Types of Damages under Section 73 of Indian Contract Act
Types of Damages under Section 73 of Indian Contract Act, 1872
1. Understanding Section 73: Compensation for Loss or Damage Caused by Breach of Contract
Section 73 provides the general principle of compensation for loss or damage caused by the breach of contract.
It states that when a contract is broken, the party who suffers from the breach is entitled to receive compensation for the loss or damage caused which naturally arose in the usual course of things from such breach, or which the parties knew when they made the contract to be likely to result from the breach.
The damages awarded should not be remote or speculative, but reasonably foreseeable.
2. Types of Damages Recognized Under Section 73
Section 73 primarily covers compensatory damages, but within this framework, different types of damages have evolved in Indian law, based on English common law principles:
A. Compensatory Damages
These are damages intended to compensate the injured party for the actual loss suffered.
The objective is to put the injured party in the same position as if the contract was performed.
It is the most common and fundamental form of damages.
B. Nominal Damages
Awarded when the plaintiff proves a breach but no actual loss or damage has been suffered.
A small sum is awarded to recognize the breach formally.
It affirms the legal right without awarding substantial compensation.
C. Consequential (or Special) Damages
These damages cover losses not arising directly and naturally from the breach but which result from special circumstances known to both parties at the time of contract.
They compensate for indirect or additional losses caused by the breach.
The injured party must prove such special circumstances.
D. Liquidated Damages
Damages agreed upon by the parties in the contract itself for breach.
Section 74 of the Indian Contract Act deals more specifically with liquidated damages.
Though related, these are distinct from damages under Section 73.
E. Exemplary or Punitive Damages
These damages are not ordinarily awarded under Section 73, which is compensatory.
However, in exceptional cases (e.g., where breach involves tortious elements), courts may award punitive damages.
Indian courts rarely grant punitive damages for breach of contract.
3. Principles Governing Award of Damages
Causation: Damages must result from the breach.
Foreseeability: Loss must be reasonably foreseeable at the time of contract.
Mitigation: Injured party must take reasonable steps to reduce loss.
Certainty: Loss must be proved with reasonable certainty; speculative damages are not allowed.
4. Important Case Laws on Damages under Section 73
Hadley v. Baxendale (1854) 9 Exch 341
Though an English case, it is foundational for Indian law on damages.
Established the test of foreseeability: damages must be such as may reasonably be supposed to have been in the contemplation of both parties at the time of contract.
Laid down the distinction between general damages (naturally arising) and special damages (arising from special knowledge).
Kalyan Chander Ray v. Asiatic Oxygen Ltd. AIR 1967 SC 1166
Supreme Court applied the principles of Section 73.
Emphasized that damages must be directly caused by the breach and reasonably certain.
Union of India v. Raman Iron Foundry AIR 1974 SC 182
Damages must be awarded to compensate actual loss, not as a penalty.
Awarded damages are to cover loss sustained and not for punishment.
Satyabrata Ghose v. Mugneeram Bangur AIR 1954 SC 44
Supreme Court emphasized the need for proof and quantification of damages.
Discussed the necessity of reasonable certainty in awarding damages.
5. Summary Table
| Type of Damage | Explanation | Example |
|---|---|---|
| Compensatory Damages | To compensate actual loss | Loss of profits due to breach |
| Nominal Damages | Symbolic sum when breach proved but no loss | Token ₹1 awarded |
| Consequential Damages | For special losses arising from known circumstances | Loss due to delay affecting other contracts |
| Liquidated Damages | Pre-agreed damages specified in contract (Section 74) | Fixed penalty for delay |
| Punitive Damages | Rare; to punish wrongdoer (not common in India) | Awarded in exceptional cases |
6. Conclusion
Under Section 73 of the Indian Contract Act, the primary aim is to compensate the injured party for losses caused by breach of contract. The damages must be directly caused, foreseeable, and reasonably certain. Indian courts emphasize fair compensation, discouraging speculative or punitive damages.
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