TOPIC- “Viability of Section 74 of Indian Contract Act

under practical scenario”

SUBMITTED BY:
Falguni Khandelwal
Division: B
Roll No: B006
SAP ID- 81012200193

SUBMITTED TO:

Prof. Madhura Bhangle

Asst. Prof.
Law of Contracts

1|Page
 ABSTRACT

There are some chances that a contract will be broken when parties enter into one or when it is
signed. In this instance, the parties who have been victims of the unlawful conduct or violation shall
be provided such remedies in order to defend the preferences or goals of the contractual parties or
parties entering the contract and to provide them with justice. One of the remedies offered for a
contract breach or violation is damages. In essence, it refers to any type of financial loss or
recompense received all at once in the form of a monetary amount. In order to uphold the
community's integrity and encourage/promote its growth, the systematic or structural law of harm
delivered for contract violation seeks to ascertain whether the workers or the general public are
satisfied. This essay aims to clarify the definition, nature, and purpose of damages as a remedy for
contract breach while also examining how they operate under both Indian and English law. It also
compares the two laws' approaches to compensating for contract violations and breaches in terms
of damages.

KEYWORDS

Damages, Remedies, Breach, Compensation, Violation, Contract,

2|Page
 INTRODUCTION

Section 74 of the Indian Contract Act from 1872 is the primary legal authority on the subject
of liquidated damages. Since its introduction during the time of the colonial government, this
provision has been given a number of different readings by the judicial system. In this
research paper, I will be throwing light upon the recent significant developments that have
occurred in this area of contract law, as well as how Section 74 has been interpreted and
applied in a variety of different ways by the Supreme Court, depending on the nature of the
contract as well as the pertinent facts and circumstances. 1
In order to accomplish this, I’ve taken a case in hand where we investigate whether the ruling
in the case of “Kailash Nath Associates v. DDA1” weakens the legal precedent that was
established in the case of ONGC v. Saw Pipes2 with regard to the requirement to prove actual
loss in order to claim liquidated damages in accordance with Section 74 of the Indian
Contract Act, which was passed in 1872.
The Supreme Court’s judgment in the case of Fateh Chand v. Balkishan Dass3 contains one
of the first enunciations in Section 74. (Fateh Chand). In this particular case, the plaintiff
made a claim to forfeit a total of Rs. 25,000, which was comprised of Rs. 1,000 paid as
earnest money and an advance amount of Rs. 24,000 which the defendant paid against
delivery of possession of the property. The defendant's payment was made against the
plaintiff's promise to deliver possession of the property. The preceding claim made by the
plaintiff was entirely predicated on his contractual entitlement. The plaintiff did not present
any proof to support his claim that he suffered any kind of actual damage as a result of the
breach of contract committed by the defendant. Judge JC Shah, writing for the Constitutional
Bench, stated that "[Section 74] does not support the payment of compensation when, as a
consequence of the breach, no legal injury at all has resulted..." Justice Shah's opinion was
reached on behalf of the Constitutional Bench. However, the plaintiff's claim for the
forfeiture of the advance money was denied because there was insufficient evidence to show
that the plaintiff had incurred any kind of financial loss or legal injury. In addition to this, the
Supreme Court decided that the forfeiture provision should be seen as a form of penalty when
it heard the case of Fateh Chand. Regarding this topic, the Supreme Court provided
clarification by stating, "In all cases, therefore, where there is a stipulation in the nature of a
penalty for forfeiture of an amount deposited... the court has jurisdiction to award such sum
only as it considers reasonable, but not exceeding the amount specified in the contract as
liable to forfeiture."
The aforementioned reading of Section 74 does not water down the legislation established in
Fateh Chand; rather, it elucidates the possibility that there may be many categories of
contracts to which the rule established in Fateh Chand may not necessarily apply. If the

1
Mehta, K. and Edupuganti, S. (2020) Curious case of section 74 of the indian contract act,
Lexology. Khaitan & Co. Available at:
https://www.uno.com/library/detail.aspx?g=a9e6124a-0564-42de-813e-f239a4eb1792
(Accessed: February 25, 2023).

3|Page
breached contract falls into one of these distinct categories, it may be impossible for the court
to determine an appropriate amount of compensation for the harmed party. In these
circumstances, the amount that was named by the parties may be considered a measure of
reasonable compensation if it is regarded as a genuine pre-estimate. On the other hand, if the
party that suffered the breach was able to demonstrate its financial loss, the circumstance
would be different, and the rule that is outlined in Fateh Chand would be applied.
The Indian Contract Act of 1872 has provisions for both unliquidated and liquidated
damages, which are granted by sections 73 and 74, respectively. Unliquidated Damages are
the damages that are awarded by the courts and are determined on the basis of an evaluation
of the actual loss or harm that was caused to the party that was in violation of contract. On the
other hand, liquidated damages are those that the parties to the contract might also agree on
as the price of a particular amount on the breach of contract. Liquidated damages are also
known as agreed-upon damages.2
To begin, it is important to note that a breach of contract is a prerequisite for the declaration
of any damages, regardless of the form of those damages. To put it another way, if there is no
breach of contract between the parties, then there is no basis for a claim for damages. Second,
in order to establish a right to compensation for losses, the party asserting such a right must
provide evidence of the loss.
The occurrence of an accident or loss as a direct result of a breach of contract is a prerequisite
for the implementation of Section 74, which grants realistic compensation for the injury or
loss caused by the breach of contract. Liquidated damages, on the other hand, should be
permitted so long as they serve a compensatory role, and the condition that specific losses be
proven should not apply to them. The Indian Contract Act of 1872 has provisions for both
unliquidated and liquidated damages, which are granted by sections 73 and 74, respectively.
Unliquidated Damages are the damages that are awarded by the courts and are determined on
the basis of an evaluation of the actual loss or harm that was caused to the party that was in
violation of contract. On the other hand, liquidated damages are those that the parties to the
contract might also agree on as the price of a particular amount on the breach of contract.
Liquidated damages are also known as agreed-upon damages.
To begin, it is important to note that a breach of contract is a prerequisite for the declaration
of any damages, regardless of the form of those damages. To put it another way, if there is no
breach of contract between the parties, then there is no basis for a claim for damages. Second,
in order to establish a right to compensation for losses, the party asserting such a right must
provide evidence of the loss.
The occurrence of an accident or loss as a direct result of a breach of contract is a prerequisite
for the implementation of Section 74, which grants realistic compensation for the injury or

2
Proof of actual damage - contracts and commercial law - India (no date) Proof Of Actual
Damage - Contracts and Commercial Law - India. Available at:
https://www.mondaq.com/india/contracts-and-commercial-law/801620/proof-of-actual-
damage (Accessed: February 25, 2023).

4|Page
loss caused by the breach of contract. Liquidated damages, on the other hand, should be
permitted so long as they serve a compensatory role, and the condition that specific losses be
proven should not apply to them.

1. RESEARCH QUESTIONS
a. Is the court just awarding reasonable compensation even if no actual damage has been
suffered due to the breach of contract?
b. What is ‘reasonable compensation’ according to the law?
c. What is the difference between penalty and damages?

2. RESEARCH OBJECTIVES
a. To understand the difference between liquidated and unliquidated damages
b. To analyze different case laws related to section 74
c. To understand the difference between penalty and liquidated damages

3. LIMITATIONS OF STUDY
There were multiple articles available online related to Section 74, with certain cases
explaining their practicality. There were no such limitations in order to understand this
section. Except for the definition provided under this Act, it doesn’t explain the exceptions to
this case in a definite manner making it difficult from a layman’s perspective.

4. REVIEW OF LITERATURE

5|Page
 1. Avtar Singh’s Law of Contract and Specific Relief : The book has a simple and clear
writing style and covers the complexities of contract law. It covers numerous newly
emerging topics of contract law that are crucial for both scholarly and practical
reasons.
2. Review article by Nitish Desai Associates3: This review enlightened me on how
Section 74 has impacted the judgment given by courts in different cases.
3. Damages and Penalty Under Section 73 and 74 of Indian Contracts Act.
Sumangali YN: This article was published on SSRN. It helped me gain a deeper
understanding of all the key terms of this section such as the difference between
penalty and liquidated damages.

1. Breach of Contract
Only in the case of a contract breach would there be a need for payment of damages.
48 It must be decided by an adjudicator rather than only the parties in order to
establish a violation. 49 When a promise is broken or a contract's conditions are
violated, this is referred to as a breach of the contract. It is possible that the terms are
not followed in the way that was anticipated in the contract. For instance, if a party
enters into a contract with another to repair the other party's home in a specific way,
and the repair was not completed in that way, the aggrieved party is entitled to
damages up to the cost of performing the repairs in accordance with the contract. 50
In the event of an impending violation of contract, damages may also be demanded.
51 An affirmation by a contracting party that he will no longer fulfil a duty resulting
from the agreement is known as an anticipatory breach. 52 In this case, the other party
has the option of agreeing to the contract's continuation or ending it. 53 When a
contract is breached in advance, the plaintiff has the right to sue for damages after
proving that the other party had no intention of performing their end of the bargain..4

2) “Proof of damage for a claim of liquidated damages”:

The phrase "whether or whether actual harm or loss is demonstrated to have been caused
thus" only waives the burden of proof for a claim for liquidated damages. Because
compensation for breach of contract can be awarded to make good loss or damage
which naturally arose in the ordinary course of things or which the parties knew when
they made the contract, to be likely to result from the breach, it does not justify the

3
Law of damages in India - nishith desai (no date). Available at:
https://nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Law_of_Damage
s_in_India.PDF (Accessed: February 24, 2023).

4
Singh, A. (2008) Law of contract: (A study of the contract act, 1872) and specific relief.
Lucknow: Eastern Book Co.

6|Page
 award of compensation when in consequence of the breach no legal injury at all has
resulted. 56 As a result, the existence of a loss or injury is required for this type of claim
for liquidated damages. 57 If it is difficult or impossible to establish the loss or injury,
the necessity to prove it may be waived; in these situations, the reaper-estimate of
damages may be given instead. 58
A party who has been injured may seek damages up to the degree that the claim
represent a reasonable compensation for the harm he has suffered, but not up to the
full amount specified as liquidated damages.
59 "Upper limit beyond which the court cannot provide reasonable compensation"
is the sum designated as the liquidated amount. The court would examine a
reasonable evaluation of the consequences of the contract breach and award
damages that are less than the stated liquidated damages in the absence of such a
proof or an honest estimate by the claimant. 61 The requirement to demonstrate
actual loss may be waived if the total sum indicated is an accurate pre-estimate of
loss. The person who is violating the law has the burden of proving there was no
loss that was likely to occur. 63 As a result, elements like the degree of loss
mitigation and the pertinent facts and circumstances call for adequate assessment.5

3) What are Liquidated and Unliquidated Damages

The Indian Contract Act of 1872 lays out the basics of contract law in India, including
how it is enforced and what happens if a contract is broken or not carried out. the goal
of this report is to show how liquidated damages are handled when a contract is broken
and to compare how they are handled in India and England. So, before you can
understand what liquidated damages are, you need to know what happens when a
contract is broken and what kind of damages are given in that case. If a contract is
broken and it hurts someone, that person can sue for damages. Damages are money
paid to the person who was hurt to make up for what they lost. So, when these kinds of
damages are given out in a contract, they are called "liquidated damages."

"Liquidated Damages" means that it should be taken as the amount that the parties
have agreed to pay as damages in the contract, no matter what the actual damage is.
At the time they sign the contract, the two parties can agree that if one of them breaks
it, the other will get a certain amount of money or that if one of them breaks it, the
other will get back any money he or she paid to the first party. It is a real estimate of
how much the breach is likely to cost. But this "liquidated damage" is different from a
"penalty," which is a set amount meant to make sure the contract is carried out.

5
Law of damages in India - nishith desai (no date). Available at:
https://nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Law_of_Damage
s_in_India.PDF (Accessed: February 25, 2023).

7|Page
 Section 73 talks about the actual damages that come from breaking a contract and the
harm that comes from doing so. These are called "unliquidated damages" because the
courts decide on them based on how much damage or loss was done to the person
against whom the contract was broken. Unliquidated Damages are claims for losses
that could not have been seen coming. When a contract is broken, these types of
damages are often given. If you break a contract that doesn't have a clause for
"liquidated damages," you have to pay these damages. Since the amount is
"unliquidated," however, it can be hard to guess how much the complainant will be
able to get.

1) Case laws related to Section 74

a. Maula Bux v. Union of India: In the case of Maula Bux, the court made it clear
that it is within its purview to determine whether or not a party is entitled to
reasonable compensation in the event of a breach of contract, even in the absence
of any actual damage that can be demonstrated as a direct result of the breach of
contract. Yet, the court has also explicitly declared that in the event of a violation
of certain contracts, it may be difficult for the court to determine the amount of
compensation resulting from the breach. In such a scenario, the amount that has
been named by the parties may be taken into consideration as the measure of
reasonable compensation if it is recognized as a true pre-estimate; however, this
will not be the case if the amount that has been mentioned is of the nature of a
penalty. In situations in which a monetary loss can be quantified, the party
demanding compensation is required to provide evidence of the monetary loss that
they have incurred.6
b. Oil & Natural Gas Corporation Ltd. v. Saw Pipes: In the case of Oil & Natural
Gas Corporation Ltd. v. Saw Pipes Ltd.,]it was decided that if the terms of the
contract are clear and unambiguous, stipulating the liquidated damages in case of
the breach of the contract, then the party who has committed the breach is
required to pay such compensation unless it is held that such estimate of
damages/compensation is unreasonable or is by way of a penalty. In other words,
unless it is held that such estimate of damages/ However, in some contracts, it
would be impossible for the court to assess the compensation resulting from a
breach, and if the compensation contemplated is not by way of penalty or
unreasonable, the court can award the same if it is genuine pre-estimate by the
parties as the measure of reasonable compensation. In other contracts, however, it

6
[ISSN 2581-5369] - ijlmh.com (no date). Available at: https://www.ijlmh.com/wp-
content/uploads/General-and-Special-Damages-for-the-Breach-of-Contract.pdf
(Accessed: February 24, 2023).

8|Page
 would be possible for the court to determine the amount of compensation resulting
from a breach.

SUGGESTION

The fundamental point of including liquidated damages clauses in contracts is defeated by the
requirement to demonstrate the loss incurred. The Act's Section 74 emphasises the
importance of fair pay. The consideration would be different and the party would only be
entitled to compensation for the loss incurred if the contract's compensation was provided as
a penalty. Yet, there is no question of demonstrating such loss if the compensation specified
in the contract is a true pre-estimate of loss, which the party knew at the time of contracting.
In actuality, it is the opposing party's responsibility to provide evidence that no loss is
anticipated to result from such a breach.

9|Page
 CONCLUSION

Damages for contract breaches are thought to be preferable to other remedies that may be
available to parties who have suffered losses as a result of contract breaches. As the amount
of damages is predetermined by including a clause on "liquidated damages" in the contract
itself, liquidated damages are important in situations where it is difficult to estimate the
number of damages. Such liquidated damages agreements seek to the greatest extent feasible
to avoid litigation. This would lessen the burden on those seeking damages to demonstrate
actual harm resulting from a breach.
Damages, however, might not always be enough to make up for the losses or harm a party
has endured. This could result in a circumstance that calls for a specified performance by the
other party in lieu of monetary compensation to enable the restoration of the party's position
prior to the contractual breach. Such circumstances may occur if the contract's subject matter
is unique or necessary to the injured party. Hence, courts may decide to award damages
instead of or in addition to specific performance, based on what is required by a particular
circumstance. 259 Moreover, the requirement for liquidated damages would not prevent
specific performance. 260
Similar to this, plaintiffs may also request damages in place of or in addition to requesting
injunctions from the court.

10 | P a g e
Damages have proven useful in enforcing contractual obligations conceptually and
practically. The courts' evolving perspectives on liquidated damages may lend credence to
this. Also, courts have made an effort to prevent parties from benefiting unfairly from the
provision of a clause for liquidated damages by determining an appropriate amount of
damages.

BIBLIOGRAPHY
1) Law of Contract (a Study of the Contract Act, 1872) and Specific Relief
2) The Indian Contract Act: With a Commentary, Critical and Explanatory
3) Naresh Thacker, Enforcing A Claim For Liquidated Damages In India: Key
Messages, Economic Laws Practice, Mumbai, (2019).
4) Nishith Desai Associates, Law Of Damages In India, nishithdesai.com, Website,
(2019).

11 | P a g e
12 | P a g e
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Summary
 TOPIC- “Viability of Section 74 of Indian Contract Act
under practical scenario”

SUBMITTED BY:
Falguni Khandelwal
Division: B
Roll No: B006
SAP ID- 81012200193

SUBMITTED TO:

Prof. Madhura Bhangle

Asst. Prof.
Law of Contracts

1|Page
 ABSTRACT

There are some chances that a contract will be broken when parties enter into one or when it is
2
signed. In this instance, the parties who have been victims of the unlawful conduct or violation shall
2
be provided such remedies in order to defend the preferences or goals of the contractual parties or
parties entering the contract and to provide them with justice. One of the remedies offered for a
contract breach or violation is damages. In essence, it refers to any type of financial loss or
2
recompense received all at once in the form of a monetary amount. In order to uphold the
2
community's integrity and encourage/promote its growth, the systematic or structural law of harm
delivered for contract violation seeks to ascertain whether the workers or the general public are
satisfied. This essay aims to clarify the definition, nature, and purpose of damages as a remedy for
2
contract breach while also examining how they operate under both Indian and English law. It also
2
compares the two laws' approaches to compensating for contract violations and breaches in terms
of damages.

KEYWORDS

Damages, Remedies, Breach, Compensation, Violation, Contract,

2|Page
 INTRODUCTION

19
Section 74 of the Indian Contract Act from 1872 is the primary legal authority on the subject
of liquidated damages. Since its introduction during the time of the colonial government, this
provision has been given a number of different readings by the judicial system. In this
research paper, I will be throwing light upon the recent significant developments that have
3
occurred in this area of contract law, as well as how Section 74 has been interpreted and
3
applied in a variety of different ways by the Supreme Court, depending on the nature of the
contract as well as the pertinent facts and circumstances. 1
In order to accomplish this, I’ve taken a case in hand where we investigate whether the ruling
in the case of “Kailash Nath Associates v. DDA1” weakens the legal precedent that was
3
established in the case of ONGC v. Saw Pipes2 with regard to the requirement to prove actual
17
loss in order to claim liquidated damages in accordance with Section 74 of the Indian
Contract Act, which was passed in 1872.
20
The Supreme Court’s judgment in the case of Fateh Chand v. Balkishan Dass3 contains one
of the first enunciations in Section 74. (Fateh Chand). In this particular case, the plaintiff
made a claim to forfeit a total of Rs. 25,000, which was comprised of Rs. 1,000 paid as
earnest money and an advance amount of Rs. 24,000 which the defendant paid against
delivery of possession of the property. The defendant's payment was made against the
plaintiff's promise to deliver possession of the property. The preceding claim made by the
plaintiff was entirely predicated on his contractual entitlement. The plaintiff did not present
21
any proof to support his claim that he suffered any kind of actual damage as a result of the
breach of contract committed by the defendant. Judge JC Shah, writing for the Constitutional
Bench, stated that "[Section 74] does not support the payment of compensation when, as a
consequence of the breach, no legal injury at all has resulted..." Justice Shah's opinion was
3
reached on behalf of the Constitutional Bench. However, the plaintiff's claim for the
forfeiture of the advance money was denied because there was insufficient evidence to show
that the plaintiff had incurred any kind of financial loss or legal injury. In addition to this, the
Supreme Court decided that the forfeiture provision should be seen as a form of penalty when
it heard the case of Fateh Chand. Regarding this topic, the Supreme Court provided
clarification by stating, "In all cases, therefore, where there is a stipulation in the nature of a
penalty for forfeiture of an amount deposited... the court has jurisdiction to award such sum
only as it considers reasonable, but not exceeding the amount specified in the contract as
liable to forfeiture."
3
The aforementioned reading of Section 74 does not water down the legislation established in
3
Fateh Chand; rather, it elucidates the possibility that there may be many categories of
contracts to which the rule established in Fateh Chand may not necessarily apply. If the

13
1
Mehta, K. and Edupuganti, S. (2020) Curious case of section 74 of the indian contract act,
Lexology. Khaitan & Co. Available at:
https://www.lexology.com/library/detail.aspx?g=a9e6124a-0564-42de-813e-
f239a4eb1792 (Accessed: February 25, 2023).

3|Page
breached contract falls into one of these distinct categories, it may be impossible for the court
to determine an appropriate amount of compensation for the harmed party. In these
circumstances, the amount that was named by the parties may be considered a measure of
4
reasonable compensation if it is regarded as a genuine pre-estimate. On the other hand, if the
party that suffered the breach was able to demonstrate its financial loss, the circumstance
would be different, and the rule that is outlined in Fateh Chand would be applied.
5
The Indian Contract Act of 1872 has provisions for both unliquidated and liquidated
1
damages, which are granted by sections 73 and 74, respectively. Unliquidated Damages are
the damages that are awarded by the courts and are determined on the basis of an evaluation
12
of the actual loss or harm that was caused to the party that was in violation of contract. On the
1
other hand, liquidated damages are those that the parties to the contract might also agree on
as the price of a particular amount on the breach of contract. Liquidated damages are also
known as agreed-upon damages.2
To begin, it is important to note that a breach of contract is a prerequisite for the declaration
of any damages, regardless of the form of those damages. To put it another way, if there is no
breach of contract between the parties, then there is no basis for a claim for damages. Second,
in order to establish a right to compensation for losses, the party asserting such a right must
provide evidence of the loss.
10
The occurrence of an accident or loss as a direct result of a breach of contract is a prerequisite
for the implementation of Section 74, which grants realistic compensation for the injury or
loss caused by the breach of contract. Liquidated damages, on the other hand, should be
permitted so long as they serve a compensatory role, and the condition that specific losses be
proven should not apply to them. The Indian Contract Act of 1872 has provisions for both
1
unliquidated and liquidated damages, which are granted by sections 73 and 74, respectively.
Unliquidated Damages are the damages that are awarded by the courts and are determined on
the basis of an evaluation of the actual loss or harm that was caused to the party that was in
12
violation of contract. On the other hand, liquidated damages are those that the parties to the
contract might also agree on as the price of a particular amount on the breach of contract.
Liquidated damages are also known as agreed-upon damages.
To begin, it is important to note that a breach of contract is a prerequisite for the declaration
of any damages, regardless of the form of those damages. To put it another way, if there is no
breach of contract between the parties, then there is no basis for a claim for damages. Second,
in order to establish a right to compensation for losses, the party asserting such a right must
provide evidence of the loss.
10
The occurrence of an accident or loss as a direct result of a breach of contract is a prerequisite
for the implementation of Section 74, which grants realistic compensation for the injury or

2
Proof of actual damage - contracts and commercial law - India (no date) Proof Of Actual
Damage - Contracts and Commercial Law - India. Available at:
https://www.mondaq.com/india/contracts-and-commercial-law/801620/proof-of-actual-
damage (Accessed: February 25, 2023).

4|Page
loss caused by the breach of contract. Liquidated damages, on the other hand, should be
permitted so long as they serve a compensatory role, and the condition that specific losses be
proven should not apply to them.

1. RESEARCH QUESTIONS
a. Is the court just awarding reasonable compensation even if no actual damage has been
28
suffered due to the breach of contract?
b. What is ‘reasonable compensation’ according to the law?
23
c. What is the difference between penalty and damages?

2. RESEARCH OBJECTIVES
a. To understand the difference between liquidated and unliquidated damages
b. To analyze different case laws related to section 74
c. To understand the difference between penalty and liquidated damages

3. LIMITATIONS OF STUDY
There were multiple articles available online related to Section 74, with certain cases
explaining their practicality. There were no such limitations in order to understand this
section. Except for the definition provided under this Act, it doesn’t explain the exceptions to
this case in a definite manner making it difficult from a layman’s perspective.

4. REVIEW OF LITERATURE

5|Page
 7
1. Avtar Singh’s Law of Contract and Specific Relief : The book has a simple and clear
writing style and covers the complexities of contract law. It covers numerous newly
emerging topics of contract law that are crucial for both scholarly and practical
reasons.
2. Review article by Nitish Desai Associates3: This review enlightened me on how
Section 74 has impacted the judgment given by courts in different cases.
14
3. Damages and Penalty Under Section 73 and 74 of Indian Contracts Act.
Sumangali YN: This article was published on SSRN. It helped me gain a deeper
7
understanding of all the key terms of this section such as the difference between
penalty and liquidated damages.

1. Breach of Contract
Only in the case of a contract breach would there be a need for payment of damages.
48 It must be decided by an adjudicator rather than only the parties in order to
establish a violation. 49 When a promise is broken or a contract's conditions are
violated, this is referred to as a breach of the contract. It is possible that the terms are
25
not followed in the way that was anticipated in the contract. For instance, if a party
enters into a contract with another to repair the other party's home in a specific way,
and the repair was not completed in that way, the aggrieved party is entitled to
damages up to the cost of performing the repairs in accordance with the contract. 50
In the event of an impending violation of contract, damages may also be demanded.
51 An affirmation by a contracting party that he will no longer fulfil a duty resulting
from the agreement is known as an anticipatory breach. 52 In this case, the other party
has the option of agreeing to the contract's continuation or ending it. 53 When a
contract is breached in advance, the plaintiff has the right to sue for damages after
proving that the other party had no intention of performing their end of the bargain..4

2) “Proof of damage for a claim of liquidated damages”:

The phrase "whether or whether actual harm or loss is demonstrated to have been caused
thus" only waives the burden of proof for a claim for liquidated damages. Because
compensation for breach of contract can be awarded to make good loss or damage
which naturally arose in the ordinary course of things or which the parties knew when
they made the contract, to be likely to result from the breach, it does not justify the

3
Law of damages in India - nishith desai (no date). Available at:
https://nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Law_of_Damage
s_in_India.PDF (Accessed: February 24, 2023).

8
4
Singh, A. (2008) Law of contract: (A study of the contract act, 1872) and specific relief.
Lucknow: Eastern Book Co.

6|Page
 3
award of compensation when in consequence of the breach no legal injury at all has
resulted. 56 As a result, the existence of a loss or injury is required for this type of claim
30
for liquidated damages. 57 If it is difficult or impossible to establish the loss or injury,
the necessity to prove it may be waived; in these situations, the reaper-estimate of
damages may be given instead. 58
A party who has been injured may seek damages up to the degree that the claim
represent a reasonable compensation for the harm he has suffered, but not up to the
full amount specified as liquidated damages.
59 "Upper limit beyond which the court cannot provide reasonable compensation"
11
is the sum designated as the liquidated amount. The court would examine a
11
reasonable evaluation of the consequences of the contract breach and award
damages that are less than the stated liquidated damages in the absence of such a
proof or an honest estimate by the claimant. 61 The requirement to demonstrate
actual loss may be waived if the total sum indicated is an accurate pre-estimate of
loss. The person who is violating the law has the burden of proving there was no
loss that was likely to occur. 63 As a result, elements like the degree of loss
mitigation and the pertinent facts and circumstances call for adequate assessment.5

3) What are Liquidated and Unliquidated Damages

27
The Indian Contract Act of 1872 lays out the basics of contract law in India, including
how it is enforced and what happens if a contract is broken or not carried out. the goal
of this report is to show how liquidated damages are handled when a contract is broken
and to compare how they are handled in India and England. So, before you can
understand what liquidated damages are, you need to know what happens when a
contract is broken and what kind of damages are given in that case. If a contract is
broken and it hurts someone, that person can sue for damages. Damages are money
paid to the person who was hurt to make up for what they lost. So, when these kinds of
damages are given out in a contract, they are called "liquidated damages."

4
"Liquidated Damages" means that it should be taken as the amount that the parties
have agreed to pay as damages in the contract, no matter what the actual damage is.
At the time they sign the contract, the two parties can agree that if one of them breaks
it, the other will get a certain amount of money or that if one of them breaks it, the
other will get back any money he or she paid to the first party. It is a real estimate of
how much the breach is likely to cost. But this "liquidated damage" is different from a
"penalty," which is a set amount meant to make sure the contract is carried out.

9
5
Law of damages in India - nishith desai (no date). Available at:
https://nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Law_of_Damage
s_in_India.PDF (Accessed: February 25, 2023).

7|Page
 24
Section 73 talks about the actual damages that come from breaking a contract and the
harm that comes from doing so. These are called "unliquidated damages" because the
courts decide on them based on how much damage or loss was done to the person
against whom the contract was broken. Unliquidated Damages are claims for losses
that could not have been seen coming. When a contract is broken, these types of
damages are often given. If you break a contract that doesn't have a clause for
"liquidated damages," you have to pay these damages. Since the amount is
"unliquidated," however, it can be hard to guess how much the complainant will be
able to get.

1) Case laws related to Section 74

16
a. Maula Bux v. Union of India: In the case of Maula Bux, the court made it clear
that it is within its purview to determine whether or not a party is entitled to
4
reasonable compensation in the event of a breach of contract, even in the absence
of any actual damage that can be demonstrated as a direct result of the breach of
contract. Yet, the court has also explicitly declared that in the event of a violation
of certain contracts, it may be difficult for the court to determine the amount of
compensation resulting from the breach. In such a scenario, the amount that has
been named by the parties may be taken into consideration as the measure of
reasonable compensation if it is recognized as a true pre-estimate; however, this
will not be the case if the amount that has been mentioned is of the nature of a
penalty. In situations in which a monetary loss can be quantified, the party
demanding compensation is required to provide evidence of the monetary loss that
they have incurred.6
26 1
b. Oil & Natural Gas Corporation Ltd. v. Saw Pipes: In the case of Oil & Natural
Gas Corporation Ltd. v. Saw Pipes Ltd.,]it was decided that if the terms of the
contract are clear and unambiguous, stipulating the liquidated damages in case of
the breach of the contract, then the party who has committed the breach is
required to pay such compensation unless it is held that such estimate of
damages/compensation is unreasonable or is by way of a penalty. In other words,
unless it is held that such estimate of damages/ However, in some contracts, it
would be impossible for the court to assess the compensation resulting from a
breach, and if the compensation contemplated is not by way of penalty or
unreasonable, the court can award the same if it is genuine pre-estimate by the
parties as the measure of reasonable compensation. In other contracts, however, it

22
6
[ISSN 2581-5369] - ijlmh.com (no date). Available at: https://www.ijlmh.com/wp-
content/uploads/General-and-Special-Damages-for-the-Breach-of-Contract.pdf
(Accessed: February 24, 2023).

8|Page
 15
would be possible for the court to determine the amount of compensation resulting
from a breach.

SUGGESTION

The fundamental point of including liquidated damages clauses in contracts is defeated by the
requirement to demonstrate the loss incurred. The Act's Section 74 emphasises the
importance of fair pay. The consideration would be different and the party would only be
entitled to compensation for the loss incurred if the contract's compensation was provided as
1
a penalty. Yet, there is no question of demonstrating such loss if the compensation specified
in the contract is a true pre-estimate of loss, which the party knew at the time of contracting.
29
In actuality, it is the opposing party's responsibility to provide evidence that no loss is
anticipated to result from such a breach.

9|Page
 6
CONCLUSION

Damages for contract breaches are thought to be preferable to other remedies that may be
available to parties who have suffered losses as a result of contract breaches. As the amount
of damages is predetermined by including a clause on "liquidated damages" in the contract
18
itself, liquidated damages are important in situations where it is difficult to estimate the
number of damages. Such liquidated damages agreements seek to the greatest extent feasible
to avoid litigation. This would lessen the burden on those seeking damages to demonstrate
actual harm resulting from a breach.
Damages, however, might not always be enough to make up for the losses or harm a party
has endured. This could result in a circumstance that calls for a specified performance by the
other party in lieu of monetary compensation to enable the restoration of the party's position
prior to the contractual breach. Such circumstances may occur if the contract's subject matter
5
is unique or necessary to the injured party. Hence, courts may decide to award damages
5
instead of or in addition to specific performance, based on what is required by a particular
circumstance. 259 Moreover, the requirement for liquidated damages would not prevent
specific performance. 260
Similar to this, plaintiffs may also request damages in place of or in addition to requesting
injunctions from the court.

10 | P a g e
Damages have proven useful in enforcing contractual obligations conceptually and
practically. The courts' evolving perspectives on liquidated damages may lend credence to
this. Also, courts have made an effort to prevent parties from benefiting unfairly from the
provision of a clause for liquidated damages by determining an appropriate amount of
damages.

BIBLIOGRAPHY
1) Law of Contract (a Study of the Contract Act, 1872) and Specific Relief
2) The Indian Contract Act: With a Commentary, Critical and Explanatory
3) Naresh Thacker, Enforcing A Claim For Liquidated Damages In India: Key
Messages, Economic Laws Practice, Mumbai, (2019).
4) Nishith Desai Associates, Law Of Damages In India, nishithdesai.com, Website,
(2019).

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