DAMAGES STIPULATED UNDER INDIAN

CONTRACT ACT

Section 73 of the Indian Contract provides compensation

for loss or damage caused by the breach of contract.
When a contract has been broken, the party that suffers
from such infringement is entitled to receive
compensation for any loss or damage resulting from such
infringement. Such compensation shall not be given for
any remote and indirect loss or damage sustained as a
result of the breach.

TYPES OF DAMAGES
1. GENERAL DAMAGES – It refers to those damages
which arose naturally during the normal course of the
events. General damages are such damages which law
presumes from the breach of the contract. Generally they
are awarded to compensate the affected party and its
intentions were not to punish. General damages are
usually judged taking into account of the actual loss
suffered by the affected party. The quantum of damages
which the court can award will be just that amount which
would place the innocent party in the same position,
which he would have occupied, had the contract been
performed, and not broken.

2. SPECIAL DAMAGES – The damages that are payable

for the loss arising on account of some special or unusual
circumstances. These damages are not due to the natural
and probable consequences of the breach of the contract.
Indirect loss experienced by the affected party out of
breach of the contract is treated as special damage.
Special damages can be recovered only when the other
party, while signing the contract, is informed of the
special circumstances which are responsible for the
special losses.

3. NOMINAL DAMAGES - If the defendant is found

liable for breach of contract, the plaintiff is entitled to
nominal damages even if mo actual damage is proven.
Nominal damages are awarded if there is an infringement
of a legal right and if it does not give the rise to any legal
damages; it gives the right to a verdict because of the
infringement.
4. SUBSTANTIAL DAMAGE – In cases where the
breach is partial and the extent of the failure is
determined, only is awarded. The plaintiff who can not
show that after the breach he would have had the contract
performed, he is in a worse financial position, usually,
recover only nominal damages for breach of contract.
Where a defendant refuses to accept goods sold or
manufactured for him, the plaintiff sells them to a third
party on the same terms as the defendant agreed and
makes a similar profit, the plaintiff shall be entitled to
nominal damage if the demand extends the supply of
similar goods; but if the supply exceeds the demand, the
plaintiff shall be entitled to recover his loss of profit on
the defendant’s contract.

5. AGGRAVATED DAMAGES - These damages

compensate a victim for mental distress or injured
sensations in circumstances where the injury was caused
or increased by the manner in which they defendant
committed the wrong or the defendant’s behavior
following the wrong. It is compensatory in nature.
6. EXEMPLARY DAMAGES – These damages are
intended to give the punishment to the defendant an
example they are punitive and not intended to compensate
the defendant for loss, but rather to punish the defendant.
It is punitive in nature.

DIFFERENCE BETWEEN INDEMNITY AND

DAMAGES
INDEMNITY
 An indemnity claim may be
brought before breach of
contract.
 Section 124 of that act
puts no such obligation
on the indemnified
party.
 Indemnity can be
claimed for loss arising
out of the action of a
third a party to a
DAMAGES
 Damages claim can
only be brought after
the breach of a
contract.
 Section 73 of the act
puts a duty on the
claimants to mitigate
their losses and states
that they may not claim
losses which arouse
due to their failure of
mitigation.
 Damages can only be
claimed for loss arising
out of the actions of the
parties upon breach of
 contract. contract.
 Relief may be claimed  Damages can only be
for loss caused by claimed when there is a
action of a third party breach of a contract by
which may not either party to a
necessarily result from contract.
the breach of the
contract.
 The main principle  In case of monetary
behind indemnity is to damages, award may be
put back a person into awarded more than the
the place he was before actual loss occurred or
the loss occurred. less than the actual loss
When a person is occurred.
indemnified he will
never make a profit or a
loss out of it, he will be
restored to his original
position.

Gajanan Moreshwar Parelkar v Moreshwar Madan

Mantri
The Court observed that under the English common law,
no action could be maintained until actual loss had
incurred. It was very soon realized that an indemnity
might be worth very little indeed if the indemnified could
not enforce his indemnity till he had actually paid the
loss. If a suit was filed against him, he had actually to
wait till a judgment was pronounced, and it was only after
he had satisfied the judgment that he could sue on his
indemnity. It is clear that this might under certain
circumstances throw an intolerable burden upon the
indemnity-holder. He might not be in a position to satisfy
the judgment and yet he could not avail himself of his
indemnity till he had done so. Therefore the Court of
equity stepped in and mitigated the rigor of the common
law. The Court of equity held that if his liability had
become absolute then he was entitled either to get the
indemnifier to pay off the claim or to pay into Court
sufficient money which would constitute a fund for
paying off the claim whenever it was made. The Court
also held that Sections 124 and 125 of the Indian Contract
Act are not exhaustive of the law of indemnity and that
the Courts here would apply the same equitable principles
that the Courts in England do. Therefore, if the
indemnified has incurred a liability and that liability is
absolute, he is entitled to call upon the indemnifier to save
him from that liability and to pay it off.”

Reference
 Lexlogy
 Ip blog leaders
 Account learning
 upcounsel