Key points
- Damages under Section 73 of the Contract Act cover loss that naturally arose from the breach or was in the parties' contemplation; remote loss is not recoverable.
- Liquidated damages under Section 74 are recoverable only to the extent they are a genuine pre-estimate of loss and loss is shown.
- Since the 2018 amendment to the Specific Relief Act, specific performance is the rule rather than the exception where it is possible.
Compensatory damages
Section 73 of the Indian Contract Act, 1872 entitles the injured party to compensation for loss or damage which naturally arose in the usual course of things from the breach, or which the parties knew when they made the contract to be likely to result. The claimant must prove the loss with evidence; courts do not award damages for the mere fact of breach. The duty to mitigate applies.
Liquidated damages and penalties
Where the contract names a sum payable on breach, Section 74 allows recovery of reasonable compensation not exceeding that sum. Following Kailash Nath Associates v. DDA (2015), the claimant must still show that loss was suffered unless it is impossible to prove, and a sum that is a penalty rather than a genuine pre-estimate will be scaled down.
Specific performance
The Specific Relief (Amendment) Act, 2018 removed the court's discretion to refuse specific performance where it is otherwise available. Contracts for sale of immovable property, share transfers and other contracts whose subject matter is unique are now routinely enforced by ordering performance. Contracts involving personal service, continuous supervision or determinable contracts remain unenforceable in specie. The plaintiff must plead and prove readiness and willingness to perform.
Injunctions
A negative covenant, such as an exclusivity or non-compete clause during the term, can be enforced by injunction under Section 42 of the Specific Relief Act even where the positive obligation cannot be. Interim injunctions to preserve the position pending trial are sought under Order XXXIX of the CPC.
Choosing
Where money will make you whole and the counterparty is solvent, damages are simpler. Where the asset or the contract itself is what you need, seek specific performance with damages in the alternative.
Frequently asked questions
What is the limitation for a breach of contract suit?
Three years from the date of breach under the Limitation Act, 1963. For specific performance, three years from the date fixed for performance or from when the plaintiff had notice of refusal.
Can I claim loss of profits?
Yes, if the loss was in the parties' contemplation and can be proved with reasonable certainty, for example through past accounts or the contract's own projections.
Related practice area: Commercial Litigation & Arbitration
This article is for general information and does not constitute legal advice. Laws, rules and limitation periods change and depend on the facts; please take advice on your own situation before acting. Reading this article does not create a lawyer-client relationship with Akhtars Legalitarian.