DAMODARAM SANJIVAYYA

NATIONAL LAW UNIVERSITY

SABBAVARAM, VISAKHAPATNAM, A.P., INDIA

Remedies available under Section 73 of the Indian Contracts Act,

1872

Subject: Law of Contracts 1 & Specific Reliefs Act

Faculty: Asst. Prof. Dr. B. V. S. Suneetha

Name of the Candidate: R. Charan Raju

Roll No: 23LLB095

 Remedies available under Section 73 of the Indian Contracts
Act, 1872

 Abstract:

Two parties entered into a lawful contract and one party to the contract breaches it and the
other party suffers as a result of the breach of contract by the first party, it allows the
aggrieved party to be paid compensation as a remedy for the loss incurred by them. This right
to be compensated for the breach of contract is called a remedy. There are two kinds of
remedies available, Legal Remedy and Equitable Remedy. Legal Remedy is provided by civil
courts as a monetary compensation to the aggrieved party which is called as damages in the
Contract Law. The other type of remedy, Equitable Remedy is given when the legal remedies
fail to provide the justice for the loss suffered. Equitable Remedies can be in the form of
Specific Performance, Restitution, Injunction, etc. In the Indian Scenario, Sections 73-75 in
Chapter VI of the Indian Contracts Act, 1872 provide these remedies for the breach of
contract. Section 73 deals with the law in relation to the damages for a breach of contract and
the standard for remoteness of the damages caused, Section 74 deals with liquidated damages
and Section 75 deals with compensation to the party for the breach of contract under the Act.

Keywords: Contract, Breach of Contract, Remedies, Compensation, Section 73 of ICA 1872.

Table of Contents:

1. Introduction

1.1 Overview and significance of the Indian Contracts Act, 1872

1.2 Objectives of the Project

1.3 Literature Review

1.4 Research Question

2. Contract and Breach of Contract

2.1 What is a Contract

2.2 Types of Breach of Contract

3. Remedies and Section 73 of the Indian Contracts Act, 1872

3.1 Section 73 of the ICA, 1872

3.2 Damages as a Remedy to breach of Contract

4. Types of Damages or Remedies available under Section 73 of the ICA,1872

4.1 General and Special Damages

4.2 Nominal Damages

4.3 Substantial Damages

4.4 Aggravated and Exemplary Damages

 4.5 Liquidated and Unliquidated Damages

5. Damages for Breach in particular Contracts

5.1 Sale of Goods

5.2 Hire and purchase agreements

5.3 Contract for Work and Labour

6. Remoteness

6.1 Usual course of things

6.2 Test of Remoteness

7. Conclusion

7.1 Key Findings

7.2 Overall Summary

8. References
1. Introduction
1.1 Overview and significance of the Indian Contracts, 18721

The Indian Contract Act is one of the oldest mercantile laws based on English Common Law,
was enacted in the year 1872 and has been controlling the contracts and related disputes that
arise out of breach of contract, etc. The rules and regulations provided in the Act provide the
course of action in case of any dispute. Section 2(h) of the Act defines Contract as “An
Agreement enforceable by Law.” Agreement includes a set of promises made by the parties
that form the consideration of each party. Two parties, offer/proposal, consideration, free
consent, legal obligation form the essentials of a valid contract.

1.2 Objectives of the Project

a. To understand what is a contract.

b. To know what is meant by breach of contract and what constitutes breach of Contract.

c. To understand Section 73 of the Indian Contract Act, 1872 and remedies available under it.

d. To see the effectiveness of Section 73 in protecting the party to the contract in case of a
breach of a contract.

1.3 Literature Review

Pollock and Mulla's Indian Contract Act is a landmark text that offers thorough commentary
and analysis on the Indian Contract Act, 1872. Authored by Sir Frederick Pollock and
Dinshah Fardunji Mulla, this text has been a cornerstone in the study and interpretation of
contract law in India. This literature review tries to investigate the significance, contributions,
and criticisms of Pollock and Mulla's work in the field of Indian contract law.

1
Atul Chandra Patra, Historical Background of the Indian Contract Act, 1872, 4 JOURNAL OF THE INDIAN LAW
INSTITUTE 373 (1962).
The Indian Contract Act, 1872, shapes contract law in India, with Avtar Singh's contributions
proving pivotal. Singh's "Principles of the Law of Contract" offers a comprehensive analysis,
simplifying complex legal concepts. His insights on case law, comparative perspectives, and
practical solutions resonate with legal practitioners. Singh's interdisciplinary approach,
drawing from economics and sociology, enriches understanding. His works serve as
indispensable resources, shaping contract law discourse and legal education in India.

A.C. Dutt's commentary on the Indian Contract Act, 1872, is recognised for its detailed
analysis of contractual principles. Through rigorous investigation of statutory provisions and
case law, Dutt elucidates fundamental terms including offer, acceptance, and consideration.
His views extend to specialized areas such as indemnity and bailment, giving practitioners
and researchers with a deep grasp of Indian contract law. By contextualizing legal principles
within historical and comparative frameworks, Dutt's work remains indispensable in
understanding complicated contractual conflicts, making it a landmark reference in the field
of Indian contract law.

1.4 Research Question

What are the remedies available under section 73 of the Indian Contracts Act?
2. Contract and Breach of Contract

2.1 What is a Contract and Breach of Contract?2

Section 2(h) of the Indian Contract Act, 1872 defines Contract as “An Agreement enforceable
by Law.” And Section 2(e) defines Agreement as “Every promise and every set of promises,
forming the consideration for each other, is an agreement.” So, in simple terms a contract can
be said as a valid agreement between two or more parties that is legally valid and
enforceable. Examples for such contracts include a contract between a catering services firm
and a university to supply quality food, a contract between a shipping company and a e-
commerce company to deliver goods, a contract between two individuals where one
individual takes a loan from the other and has to repay the loan amount in a time specified in
the terms and conditions of the contract, an employment contract, etc.

When one party to the contract breaks the contract and the other party suffers a loss due to the
breakdown of the terms and conditions of the contract by the first party, a breach of Contract
is said to be occurred and the party suffered due to the breach of contract is entitled to receive
compensation for the loss he/she suffered. For example, “A contracts to repair B’s house in a
certain manner, and receives payment in advance. A repair the house, but not according to
contract. B is entitled to recover from A the cost of making the repairs conform to the
contract.”

2.2 Types of Breach of Contract3

There are basically 2 types of breach of contract

a. Actual Breach of Contract: This type of breach occurs when the party obligated to
perform the contract as per terms and conditions, fail to perform that activity in the time as

2
India. (1972). Pollock & Mulla on Indian contract and Specific relief acts: with a commentary, critical and
explanatory. Bombay: N.M. Tripathi.

3
Diva Rai, Remedies for Breach of Contract under the Indian Contract Act, IPLEADERS (Mar. 30, 2020),
https://blog.ipleaders.in/remedies-for-breach-of-contract-under-the-indian-contract-act/ (last visited Mar 18,
2024).
mentioned in the contract and the other party suffers a loss due to the breach of contract and
the suffered party can file a suit against the other party for breach of contract and claim
damages. Here the burden of proof lies on the suffered party or the plaintiff. For example, “A
promises to supply rice to B on Sunday and fails to supply rice on Sunday and B suffers loss
due to breach of contract by A, and can sue him for damages.”

b. Anticipatory Breach of Contract: This breach occurs when the party to perform the
contract priorly before the time of performance of the contract informs the other party that he
cannot perform according to the time specified in the contract. Here the suffered party has
two options either to accept the breach and treat it as a discharge from further performance,
and sue for damages immediately, or to wait until the time of performance of the contract and
sue. Here also, the burden of proof rests with the suffered party. For example, “A promises to
deliver a bike by first week of March to B and due to his inability to deliver the bike, he
informs about the same to B in last week of February and B suffers a loss due to the breach of
contract by A.”
3. Remedies and Section 73 of the Indian Contract Act, 18724

3.1 Section 73 of the ICA, 1872

Section 73 of the Indian Contract Act lays down the principles governing compensation for
loss or suffering caused by breach of contract.

Right to Compensation: When a contract is breached, the party that suffers from the breach
has the legal right to claim compensation from the person who breached the contract. This
compensation is designed to cover any loss or harm sustained by the innocent person as a
result of the breach.

Scope of Compensation: The compensation given should cover the loss or injury that
naturally emerges in the regular run of things from the violation. Additionally, compensation
can be paid for losses that the parties knew, or should have known, would probably come
from the breach when they entered into the contract.

Exclusion of distant or Indirect Loss: However, compensation is not awarded for distant or
indirect losses or damages caused by the breach. In other words, only losses that are directly
attributable to the breach and were foreseeable at the time of contracting are compensable.
Remote or indirect losses, which are unpredictable or not directly caused by the violation, are
not eligible for compensation.

Compensation for Failing to Discharge responsibility: The provision further extends the
notion of compensation to circumstances where there is a failure to discharge a responsibility
equivalent to that formed by contract. In such circumstances, the person damaged by the
failure to discharge the duty is entitled to receive compensation comparable to what would
have been given if there had been a breach of contract.

Consideration of methods to rectify Disruption: In evaluating the level of loss or damage

resulting from a breach of contract, the methods available to rectify the disruption produced
by the failure to perform the contract must be taken into account. This means that all

4
. Law of contract (a study of the contract act 1872) and specific relief. (2019). Eastern Book Company.
measures taken by the innocent person to limit their losses should be considered when
assessing the compensation owed.

3.2 Damages as a remedy to Breach of Contract

Section 73(2) of the ICA talks about this:

For a party to claim compensation for breach of contract, the existence of a concluded
contract is crucial. Without the finalised agreement between the parties, a claim for
compensation under Section 73 is not maintainable. Damages as a remedy for breach of
contract serves as compensation to the party for actual loss or damage suffered. It is also
essential that the loss should be of natural causes and should be genuine without any
fraudulent means from the side of plaintiff. Amendments to the Section 20 of the Specific
Reliefs Act introduced the concept of Substituted performance which allows the party
suffered from breach of contract to opt for performance through a third party or their own
agency instead of seeking specific performance.
4. Types of Damages or Remedies available under Section 73
of the ICA, 18725

4.1 General and Special Damages.

General damages and Special damages are two types of compensation or remedies for losses
caused by breach of contract. General damages are losses that result naturally from a
violation. They are predictable and usually include the direct effects of the breach. Special
damages, on the other hand, are losses that the parties knew were likely to occur as a result of
a breach when they entered into the contract. Special damages are not inherent in the normal
course of events and must have been reasonably contemplated by both parties when the
contract was entered into. To claim special damages, the circumstances that led to the
damages must have been conveyed to the other party during contract formation. The party
seeking special damages must prove that the party who breached the contract was aware that
such specific losses were likely to result from a breach at the time of concluding the contract
only.

4.2 Nominal Damages

Nominal damages are provided where there is a violation of a legal right. In contractual
proceedings, if a defendant is found liable for breach, and the plaintiff's actual loss cannot be
determined, nominal damages may be paid. This occurs when there is lack of evidence to
determine the cost of obtaining comparable goods in the cheapest manner. If a shortcoming in
service is demonstrated, the Consumer Protection Act allows for the award of nominal
damages for breach of contract, even if no actual loss has occurred. Nominal damages may
also be given when a plaintiff seeks to show infringement of a legal right without focusing on
real loss.

5
India. (1972). Pollock & Mulla on Indian contract and Specific relief acts: with a commentary, critical and
explanatory. Bombay: N.M. Tripathi.
 4.3 Substantial Damages

When there is a clear and complete failure of one party to perform the contract and the breach
of contract is proven but calculating the loss suffered by the aggrieved party is so tough and
challenging, in such cases Substantial damages are awarded. However, if the breach of
contract is only partial and the extent of non-performance of the contract is unclear, then
substantial damages cannot be awarded. In such cases the plaintiff should prove that they are
in a serious financial condition than they would have been if the contract is fully performed.
Without this proof, no substantial damages can be provided to the plaintiff.

4.4 Aggravated and Exemplary Damages

In some jurisdictions courts may award more than the normal measure of damages by taking
the defendant’s motives or conduct. These damages can be classified as

a. Aggravated damages: These damages are awarded to compensate the victim’s mental
distress or injury to feeling which are caused or increased as a result by the manner which the
defendant committed the wrong or the failure to performance of the contract.

b. Exemplary damages: This type of damages are not meant to compensate the victim but to
punish the defendant. However, under section 73 of the ICA, such damages cannot be
awarded since the motive of the defendant is not considered relevant in this context.

4.5 Liquidated and Unliquidated damages

Liquidated damages are that amount which the parties predetermine in the contract agreement
itself in the case of a breach of a contract by any of the parties. The court in such cases just
enforces the damages. Section 74 of the ICA, talks about Liquidated Damages. In contrary,
Unliquidated damages are those compensation which the court determines when the parties
don’t mention the amount in the contract agreement. For example, if a contract states that a
purchaser can claim damages at a specified rate if goods are not supplied on time, and the
goods eventually delivered late, the purchaser can claim damages at the agreed rate.
5. Damages for breach in particular contracts

5.1 Sale of Goods6

The Sale of commodities Act, 1930, provides a legal framework controlling contracts for the
sale of commodities in India. Chapter VI of the Act specifies the rights and remedies
available to both sellers and buyers in case of violation of contract.

Calculation of Damages: In circumstances where there is a breach of contract for the supply
of goods and the items are freely available in the market, damages are normally calculated by
taking the difference between the contract price and the lowest price obtainable in the market
at the time of breach. This strategy assures that the innocent party is paid for any financial
loss suffered as a result of the breach.

Rights of the Purchaser: If the purchaser encounters a breach of contract, they have the right
to seek compensation for getting equivalent goods elsewhere if they are freely available in the
market. This ensures that the purchaser is not unreasonably harmed by the seller's inability to
meet their contractual duties.

Application of Indian Contract Act, 1872: Section 73 of the Indian Contract Act, 1872,
also applies to contracts of sale, establishing the procedures for damages in case of breach of
contract. This means that the rules described in Section 73 regarding compensation for loss or
harm caused by violation of contract are applicable to contracts for the sale of products as
well.

Seller's Remedies: If the property in the goods has passed to the buyer and the buyer refuses
or neglects to pay the price, the seller may sue the buyer for the price. Similarly, if the buyer
improperly neglects or refuses to accept and pay for the goods, the seller may sue the buyer
for damages for non-acceptance.

Buyer's Remedies: On the other hand, if the seller wrongfully neglects or refuses to deliver
the goods to the buyer, the buyer may sue the seller for damages for non-delivery.

6
Ellen A. Peters, Remedies for Breach of Contracts Relating to the Sale of Goods under the Uniform
Commercial Code: A Roadmap for Article Two, 73 THE YALE LAW JOURNAL 199 (1963).
Additionally, the buyer may demand specific execution of the contract or claim breach of
guarantee, in which case they can either bring up the breach in reduction or extinction of the
price or sue the seller for damages for breach of warranty.

5.2 Hire-Purchase Agreements

In a hiring agreement with an option to purchase, let's examine a scenario where a

construction business enters into a contract with a machinery owner to hire a crane for a
construction project. The contract sets a monthly hire charge of $5,000 for the crane.
However, midway through the project, the construction company decides to terminate the
hiring agreement and return the crane to the owner. Despite numerous demands from the
owner, the construction business fails to return the crane and continues to utilise it beyond the
agreed-upon period.

In this instance, the acceptable measure for evaluating damages is the amount agreed upon
for employment in the contract, which is $5,000 per month. Since the construction business
has failed to perform its contractual responsibilities by not returning the crane
notwithstanding the owner's requests, the owner is entitled to damages equivalent to the
monthly rent provided in the agreement. This entitlement continues until the date that the
crane is actually delivered back to the owner. Therefore, the damages in this instance would
be determined based on the agreed-upon monthly rent of $5,000 for the duration that the
crane is not returned as per the terms of the agreement.

For instance, if the construction business delays returning the crane by two months after the
termination of the employment agreement, the owner would be entitled to damages of
$10,000 ($5,000 per month) for the two-month period of non-return. These damages aim to
recompense the owner for the loss sustained owing to the construction company's breach of
contract and failing to return the borrowed machinery within the prescribed timeframe.
5.3 Contract for Work and Labour

In situations where a defendant, contracted to conduct work on goods, fails to finish the task
within the agreed time frame or within a reasonable duration if no precise deadline is
stipulated, the plaintiff is entitled to seek relief for the direct losses resulting from the delay.
For instance, assume Company A hires Company B to manufacture unique machinery for its
production line and specifies a completion deadline of six months. If Company B fails to
deliver the machinery within the agreed-upon timeframe, causing Company A's production to
halt, Company A may seek compensation for the financial losses sustained due to the delay,
such as lost income and higher operational costs.

Moreover, the plaintiff may also claim reimbursement for any reasonable measures attempted
to reduce the harm caused by the defendant's breach. For example, if Company A incurs
additional expenses to expedite production elsewhere or to buy temporary machinery to
maintain operations during the delay, these costs may be recovered against Company B.

Furthermore, if the defendant is aware or reasonably should be aware that the products are
intended for use in a profit-making business, damages are normally determined based on the
earnings the goods would have earned in the normal course of business. Continuing with the
preceding scenario, if the custom machinery was intended for use in Company A's profit-
making manufacturing operations, damages may be assessed based on the potential revenues
lost owing to the delay in production or hiring expenses for substitute machinery.

However, the defendant is not held liable for losses or profits originating from a special use
of the products unknown to them at the time of contract formation. For instance, if Company
A intended to use the specialised machinery for a one-time special project with
extraordinarily high profit margins, Company B may not be liable for the lost earnings
connected with this specific use case.

Additionally, appropriate compensation for the loss of use of the products may be provided
based on a clear assessment of the impact of the delay. If the delayed delivery of the bespoke
machinery directly causes damage to other machinery or equipment in Company A's
production line, Company B may be held liable for the additional losses stemming from their
breach of contract.
6. Remoteness 7
In contract law, the concept of "remoteness of damages" refers to the legal theory used to
establish which sorts of losses resulting from a violation of contract are eligible for
compensation through damages. This notion is distinct from the "measure of damages,"
which entails determining the monetary compensation owing for a specific violation of
contract. The seminal case of Hadley v. Baxendale8 established guidelines for calculating the
remoteness of damages. According to this ruling, damages can only be given for losses that
either occur in the ordinary course of business or were properly foreseeable by both parties at
the time of contract formation.

Section 73 of the Indian Contract Act embodies the Hadley v. Baxendale rule and analyses
the remoteness of damages depending on the parties' understanding at the time of contract
entering. This means that damages can only be awarded for losses that were foreseeable by
the parties when they entered into the contract. For instance, if the details of a contract
between a buying and its retail consumers were not within the contemplation of the parties, a
claim for damages based on the hypothetical retail sale price may be judged too remote and
subject to the principle of indirect loss. In such circumstances, damages cannot be assessed
since the losses were not foreseen by the parties at the time of contract formation.

6.1 Usual Course of things

The first part of the section 73 of the Indian Contracts Act, 1872 discussed about the what
establishes a liability for a party who breaches the contract, making them liable for losses that
reasonably considered as arising out of ordinary course of business or trade. This assumes
that the reasonable businessmen understand the common practices and necessities of each
other’s trade without the need of a special communication. But the actual question arises
about the liability of the party when the loss is occurred due to direct consequence of the

7
India. (1972). Pollock & Mulla on Indian contract and Specific relief acts: with a commentary, critical and
explanatory. Bombay: N.M. Tripathi.

8
Hadley & Anor v Baxendale & Ors [1854] EWHC J70
breach of contract even if the extent of the damage was not foreseeable. In Pannalal
Janakidas vs. Mohanlal9, the Supreme Court held an agent liable for the direct consequences
of neglect, referencing section 212 and distinguishing between direct and remote damage,
though not explicitly mentioning section 73. The dissenting judge of the opinion that both the
sections had similar rules for the measure of damages but in the present case, the loss did not
arise directly or naturally in the usual course of things. And in a non-delivery of goods case,
the court held that damages awarded for the loss arising naturally would be only limited to
the value of goods and not for the loss or profits. Additionally, a claim for loss of items which
are not part of the contract, resulting from the counterparty’s failure to timely accept delivery
was rejected as it being too remote and not arising in the usual course of things.

6.2 Test of Remoteness

The evaluation of the remoteness of damages in contract law rests on whether the damage
was envisaged by the parties as a "possible result" of the violation. If so, it is not judged
excessively remote, and the breach's natural and likely consequences are factored into the
computation of damages. Crucially, this evaluation demands a show of actual knowledge, as
simple imprudence or carelessness does not represent sufficient awareness. The defendant
takes responsibility simply for reasonably foreseeable losses—those that a prudent person in
their situation, armed with their knowledge at the time of contracting, would expect as
possible outcomes of a future breach. Remoteness of injury is evaluated as an issue of fact,
with the law affording only general rules as guidance. Importantly, there exists no absolute
rule mandating that losses stemming from currency devaluation are intrinsically too remote to
be recovered in law. Consequently, loss originating from foreign exchange rate fluctuations
can be claimed under Section 73 of the Indian Contract Act, challenging the notion of
absolute remoteness in some instances.

9
Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144,
7. Conclusion

7.1 Key Findings

Understanding of Contract and Breach: The document includes a thorough explanation of

what comprises a contract, as well as the various sorts of breaches, distinguishing between
actual and anticipated violations.

Remedies under Section 73: Section 73 of the Indian Contracts Act, 1872, is thoroughly
examined, emphasising the aggrieved party's right to get compensation for losses caused by a
breach of contract.

Damages or Remedies: Section 73 discusses many sorts of damages, such as general and
special damages, nominal damages, significant damages, aggravated and exemplary damages,
and liquidated and unliquidated damages.

Damages for Breach in Specific Contracts: Various scenarios of breach in specific contracts,
such as sales of commodities, hire-purchase agreements, and work and labour contracts, are
addressed, illuminating the parties' rights and duties.

Remoteness: The principle of remoteness of damages in contract law, as expressed in Section

73, is discussed, emphasising the importance of damages being foreseeable and within the
parties' cognition at the time of contract formation.

7.2 Overall Summary:

The study provides a detailed exploration of the remedies given under Section 73 of the
Indian Contracts Act of 1872 for breaches of contract. It extensively addresses numerous
features, ranging from the definition of a contract to identifying forms of breaches and the
entitlement of the injured party to seek restitution for incurred losses. Delving into the area of
damages or remedies, it elucidates the multitude of possibilities available, spanning general
and special damages, nominal damages, and consequential damages, among others.
Additionally, the study goes into the practical application of these concepts within specific
contractual situations, such as sales of items and hire-purchase agreements, providing subtle
insights into their implementation. Emphasizing the problem of remoteness of losses, the
project underlines the role of foreseeability in outlining the amount of liability for breach of
contract. Overall, it offers a comprehensive and detailed overview of the legal framework
governing remedies for breach of contract under Section 73 of the Indian Contracts Act,
1872, serving as a valuable resource for understanding and navigating issues related to
contractual breaches and their repercussions.
8. References

1. India. (1972). Pollock & Mulla on Indian contract and Specific relief acts: with a
commentary, critical and explanatory. Bombay: N.M. Tripathi.

2. Law of contract (a study of the contract act 1872) and specific relief. (2019). Eastern Book
Company.

3. Atul Chandra Patra, Historical Background of the Indian Contract Act, 1872, 4 JOURNAL
OF THE INDIAN LAW INSTITUTE 373 (1962).

4. Ellen A. Peters, Remedies for Breach of Contracts Relating to the Sale of Goods under the Uniform
Commercial Code: A Roadmap for Article Two, 73 THE YALE LAW JOURNAL 199 (1963).

5. Roy Chowdhury S. K. Saharay H. K. & India 1872. (1994). Dutt on contract: the indian
contract act 1872 (8th ed.). Eastern Law House.

6. Diva Rai, Remedies for Breach of Contract under the Indian Contract Act, IPLEADERS
(Mar. 30, 2020), https://blog.ipleaders.in/remedies-for-breach-of-contract-under-the-indian-
contract-act/ (last visited Mar 18, 2024).