Introduction To Section 73 and 74 of Indian Contract Act
What Are Sections 73 and 74 About?
Both sections are about what happens when someone breaks a contract (i.e., fails to perform their promise).
They explain how much compensation or damages the injured party can claim.
Section 73: Compensation for Loss or Damage Caused by Breach of Contract
If a party breaks a contract, they must pay compensation to the other party for the loss or damage caused.
The compensation should be:
Reasonable and direct consequence of the breach.
Not for remote or indirect losses.
The idea is to put the injured party in the same position as if the contract had been performed.
Example:
If you agree to buy goods and the seller fails, you can claim compensation for the loss suffered because you didn’t get the goods.
Section 74: Compensation for Breach of Contract Where Penalty Is Stipulated
Sometimes contracts have a penalty clause or a stipulated sum to be paid in case of breach.
Section 74 says:
The court can award compensation not exceeding the amount specified.
The compensation can be less than the stipulated amount if the breach caused less loss.
If there’s no actual loss, the court can still award a reasonable amount.
Example:
A contract says if you break it, you pay Rs 1 lakh. If your breach caused Rs 30,000 loss, the court may award Rs 30,000 instead of Rs 1 lakh.
Key Differences Between Sections 73 and 74
| Feature | Section 73 | Section 74 |
|---|---|---|
| Type of compensation | For loss/damage caused by breach | For breach where penalty or stipulated sum is mentioned |
| Compensation limit | Based on actual loss caused | Does not exceed stipulated sum or penalty amount |
| Loss proof | Must prove loss | Court can award reasonable amount even if loss not proved |
| Purpose | Make injured party whole | Enforce penalty clauses fairly, avoid unjust enrichment |
Quick Summary
| Section | Main Focus | Compensation Basis |
|---|---|---|
| 73 | Compensation for loss/damage caused by breach | Actual loss, direct and reasonable |
| 74 | Compensation when penalty is stipulated | Up to stipulated amount; reasonable |
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