As been contemplated in the contract. For example,

As per the Oxford dictionary, ‘damage’ is defined as
‘financial compensation for loss or injury’, which is caused on account of the
defaulting Party’s breach of the contract. The term ‘damages’ is not defined
under the Indian Contract Act, 1872.

In Common Cause V Union of India 1999 (6) SCC 667, the
Supreme Court first used the definition of ‘damages’, as propounded by Mc
Gregor at para 127,

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“Damages are the
pecuniary compensation, obtainable by success in an action, for a wrong which
is either a tort or a breach of contract, the compensation being in the form of
a lump sum which is awarded unconditionally.”

Section 73 of the Indian Contract Act,1872 lays down
provisions related to damages. It provides that any party, who breaches a
contract, is liable to provide compensation to the injured party, due to breach
of contract, for any loss or damage caused. Damages under Section 73 of the Act
are compensatory and not penal in nature.

“Breach of contract” constitutes the pre-condition for a
claim of damages, be it liquidated, unliquidated or otherwise. Thus, irrespective
of the extent to which the defendant profits from the contractual arrangement, there
can be no claim for damages unless there is a breach of the contract. Further,
the party committing the breach is liable to compensate by way of damages. To establish
a breach, it has to be adjudicated upon and be proved, and not merely decided
by the parties. A contract is said to be breached in case of contravention with
the terms of the contract or when the promise made is broken. It may so happen
that the terms are not complied in a manner which had been contemplated in the
contract. For example, if a party contracts with another for repairing the
other’s house in a certain manner, and the repair was not done in the manner
which was decided, then the aggrieved party in entitled to damages to the
extent of costs of making repairs in conformity with the contract. Damages may
also be claimed in case of anticipatory breach of contract. An anticipatory
breach is said to have been committed when a party refuses to perform, or has
disabled himself from the performance of the promise in its entirety. In such a
scenario, the other party may acquiesce to the continuation of the contract or
rescind it. In case of an anticipatory breach of contract, the plaintiff would
be entitled to claim damages on establishing the intention to perform the
contract prior to rescission of the contract.

Damages of Breach

A contract is not a property. It is just a promise which
is supported by some meaningful consideration upon which the remedy of that
damage or specific performance is available.

The party who is injured by the breach of contract can
bring an action for the damages. The burden to prove the loss lies completely
on the injured party.

Every action for damages raises two major issues, the remoteness
of damage and the measure of the damage.

The elements of damage recognised by law are divisible in
two prime groups: pecuniary and non-pecuniary. While the pecuniary casualty can
be calculated I terms of loss, the non-pecuniary loss is not so calculable.
Non-pecuniary casualty is compensated in terms of money, not as replacement for
other money, but as an alternative, what McGregor says, is usually more
important than money: it’s the best that a Court can do.

Remoteness of damage

Every Breach of contract upsets numerous established
expectations of the injured party. Theoretically the implications of a breach
could be endless, but there ought to be an end to liability. The appellant can’t
be held liable for all that follows from his breach. There should be a limit to
liability beyond which the damage is asserted to be too far off and, thus,
irrecoverable.

Damages under Indian Law

According to the Indian Contracts Act, 1872 (ICA) the
following types of damages are available on the breach of contact.

Let’s take the following clauses:

1.  “X shall
perform its obligations hereunder in conformance with the terms of the
Agreement and all other applicable Indian laws and statutes including all
Indian employment and workmen’s laws.”

2.  “X shall
perform its obligations hereunder in conformance with the terms of the
Agreement and all other applicable Indian laws and statutes including all
Indian employment and workmen’s laws. X agrees that if at any time during the
term of this Agreement, except on account of Force Majeure, the Plant is unable
to supply electricity at the Discharge Capacity resulting in Y being unable to
operate its cement unit, then in that event and in every such case X will pay Y
a sum to be calculated as per the formula specified below as and by way of
liquidated damages for failure of X to supply electricity at the Discharge
Capacity resulting in delay in the operations of the cement unit.”

 

The difference among these two clauses is that second
clause provides the payment for the liquidated damages whereas, under clause 1,
Y has to seek only the actual damages held due to the non-supply of
electricity.

The damages can be divided into two major categories-

General Damages- The damages which naturally arise in the
course of things due to the breach itself or else we can say that the defendant
is liable for all that which naturally follows in the course of things after
the breach. Section 73 of the Indian Contracts Act, 1872 deals with such
damages.

Special Damages- The damages which arise due to the
unusual or special circumstances affecting the plaintiff and thus resulting to
consequential damage. They are not recoverable unless the special circumstances
were brought to the knowledge of the defendant; so that the possibility of
special loss was in contemplation of the parties. Special damages do not mean
serious damage, in the sense of irreparable loss but damage peculiar to the
plaintiff.

Difference between general and special damages

In the context of liability for loss, general damages are
those which arise naturally and in the normal course of events, whereas special
damages are those which do not arise naturally out of the defendant’s breach.

General damages are losses, usually but not exclusively,
non-pecuniary, which are not capable of precise quantification in monetary
terms. For example, damages for harm to reputation in actions for defamation
and damages for pain and suffering in actions relating to personal injury. Special
damages, on the other hand are those losses which can be calculated in
financial terms. These are generally pecuniary losses calculable at the time of
trial, for example, claims for loss of earnings, whether past or future, or the
cost of care in personal injury actions.

Special damage refers to those losses which must be specifically
pleaded and proved by evidence, and particulars of the special damage claimed
must be specified in the complaint, whereas general damage is that which will
be presumed to be the natural or probable consequences of the wrong complained
of, with the result that the plaintiff is required only to assert that such
damage has been suffered and quantification is left to the court

Liquidated Damages- When the
terms of a contract are broken, if a sum is appointed in the contract as the
quantity to be compensated in case of breach, the party complaining of the
breach is entitled, even if actual damage or loss is proved to happen to be
caused thereby, to receive compensation not exceeding the quantity so assigned.
If obligation to pay a specific amount by means of penalty has been provided in
the contract, then rational compensation not exceeding that quantity must be
paid1.
Apart from the Force Majeure, in clause 2, Y is entitled to call for liquidated
damages. This would be more beneficial to Y as he will be entitled to
predetermined amount for the loss. Under clause 1, Y will have to prove all of
the damages suffered during the breach and if once liquidated damages are awarded,
no claims can be made for the loss of profits or other incidental damages. Thus,
the events activating liquidated damages must be clearly declared, in order
that the parties are independent to claim damages after the breach of contract.
After reading section 74 of the Indian Contract Act, 1872, it can be noted that
Indian law does not distinguish between liquidated damages and penalties, as is
the case in the UK or the USA. In the above-mentioned countries, the question of
law is whether the sum set forth in a contract is in the nature of liquidated
damages or a penalty.

As the Indian law doesn’t state
any difference between damages and penalty, the liquidated damages clause does
not specifically state if liquidated damages are not a part of the nature of a
penalty.

 

Actual Damages

According to Section 73 of the
Indian Contracts Act, 1872,

“When a contract has been
broken, the party who suffers by such breach is entitled to receive, from the
party who has committed breach, compensation for any loss or damage caused to
him thereby, 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 such breach.

Compensation is not to be paid
for any indirect loss or damage, or any other remote damage, sustained by the
breach of contract. Compensation for failure to discharge obligation resembling
those created by contract: When an obligation resembling those created by
contract has been incurred and has not been discharged, any person injured by
the failure to discharge it is entitled to receive the same compensation from
the party in default, as if such person had contracted to discharge it and had
broken his contract”.

Besides, the explanation
provided for this section adds,

“In estimating the loss or damage arising from a breach of
contract, the means which existed of remedying the inconvenience caused by the
non-performance of the contract must be taken into account.”

The acknowledged principles underlying the award of
indemnity are that the injured party should be placed in the equivalent
position when it comes to money as if the contract was performed by the party as
a default. When the contract is of sale, this principle calls for valuation of
damages as on the date of breach. In a contract of the sale of goods, the limit
of damages consequent to breach by the client is the distinction between the
contract price and the market price on the appointment of breach. On a breach
of contract to deliver goods by the representative, the client be entitled to
recover all the damages of procuring similar or similar goods.

This was held by the Calcutta High Court in the case of Tata
Iron & Steel Co Ltd v. Ramanlal Kandoi (1971) 2 Cal. Rep. 493, 528. In case
of non-delivery of goods, the damages are fixed on the basis of the price
prevailing on the date on which delivery is to be made, as was held by the
Supreme Court in the case of Union of India v. Jolly Steel Industries (Pvt)
Ltd. (AIR 1980 SC 1346).

1
Section 74

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