The appeal arose from the dismissal of a commercial recovery suit where the central controversy was whether a document dated 26 September 2019 (Ex. PW1/D2/Annexure A9) recorded a final settlement—or at least an accord and satisfaction or novation—of all claims that had accrued up to that date between a subcontractor (the appellant) and a principal contractor (the respondent).

The dispute was rooted in a subcontract for supply, installation, testing, and commissioning of an 800 KLD Sewage Treatment Plant (STP) at Haryana Vishwakarma Skill University, Dudhola, Palwal. The respondent was awarded the principal contract by IRCON Infrastructure and Services Ltd. (IISL) and issued a Letter of Intent (LOI) to the appellant for Rs. 1,15,00,000/- plus GST, with stage-wise payment terms and a back-to-back payment arrangement linked to IRCON.

After the appellant raised invoices for supplied materials and alleged non-payment for pending amounts, an MSME Samadhaan notice was issued by the appellant. Following an intervention by IRCON, a tripartite meeting on 26 September 2019 produced a signed calculation sheet noting the total invoices, retention/security and performance bank guarantee (PBG) items, TDS, amounts paid, and a net balance of Rs. 14,68,165/-, with the statement “MSME notice to be withdrawn by BS Enviro before any further payment.” The respondent then issued two cheques (Rs. 7,00,000/- and Rs. 7,68,165/-), which the appellant encashed. The trial court found this to be a binding settlement/novation and dismissed the suit. The appellant’s first appeal challenged that finding and pressed independent entitlement to “unbilled contract value,” retention, and other amounts.

Summary of the Judgment

The High Court affirmed the trial court’s dismissal. It held:

The document dated 26.09.2019 (Ex. PW1/D2), signed by both sides, quantified the then-outstanding position and, upon the appellant’s receipt and encashment of the two cheques, constituted accord and satisfaction under Section 63 of the Indian Contract Act, 1872 and, in effect, a novation under Section 62 for all claims accrued up to 26.09.2019.
The appellant’s post-facto description that the payment was merely “to keep the contract alive” did not override the contemporaneous, signed computation and the actual acceptance of payment.
The appellant’s claims for “unbilled contract value,” retention sums, additional 5% for supply, and damages lacked the requisite factual and legal foundations—especially given that installation, testing, and commissioning were not performed and the contractually stipulated conditions for release of retention had not matured.
The appeal was dismissed, and the trial court’s decree was affirmed.

Factual and Procedural Background

LOI dated 01.03.2019: Contract value Rs. 1,15,00,000/- + GST; stage payments—advance, 85% on supply/delivery, 10% on installation, 5% on testing and commissioning; retention: 10% of running bills, capped at 5% of contract value, to be released post-Defect Liability Period (DLP) or against Bank Guarantee.
Appellant’s invoices: Nos. 236, 237, 238 (27.03.2019) aggregating Rs. 1,00,22,272/-; materials delivered by 31.03.2019.
Dispute: Appellant alleges non-payment and site not made ready; respondent cites the 26.09.2019 settlement note.
MSME Samadhaan proceedings: Initiated on 10.07.2019 by the appellant; after the 26.09.2019 meeting and the cheques, the appellant nonetheless pursued MSME arbitration, which was dismissed on maintainability (award dated 20.10.2022).
Civil suit CS(COMM) No. 11/2022: Recovery claim of Rs. 50,41,835/- (Rs. 21,84,107/- billed balance + Rs. 28,57,728/- unbilled contract value) plus interest and costs; dismissed by trial court on 03.01.2024, finding binding accord/novation up to 26.09.2019.
First appeal: RFA (COMM) 132/2024 under CPC Section 96 and Commercial Courts Act Section 13; dismissed by the High Court.

Issues

Whether the 26.09.2019 document (Ex. PW1/D2) constituted a full and final settlement—or at minimum, accord and satisfaction/novation—of all claims accrued up to that date.
Whether the appellant could independently recover “unbilled contract value” despite the 26.09.2019 accord.
Whether retention/security, PBG-equivalent amounts, TDS, and an additional 5% on supply were payable independent of the accord.
Whether damages for non-performance were claimable on the pleadings and proof.

Analysis

Precedents Cited and Their Influence

The Division Bench relied on Central Bank of India v. V. Guruviah Naidu & Sons (Leather) Pvt. Ltd., 1991 SCC OnLine Mad 311, which holds that once a compromise agreement is admitted and not controverted, it supersedes prior claims; the creditor cannot insist on the balance thereafter. This principle dovetailed with Sections 62 (novation) and 63 (acceptance of satisfaction) of the Contract Act and was applied to the execution and acceptance of the 26.09.2019 settlement note and its quantified payment.

The High Court did not depend on the MSME arbitral dismissal for res judicata; rather, it treated the arbitral dismissal on maintainability as contextual conduct consistent with the conclusion that the parties had already settled accrued claims as of 26.09.2019, and the appellant’s later attempt to revive them was impermissible.

Legal Reasoning

1) Ex. PW1/D2 as binding accord and satisfaction/novation

The Court closely examined the 26.09.2019 document. Though it did not carry the precise words “full and final settlement,” it:

Quantified the total invoiced amount and all relevant adjustments (security, PBG, TDS, payments made).
Computed a net balance of Rs. 14,68,165/-.
Included a contemporaneous stipulation: “MSME notice to be withdrawn by BS Enviro before any further payment.”
Bore signatures of both parties’ authorized representatives.

Two cheques totaling Rs. 14,68,165/- were issued and encashed. The Court treated this as:

Accord and satisfaction within Section 63: the promisee (appellant) accepted a quantified payment in discharge of claims accrued up to that date; after such voluntary acceptance, insisting on more under the same head is inequitable and legally barred.
Novation within Section 62: the contemporaneous agreement substituted the previously open-ended monetary claims up to 26.09.2019 with a quantified and satisfied monetary arrangement, obviating performance of the original obligations for that period.

The appellant’s subsequent assertion that payment was “to keep the contract alive” was undermined by the formal, signed computation, the condition regarding MSME notice withdrawal, and the actual encashment. The Court emphasized that loose statements in later correspondence or testimony cannot override the contemporaneous written accord and the parties’ conduct.

2) “Unbilled contract value” and the indivisible contract argument

The appellant claimed Rs. 28,57,728/- as “unbilled” under a composite contract for supply, installation, testing, and commissioning. The Court rejected this because:

Only supply was completed; no installation, testing, or commissioning was performed. On the appellant’s own showing, core performance under the composite contract remained outstanding.
No pleading or proof established an entitlement to unbilled amounts independent of the 26.09.2019 accord; nor was there proof of substantial performance that would justify payment for downstream stages.
Ex. PW1/D2, by quantifying and settling accrued claims up to 26.09.2019, left no room to claim “unbilled” amounts for unperformed stages as of that date.

3) Retention, PBG-equivalent sums, and TDS

Under the LOI, retention was to be released after the DLP or against furnishing an equivalent PBG. The Court held:

These sums are conditional releases, not automatic payments; conditions had not matured because installation and commissioning were not done, and DLP had not commenced or concluded.
The appellant did not prove entitlement to release of retention or PBG-related sums independent of the accord.
As for TDS, it was part of the settlement calculus and is a statutory deduction mechanism; the appellant did not establish a separate cash entitlement over and above the quantified settlement.

4) The “additional 5% on supply” claim

The appellant argued it had billed only 80% though 85% was due on supply. The Court found no evidentiary basis to carve out this 5% as an independent entitlement outside Ex. PW1/D2. The net figure of Rs. 14,68,165/- reflected the parties’ computed settlement for supplies made up to 26.09.2019, which the appellant accepted. Re-opening this would contradict the accord.

5) Damages

The claim for damages for non-performance was neither distinctly pleaded nor evidenced beyond invoice and unbilled claims. There was no finding of bad faith obstruction by the respondent. On this record, no damages could be awarded.

Impact and Prospective Significance

The judgment crystallizes several important practice points for construction and infrastructure contracts, particularly in back-to-back, staged-payment structures:

A jointly signed settlement note that quantifies balances and is followed by acceptance of the computed payment will be treated as accord and satisfaction (Section 63) and, where appropriate, novation (Section 62) for all claims accrued up to the date of that note—even without the talismanic phrase “full and final settlement.”
Conditions embedded in such notes—such as a requirement to withdraw MSME Samadhaan notices before further payment—evidence the parties’ intention to close out prior disputes. Failure to honor these conditions may undermine the claimant’s later narrative and support the inference of an accord on past claims.
“Unbilled contract value” in composite contracts cannot be recovered without demonstrating the corresponding performance or a contractual trigger for payment. Mere supply of equipment does not equate to substantial performance of an installation-and-commissioning contract.
Retention and PBG-linked sums are conditional and tied to performance milestones (e.g., completion, DLP). Courts will not order their release absent proof that conditions have matured or that the parties’ settlement carved them out separately.
MSME proceedings do not insulate a claimant from the consequences of a later settlement with the opposite party. Where a post-notice settlement is reached and payments are accepted, courts may treat accrued claims as closed as of the settlement date.

Practically, subcontractors and principal contractors alike should ensure that any interim payment agreements or “meeting notes” accurately capture whether they are intended to be final (for accrued claims), interim on account, or expressly without prejudice. If parties intend to preserve claims, a clear reservation must be recorded; otherwise, quantified acceptance will likely foreclose re-litigation of past accruals.

Complex Concepts Simplified

Accord and Satisfaction (Section 63, Contract Act): When a creditor accepts a different or lesser performance than originally due, in satisfaction of the obligation. Under Indian law, such acceptance discharges the debt; consideration beyond acceptance is not required. This differs from traditional common-law rules.
Novation (Section 62, Contract Act): Substituting a new contract for an old one, or altering/rescinding the original, such that the original need not be performed. A signed settlement note quantifying obligations and accepted payment can operate as a novation for accrued claims.
Back-to-Back Payments: Payments by a contractor to a subcontractor linked to the contractor receiving funds from the principal employer. Such clauses do not automatically defeat subcontractor claims but often shape timing and risk allocation; here, they were eclipsed by the settlement note.
Retention Money: A portion withheld from running bills as security for proper performance and defects rectification, typically released after DLP or against bank guarantees.
PBG (Performance Bank Guarantee): A bank-issued guarantee securing performance; absence or expiry can affect retention release.
DLP (Defect Liability Period): The period after completion during which the contractor must rectify defects; retention release is often tied to DLP completion.
MSME Samadhaan: A statutory mechanism for MSMEs to lodge payment delay grievances. Settlement with the opposite party after issuing notice can effectively close accrued claims if payment is accepted pursuant to that settlement.
Composite/Indivisible Contract: A contract covering multiple stages (e.g., supply, installation, commissioning) as a single package. Entitlements for later stages typically depend on performance of those stages or agreed triggers.

Practice Pointers

If parties intend a payment as “on account” only, record that expressly, including a reservation of rights to claim further amounts and a statement that the settlement is without prejudice.
If a pre-existing statutory or arbitral proceeding exists (e.g., MSME Samadhaan), specify whether it will be withdrawn and whether the settlement is final as to past claims.
Be careful when encashing cheques tendered with an agreed settlement note: acceptance will likely be treated as accord and satisfaction for the quantified claims.
For retention/PBG/TDS issues, align documentary records with contractual triggers (e.g., DLP commencement/completion, bank guarantees furnished) to avoid disputes about maturity of release.

Conclusion

The Delhi High Court’s ruling underscores that in commercial contracting, substance and conduct trump labels. A contemporaneous, signed computation of liabilities followed by acceptance of the quantified payment operates as a binding accord and satisfaction—and often a novation—of accrued claims up to that date, even absent an explicit “full and final settlement” clause. The Court reinforced that unperformed stages in composite contracts cannot be monetized as “unbilled value” without contractual triggers and proof of performance. Retention and PBG-tethered amounts remain conditional unless released by agreement or maturity of conditions.

The key takeaway is clear: parties must draft and act with precision. If the intent is to settle accrued disputes, a quantified note plus acceptance will close the ledger up to that date. If the intent is not to settle fully, reservations must be explicit. This decision will guide courts and contracting parties in assessing the legal effect of settlement notes and partial payments in the construction and infrastructure sectors, especially where MSME and back-to-back payment dynamics intersect.

Case Snapshot

Case: M/S B S Enviro N Infracon Pvt. Ltd. v. VIJ Contracts Pvt. Ltd.
Court: Delhi High Court (Division Bench)
Citation: 2025 DHC 9230-DB
Date: 17 October 2025 (reserved on 09 October 2025)
Bench: Justice Anil Kshetarpal; Justice Harish Vaidyanathan Shankar
Holding: Appeal dismissed; Ex. PW1/D2 constitutes accord and satisfaction/novation of accrued claims up to 26.09.2019; no entitlement to unbilled value, retention, additional 5% on supply, or damages on the record.
Statutes applied: Sections 62 and 63, Indian Contract Act, 1872; Section 96 CPC; Section 13, Commercial Courts Act, 2015.
Precedent relied upon: Central Bank of India v. V. Guruviah Naidu & Sons (Leather) Pvt. Ltd., 1991 SCC OnLine Mad 311.