In this blog post, Janaki Shinkre, a practicing Company Secretary, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about novation of contract of apprentices.
Introduction
A contract is a voluntary, deliberate, written or spoken agreement, especially one concerning employment, sales, or tenancy that is intended to be enforceable by law.[2]Cambridge Dictionary describes “Apprentice” as someone who has agreed to work for a skilled person for a particular period and often for low payment, to learn that person’s skills. Apprenticeship is that phase of life where one is working at the end of the hierarchy in an organization, with little or no pay and has very little knowledge and experience or skill, and is described by many as a very difficult phase as one is balancing work and studies and managing with very little resources!
Apprenticeships can be found in almost every career sector, right from the middle ages to this date. It is observed that institution alone is not enough for the acquisition of skills but needs to be supplemented by training in the actual world of work. In India ‘The National Apprenticeship Scheme’ was launched in 1959. For facilitating training and enhancing the employability of job seekers in private/corporate sectors, and to regulate the training of apprentices in the industry, The Apprentices Act, 1961 was enacted by the Parliament during 1961 and was implemented with effect from 1.1.1963.[1] The Apprentices (Amendment) Bill, 2014 was passed in Lok Sabha on August 7, 2014.
Novation is a term derived from civil law and it means this – that there being a contract in existence some new contract is substituted for it either between the same parties or between different parties, the consideration being the discharge of the old contract.[3] Discharge means termination of the old contract, whereby the rights and liabilities of the parties to the contract come to an end. It is a method of transfer. The essence of the novation of a contract lies not in the dissimilarity of the terms of the old contract and the new but in the intention of the parties to supersede the old by the new.[4] Novation of a contract implies a fresh contract, directly or by implication, in place of the original contract. [5]
The concept of Novation in Contract Law
Section 62 in The Indian Contract Act, 1872 speaks of “Effect of novation, rescission, and alteration of the contract.”— If the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed. This section is a legislative expression of the common law of England: ” It is competent to the parties to a contract at any time before the breach of it by a new contract to add to, subtract from, or vary the terms of it or altogether to waive and rescind it.”[6]
A novation is a new contractual relation. It is based upon a new contract by all the parties interested. [7] The legal maxim that ‘novatio non praesumitur’ enunciates whether a novation needs to be in writing. The maxim means that “a novation is not presumed.” [8] In Appukuta Panicker v. Anantha Chettiar [9], the Kerala High Court held that it is essential for the principle of novation to apply that there must be mutual consent of all parties concerned. In T.M. & Co. v. H.I. Trust,[10] the High Court of Calcutta observed that the liability could be transferred only by a tripartite agreement which will amount to novation. Any agreement between three parties is a tripartite agreement. A novation agreement is an ‘instrument’ under the Indian Stamp Act, 1899 chargeable to stamp duty.
Concept of Novation in the Apprentices Act
To be engaged as an apprentice under the Act and to be able to undergo training, one needs to enter into a contract of apprenticeship with the employer. Most state and union territories governments have exempted these contracts from the payment of stamp duty.
Section 5 of The Apprentices Act, 1961 talks of “Novation of the contract of apprenticeship.” In simple terms[11] it says, “where the employer fails to fulfill his contractual obligation, an agreement can be entered with the apprentice and another employer to engage for the unexpired training period. The first contract gets terminated from the date of registration of the second contract and not enforceable by either party.”[12]
What are the reasons for which the employer is unable to fulfill his obligations under the contract?
Reasons such as the breakdown of machinery, the closing of the establishment, Act of God and such other reasons that are beyond the control of the employer.[13] Where a trade apprentice is unable to complete the period of apprenticeship training due to strike or lockout or layoff in an establishment where he is undergoing training , and it is likely to continue for a longer period, the employer shall follow the procedure for novation of contract of apprenticeship of a trade apprentice referred to in clause (i) with the other employer as specified in section 5 of the Act. [14]
Essential requisites of a contract of novation[15]
In every novation there are four essential requisites:
(1) A previous valid obligation;
(2) the agreement of all the parties to the new contract;
(3) the extinguishment of old contract; and
(4) the validity of the new one.
Procedure for Novation of contract of Apprentices
Government websites such as ‘mhrdnats.gov.in’ give all the necessary information regarding engagement procedures. All the forms needed to be filled by a candidate can be found on this website including the draft contract of novation.
Conclusion
A novation takes place when all three parties, that is the apprentice, the new employer, and the old employer agree to the substitution of the parties. It is as good as a new contract. Novation contracts are regarded as difficult and time-consuming since the agreement of three parties is required and in a general commercial sense, when an agreement between two parties is broken, it is difficult for one of them to agree to lend the same commercial benefits to a third party. The intent of the legislator to add novation under the Apprentices Act seems to be to keep space for continuity. Whenever an agreement with an employer is at stake, the apprentice is left with very few options to take any stand since he is not an “employee” and therefore has few rights. With novation clause, the Act provides protection for the apprentice and a right to continue his training under a new employer.
Footnotes:
[1] Apprenticeship Training Manual-Page-01, Chapter-I, 1.1
[2] http://www.businessdictionary.com/definition/contract.html
[3] Scarf v Jardine 7 AC 345 (351)
[4] Baldeo v Sher 74 IC 42; Hukum v Jeth AIR 1944 Sind 205
[5] Anson’s Law of Contract, 27th Edition.
[6] Manohur v Thakur Das ILR 15 Cal 326
[7] Advanced Law Lexicon, P. Ramanatha Aiyar, 3rd Edition, 2005 at pp. 3253-54
[8] Trayner’s Latin Maxims 4th Edition at p. 403
[9] AIR 1996 Ker 303
[10] AIR 1969 Cal 238
[11] S.D Puri –Guide on Labour and Human Resources, Management Forms & Precedents, 4th Edition, 2011
[12] Section 5: Where an employer with whom a contract of apprenticeship has been entered into, is for any reason unable to fulfill his obligations under the contract and with the approval of the Apprenticeship Adviser it is agreed between the employer, the apprentice or his guardian and any other employer that the apprentice shall be engaged as an apprentice under the other employer for the unexpired portion of the period of apprenticeship training, the agreement, on registration with the Apprenticeship Adviser, shall be deemed to be the contract of apprenticeship between the apprentice or his guardian and the other employer, and on and on the date of such registration, the contract of apprenticeship with the first employer shall terminate and no obligation under that contract shall be enforceable at the instance of any party to the contract against the other party thereto.
[13] Apprenticeship Training Manual-Page-09, Chapter-IV, 4.4
[14] Apprenticeship Rules, 1992
[15] http://corporatelawcorpus.blogspot.in/2010/03/novation-of-contract.html
