Law of Damages in India

MUMBA I S I L IC O N VAL L E Y BA N G A LO RE SI N G A P O RE M U M BA I B KC NE W DELH I MUNIC H NE W YORK
Law of Damages
in India
July 2019
© Copyright 2019 Nishith Desai Associates www.nishithdesai.com

Law of Damages in India
July 2019
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Acknowledgements
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Shweta Sahu
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Alipak Banerjee
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Moazzam Khan
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Vyapak Desai
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Contents
1. INTRODUCTION 01
2. TYPES OF DAMAGES 02
I. General and special damages 02

II. Nominal damages 02
III. Substantial damages 02
IV. Speculative damages 02
V. Aggravated and exemplary damages 03
VI. Liquidated and unliquidated damages 04
3. THE LAW OF DAMAGES UNDER INDIAN CONTRACT ACT, 1872 05
I. Breach of contract 06
II. Proof of damage for a claim of liquidated damages 06
III. Causation 08
IV. Remoteness of Damages 09
V. Damages for direct, consequential and incidental losses and damage 10
VI. Damages for loss of profit 11
VII. Damages for non-pecuniary losses 12
VIII. Mitigation 12
IX. Measure and calculation of damages 13
X. Interests on damages 15
XI. Contractual Exclusion of claim for damages 15
XII. Quantification of damages by experts
and valuers 16
4. APPLICABILITY OF THE LAW OF DAMAGES 18
I. Damages under Sale of Goods Act, 1930 18

II. Grant of damages under indemnity contracts 19
III. Damages under tort and contract law 20
IV. Grant of liquidated damages in arbitral proceedings 20
V. Damages under consumer laws 21
VI. Damages under contracts of employment 21
VII. Damages under cases relating to intellectual property 21
VIII. Damages under cases relating to Engineering,
Procurement and Construction contracts 26


5. LAW OF DAMAGES IN INDIA, U.K. AND SINGAPORE: AN OVERVIEW 28
I. Liquidated damages and penalty clauses 28

II. The principle of remoteness of damages 28
III. Grant of punitive damages 29
6. CONCLUSION 30
7. TABLE OF CASES 32


1. Introduction
Damages, in simple terms, refer to a form damages emanate from actionable wrongs.5
of compensation due to a breach, loss or injury.1 However, in common parlance, there isn’t much
As explained by Fuller and Perdue, damages may difference, and compensation is often used to
seek protection of “expectation interest”, “reliance refer to damages as well. Moreover, the Contact
interest” or “restitution interest”. Expectation Act 1872, uses the term “compensation” in the
interest (otherwise known as performance sections referring to liquidated and unliquidated
interest) refers to placing the plaintiff in a position damages, which shall be discussed subsequently.
that he would have occupied, had the defendant
Damages have gained much significance especially
performed his promise by compensating for the
among commercial transactions, and as punitive
injury, thus, aiming at fulfilling the expectation
measures for violation of rights of concerned
of the promisee;2 reliance interest (otherwise
persons. The nature of damages granted across
known as status quo interest) refers to a restoring
various areas varies significantly, for example in
the plaintiff to a position which he was in before
cases relating to indemnity contracts.6
the promise was made in the course of which the
promise altered his position by placing reliance Indemnity is a kind of protection from third
on the promisor;3 and restitution interest refers party losses, which is ensured by an indemnity
to prevention of gain by the defaulting promisor agreement between the claimant (indemnified)
at the expense of the promisee or to compel the and the indemnifier.7 A claim for indemnity
defendant to pay for the values received from the arises from the original contract of indemnity
plaintiff thereby preventing unjust enrichment.4 while a claim for damages arises on breach of
a contract. Unlike damages under ordinary
“Damages” are often confused with “damage”.
contracts where the defendant has the primary
However, these two terms are significantly
liability to pay the damages, under indemnity
distinct. While “damages” refer to the
contracts, the risk of future losses and liability
compensation awarded or sought for,
to pay damages shifts to the indemnifier.8
“damage” refers to the injury or loss which
such compensation is claimed for or being Damages are popularly granted in cases of tort
awarded. ‘Damage’ could be monetary or or on breach of contract. This paper broadly
non-monetary (loss of reputation, physical covers damages in cases of contractual breaches
or mental pain or suffering) while ‘damages’ in India, with a brief overview of claim and
refer to pecuniary compensation. grant of damages in cases of torts, indemnity
contracts, arbitral proceedings, sale of goods,
Damages can also be distinguished from
consumer law, intellectual property rights
compensation, in general. Compensation is
(copyrights, trademarks and patents) and
a broader concept which encompasses payments
Engineering, procurement and construction
made to a person in respect of some kind of loss or
contracts (also known as EPC contracts).
damage suffered due to reasons like acquisition of
property by another party, or statutory violations,
termination of employments, requiring the
5. Halsbury’s Laws of England, Damages, vol 12 (4th edn)
aggrieved party to be compensated; however, para 815 as cited in R.G Padia (ed.), Pollock and Mulla Indian
Contract and Specific Relief Acts, vol 2 (13th edn, LexisNexis
Butterworths Wadhwa 2006) 1498
6. Refer to our hotline titled “Revisiting the Indemnity v/s
Damages Debate” available at: http://www.nishithdesai.com/
1. Common Cause v. Union of India (1999) 6 SCC 667
information/research-and-articles/nda-hotline/nda-hotline-
2. AT Brij Paul Singh & Bros. v. State of Gujarat AIR 1984 SC 1703; single-view/article/revisiting-the-indemnity-vs-damages-de-
MSK Projects (I) (JV) Ltd. v. State of Rajasthan (2011) 10 SCC 573 bate.html?no_cache=1&cHash=7a971feea52445663d1b-
3b87e707a6f5 [accessed 19 July 2018]
3. Kanchan Udyog v. United Spirits Limited (2017) 8 SCC 237
7. Indian Contract Act 1872, s. 124
4. L.L. Fuller and Willian R. Perdue Jr., ‘The Reliance Interest in
Contract Damages’ (1936) 46 Yale Law Journal 52 8. H.P. Financial Corporation v. Pawna (2015) 5 SCC 617

2. Types of Damages
The nature of damages used or sought for depends
on the objective for which damages are being
III. Substantial damages
claimed for. Thus, damages can be categorized
Contrary to nominal damages, substantial
into one or more of the following kinds:
damages are awarded when the extent of
breach of the contract is proved but there
I. General and special are uncertainties regarding calculation.
damages
IV. Speculative damages
Damages which arise in the normal course
of events are known as general damages Speculative damages are those, which are allowed
while special damages refer to those that arise when the probability that a circumstance will
under circumstances which were reasonably exist as an element for compensation becomes
anticipated by the parties when they entered conjectural.12 Broadly, there may be two kinds
into the contract. Once a damage is proven, of circumstances in this regard:
general damages are presumed to follow
§§when the damages are uncertain or contingent,
such damage, while specific proof of such
i.e., not the certain result of the breach
damage is necessary to be established in case
of claim for special damages. §§those where the damages are uncertain
in amount.
II. Nominal damages Uncertain damages, which are not the
certain result of a breach or a wrong, are
When a party approaches the court not recoverable.13 However, damages which
for claiming damages, the court has the are definitely attributable to the wrong and
discretion to award nominal damages.9 only uncertain in respect of their amount,
This may be awarded even when there is may be recovered.14 In such case, while the
no actual loss or injury caused to a party damages may not be determined by mere
against whom a breach has been caused, speculation or guess, it will be enough if the
or in cases where there has been a violation evidence show the extent of the damages
of a legal right, without any actual damage as a matter of just and reasonable inference,
being proved.10 Thus, in case a party fails although the result be only approximate.15
to prove actual loss resulting from a breach However, courts in India are generally quite
of contract, nominal damages may be granted. reserved while granting speculative damages.16
Additionally, nominal damages may be
awarded where a technical breach of contract
has been committed or when the breach has
taken place due to an external reason which
is not attributable to the defendant.11
AIR 1991 MP 121. See also, Akhoy Kumar Chatterjee v. Akman
Molla & Others AIR 1915 Cal 154 (2) in which common law
approach for grant of nominal damages has been followed.
9. Chaudhary Construction Co. v. Delhi Development Authority 12. Justice SS Subramani and VR Manohar (eds.), P Ramanatha
(1998) 1 Arb LR 334 Aiyar The Major Law Lexicon, vol 6, (4th edn, 2010) 6401
10. Maula Bux v. Union of India 1970 SCR (1) 928; also see Vikas 13. Story Parchment Co. v Paterson Co. (1930) 282 US 555
Electrical Service Pann Bazar Hubli v. Karnataka Electricity Board,
14. ibid
AIR 2008 Kant 88
15. ibid
11. Bismi Abdullah & Sons v. Regional Manager of FCI AIR 1987
Ker 56; Pran Nath Suri & Ors. v. The State of Madhya Pradesh 16. See, Rogers Pyatt Shellac v John King, AIR 1926 Cal 564.

V. Aggravated and Supreme Court’s finding in this respect is of

exemplary damages utmost relevance, wherein it was observed that:
“Punitive damages are very much the exception
These damages are of such nature that they than the rule, imposed only if there has been
exceed the damages ascertained, mostly high-handed, malicious, arbitrary or highly
resulting from the mala fide conduct of reprehensible misconduct that departs to a
the defendant. Aggravated damages gain marked degree from ordinary standards of
significance where the damage caused to the decent behaviour. Where they are awarded,
plaintiff are aggravated due to the motives, punitive damages should be assessed in an
conduct or manner of inflicting injury, whereby amount reasonably proportionate to such
the plaintiff’s feelings and dignity are adversely factors as the harm caused, the degree of the
affected resulting in mental distress. Aggravated misconduct, the relative vulnerability of the
damages are mostly compensatory in nature plaintiff and any advantage or profit gained
since they aim at compensating the plaintiff by the defendant, having regard to any other
for the aggravated loss suffered. On the other fines or penalties suffered by the defendant
hand, exemplary damages are punitive in nature for the misconduct in question. Punitive
since they intend to punish the defendant and damages are generally given only where the
not merely compensating or depriving the misconduct would otherwise be unpunished
defendants of the profits made.17 Since damages or where other penalties are or are likely
under contractual breaches do not consider the to be inadequate to achieve the objectives of
motive and conduct of defendants, aggravated retribution, deterrence and denunciation. Their
and exemplary damages are more prominent purpose is not to compensate the plaintiff,
in torts and not under contractual breaches.18 but to give a defendant his or her just desert
This is primarily because the objective behind (retribution), to deter the defendant and
contractual remedies is to compensate the others from similar misconduct in the future
promisee for the breach rather than compelling (deterrence), and to mark the community
performance on the promisor.19 However, collective condemnation (denunciation) of what
where elements of fraud, oppression, malice has happened. Punitive damages are awarded
etc. are established, exemplary damages may only where compensatory damages, which
be granted, which may not be confined to to some extent are punitive, are insufficient to
compensation proportionate to pecuniary losses accomplish these objectives, and they are given
actually suffered by the injured person.20 in an amount that is no greater than necessary
to rationally accomplish their purpose.”21
In any event, punitive damages may be granted
in certain exceptional cases. The Canadian Nevertheless, courts in the U.K. and India have
been strict regarding grant of punitive damages
in case of contractual breaches. For example, in
17. Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian a recent case, the England and Wales High Court
Contract Act and Specific Relief Acts, vol 2 (updated 14th edn, (Chancery Division), in an obiter, agreed with
LexisNexis Butterworths Wadhwa) 1173. See also, Organo
Chemical Industries and Another. v. Union of India and Others the claimants that:
(1979) 4 SCC 573
“i) The first is that exemplary damages,
18. The Common law approach has been that aggravated
damages cannot be awarded in an action for breach of otherwise known as punitive damages, are
contract (Addis v. Gramaphone Co. Ltd. (1909) AC 488; Bliss awarded against a defendant as a punishment,
v. SE Thames Regional Health Authority (1987) ICR 700;
Ghaziabad Development Authority v. Union of India & Another so that the assessment goes beyond mere
(2000) 6 SCC 113) compensation of the claimant. Whilst such
19. William S. Dodge, ‘The Case for Punitive Damages in Contracts’ damages are capable of being awarded in tort
(1999) 48(4) Duke Law Journal 629, 630. See also, Sikka Papers
Ltd. v. National Insurance Corporation Ltd. (2009) 7 SCC 777 (albeit only in very limited circumstances),
20. Sheikh Jaru Bepari v. AG Peters AIR 1942 Cal 493; Alexander Brault
v. Indrakrishna Kaul AIR 1933 Cal 706; Gayatri Balaswamy v. IGS
Nocasoft Technologies Ltd. 2015 (1) Arb LR 352 (Mad) 21. Whiten v. Pilot Insurance Company [2002] 1 RCS 595

there is no right to recover exemplary damages VI. Liquidated and

for breach of contract. If any right to damages unliquidated damages
arises in the present case, it would be founded
upon (or by analogy with) a cause of action
In case of contracts, parties may agree to
in contract. Therefore, as a matter of principle,
payment of a certain sum on breach of the
exemplary damages would not be recoverable
contract. When such stipulations are made
in the present case. ii) The second answer
in the contract, they are known as liquidated
is that, even if such an award is available
damages. On the other hand, unliquidated
in principle, it should be by reference to the
damages are awarded by the courts on an
principles developed in tort and subject to the
assessment of the loss or injury caused to the
restrictions laid down in Rookes v. Barnard
party suffering such breach of contract.24
[1964] AC 1129. The facts of the present case
do not fall within those principles.”22 Under the Indian Contract Act, 1872, unliquidated
and liquidated damages are given under sections
Similarly, in India, courts have held that
73 and 74 respectively, which shall be discussed
the nature of compensation should be such
in the subsequent chapter of this paper.
that the award of compensation for damages
cannot be considered either punitive or in
the nature of a reward.23
22. IBM United Kingdom Holdings Ltd & Another v. Dalgleish & Ors
(Rev 1) [2015] EWHC 389(Ch)
23. Kerala State Road Transport Corporation Rep. by the Managing
Director v. Feethambaran Rep. by his Next Friends Sukhmmari
1994 (2) KLJ 646 (para 8); Bharat Sanchar Nigam Limited v. 24. Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd.
Reliance Communication Ltd. (2011) 1 SCC 394 (2009) 10 SCC 63

3. The Law of Damages under Indian Contract

Act, 1872
Section 73 deals with actual damages following Damages are generally claimed and granted
breach of a contract and the injury resulting to enable restoration of the position of the
from such breach which are in the nature of plaintiff in which he would have been, if the
unliquidated damages. These damages are breach would not have taken place.26 Generally,
awarded by the courts on an assessment of the loss these damages are to be claimed from the party
or injury caused to the party against whom breach causing such breach.
has taken place. Section 74 deals with liquidated
Liquidated damages stipulating reasonable
damages, i.e., damages that are stipulated for.
compensation, would ordinarily be awarded
Thus, for claim of damages, there must be a against the party causing breach of a contract.
breach of the contract,25 thereby excluding cases, Therefore, the risk of a party causing a breach
where there is a valid termination of the contract of the contract is comparatively less.
without any violation of the terms of the contract.
Thus, the differences between Section 73 and
Section 74 may be summed up as below:
Section 73: Section 74:
Contract materialized Contract materialized
Breach of a contract Contract has a certain sum stipulated as

compensation or penalty which would be
effectuated on breach of contract
Loss or damage resulting from such breach
Breach of a contract
The loss or damage should be of such nature that:

§§It arose in the usual course of things Compensation by party causing breach.
from such breach; or The compensation shall be reasonable and
§§Parties knew that such a loss or damage not more than the sum determined in the
could subsequently arise at the end of contract as liquidated damages.
the time of entering into the contract.
Compensation for such loss or damage by

party causing the breach
25. P. Radhakrishna Murthy v. NBCC Ltd (2013) 3 SCC 747 26. Trojan & Co. v. Rm N.N. Nagappa Chettiar AIR 1953 SC 235

I. Breach of contract II. Proof of damage for

a claim of liquidated
“Breach of contract” constitutes the pre-condition
for a claim of damages, be it liquidated, damages
unliquidated or otherwise.27 Thus, irrespective
of the extent to which the defendant profits It is noteworthy that for a claim of liquidated
from the contractual arrangement, there can be damages, the clause “whether or not actual damage
no claim for damages unless there is a breach of or loss is proved to have been caused thereby” would
the contract. To establish a breach, it has to be not be dispensing with the establishment of proof
adjudicated upon and be proved, and not merely in toto.34 This emanates from the understanding
decided by the parties.28 that the reasonable compensation agreed
upon as liquidated damages in case of breach
A contract is said to be breached in case of
of contract is in respect of some loss or injury;
contravention with the terms of the contract
thus, existence of loss or injury is indispensable
or when the promise made is broken. It may
for such claim of liquidated damages.35 In such
so happen that the terms are not complied in
cases, the requirement to prove loss or injury or
a manner which had been contemplated in
damage may be dispensed with, if it is difficult
the contract. For example, if a party contracts
or impossible to prove that the genuinely pre-
with another for repairing the other’s house in
estimated damages can be awarded.36 Thus, it
a certain manner, and the repair was not done
is expected that the stipulation for liquidated
in the manner which was decided, then the
damages should be bona fide and a fair estimate
aggrieved party in entitled to damages to the
of the damages arising from the breach, and not
extent of costs of making repairs in conformity
guised with the sole intent to penalize the other
with the contract.29
party. Courts have repeatedly required parties
Damages may also be claimed in case to draft clauses within the contracts which are
of anticipatory breach of contract.30 An clear and unambiguous.
anticipatory breach is said to have been
Irrespective of stipulations in the form of
committed when a party refuses to perform,
liquidated damages, a plaintiff can recover
or has disabled himself from the performance
damages to the extent of the claim being
of the promise in its entirety.31 In such a
reasonable compensation for the injury
scenario, the other party may acquiesce to the
sustained by him, and not the entire sum laid
continuation of the contract or rescind it.32 In
down as liquidated damages37 Thus, provisions
case of an anticipatory breach of contract, the
relating to liquidated damages are required to
plaintiff would be entitled to claim damages
be drafted with clarity and it has to be proven
on establishing the intention to perform the
that the amount was a genuine pre-estimate
contract prior to rescission of the contract.33
of the loss or damage likely to be suffered. It
is pertinent to note that amount stipulated as
liquidated amount or penalty is the “upper limit
beyond which the court cannot grant reasonable
27. Managing Director, Army Welfare Housing Organisation v. compensation”.38 Meanwhile, other factors like
Sumangal Services Pvt. Ltd. (2004) 9 SCC 619
28. P Radhakrishna Murthy v. NBCC Ltd. (2013) 3 SCC 747; J.G.
Engineers (P) Ltd., v. Union of India (2011) 5 SCC 758
34. ONGC v. Saw Pipes (2003) 5 SCC 705
29. Indian Contract Act 1872, s. 73 (illustration (f))
35. ibid
30. Jawaharlal Wadhwa & Another v. Haripada Chakroberty (1989)
36. ibid; Kailash Nath v. Delhi Development Authority (2015) 4 SCC
1 SCC 7
136; see also, Indian Oil Corporation v. Lloyds Steel Industries
31. Indian Contract Act 1872, s. 39. See also, Jayendra Construction Limited 2007 (4) Arbitration Law Report 84 (Delhi)
v. Rajkot Jilla Panchayat AIR 2014 Guj 137
37. Union of India v. Raman Iron Foundry AIR 1974 SC 1265
32. ibid
38. ONGC v. Saw Pipes (2003) 5 SCC 705; Maya Devi v. Lalta
33. Foran v. Wight (1989) 168 CLR 385, 408 (Mason CJ); see also, State Prasad (2015) 5 SCC 588; A.S. Motors (P) Ltd. v. Union of India
of Rajasthan v. Ferro Concrete Construction P. Ltd. (2009) 12 SCC 1 (2013) 10 SCC 114

extent of mitigation of losses, along with other claiming compensation must prove the loss
facts and circumstances cannot be overlooked suffered by him.”41
and warrant sufficient consideration.
In the absence of such a proof or honest
Based on this reasoning, recently a Division estimation by the claimant, the court shall
Bench of the Bombay High Court had upheld make an award for damages which is below
the finding of a Single Judge who had set aside the stipulated liquidated damages, by taking
the arbitral award on the ground that the award into consideration a reasonable assessment
for grant of liquidated damages had been made of the consequences of the breach of contract.42
even though no evidence had been led to prove
It is also possible for the parties to agree to
any loss or damage.39
liquidated damages with respect to a specific
Therefore, even in the presence of a pre- type of breach only, and in such a case, if there
determined sum agreed by both the parties as is some other kind of breach, the damages in
liquidated damages, so that there is no windfall respect of such breach (which has not been
profit in case of a breach of a contract without stipulated) would be unliquidated damages.43
resulting in kind of loss or damage.40
Often, prior to a claim of liquidated damages,
In this respect, the Hon’ble Supreme Court has courts have required time as the essence of
noted the following: the contract, or provide the other party with
such notice so that reasonable time is given
“It is true that in every case of breach of contract
for performing the contractual obligations.
the person aggrieved by the breach is not
On consideration of the facts of the case, in
required to prove loss or damage suffered
the case of Kailash Nath v. Delhi Development
by him before he can claim a decree, and
Authority ,44 it was observed that:
the court is competent to award reasonable
compensation in case of breach even if no actual “Based on the facts of this case, the single judge
damage is proved to have been suffered in was correct in observing that the letter of
consequence of the breach of contract. But the cancelation dated 06.10.1993 and consequent
expression “whether or not actual damage or forfeiture of earnest money was made without
loss is proved to have been caused there by” is putting the appellant on notice that it has
intended to cover different classes of contracts to deposit the balance 75% premium of plot
which come before the courts. In case of breach within a certain stated time. In the absence
of some contracts it may be impossible for the of such notice, there is no breach of contract
court to assess compensation arising from on the part of the appellant and consequently
breach, while in other cases compensation can earnest money could not be forfeited.”
be calculated in accordance with established
Thus, an automatic pecuniary liability does not
Rules. Where the court is unable to assess the
arise in the event of a breach of a contract which
compensation, the sum named by the parties if
contains a clause for liquidated damages.45 Till the
it be regarded as a genuine pre-estimate may
time, it is determined by the court that the party
be taken into consideration as the measure of
complaining of the breach is entitled to damages,
reasonable compensation, but not if the sum
named is in the nature of a penalty. Where loss
in terms of money can be determined, the party
41. Maula Bux v. Union of India (1969) 2 SCC 554
42. Oil and Natural Gas Corporation Ltd v. Saw Pipes Ltd AIR 2003 SC
2629; BSNL v. Reliance Communication Ltd. (2011) 1 SCC 394
43. Aktieselskabet Reider v. Arcos [1927] 1 KB 352; Steel Authority of
India Ltd. v. Gupta Brothers Steel Tubes Ltd. 2009 AIR SCW 7191
39. Raheja Universal Pvt. Ltd. v. B.E. Bilimoria & Co. Ltd. (2016) 3
AIR Bom R 637 44. Kailash Nath v. Delhi Development Authority (2015) 4 SCC 136,
para 21
40. MSK Projects (I) (JV) Ltd. v. State of Rajasthan (2011) 10 SCC
573; Auto Craft Engineers v. Akshar Automobiles Agencies private 45. Indiabulls Properties P. Ltd. v. Treasure World Developers P. Ltd.
Limited (2016) SCC OnLine Bom 5185 (2014) 2 AIR Bom

the plaintiff shall not be granted compensation by in the contract, it is liable to forfeiture.49 Under
the mere presence of a liquidated damages clause.46 Section 74, such stipulation by way of penalty
would refer to an amount to be paid and not
Differentiating liquidated damages from
an amount already paid prior to the entering
penalty
into of the contract.50
While liquidated damages are pre-determined
Ideally, forfeiture of a reasonable amount paid
estimates of losses and corresponding
as earnest money or advance deposit as part
compensation, that is payable on breach of the
payment does not amount to imposition of
contract, penalties are usually disproportionate
penalty; however, in cases where the forfeiture is
to the losses and higher than the losses that could
in the nature of penalty, Section 74 would
result from the breach of contract, which are
not apply.51 Earnest money is part of the purchase
stipulated with the intent to ensure performance
price when the transaction goes forward, and
of the contract and to avoid any breach.
would be required to be forfeited on occasions
The stipulation made within the contractual of failure of transactions which could be due to
terms is often disputed as to whether such the fault or failure of the vendee.52 However,
stipulation is in the nature of penalty or liquidated in cases where a party has ‘undertaken’ to pay a
damages. The need to differentiate liquidated sum of money or to forfeit a sum of money which
damages and penalty clauses arises because while he has already paid to the party complaining of
a penalty clause would not disentitle a claim a breach of contract, the undertaking can be said
for unliquidated damages; however, a liquidated to be in the nature of a penalty.53
damages clause would prevent additional
remedies by way of unliquidated damages.47
III. Causation
With respect to the nature of liquidated
damages under Section 74, the apex court For a claim of damages and affixing liability,
has observed that: there has to be causal connection between the
breach committed and the loss or injury suffered.
“Duty not to enforce the penalty clause but only to
This causal connection is said to have been
award reasonable compensation is statutorily
established if the act of the defendant amounting
imposed upon courts by Section 74… In all
to breach of the contract is the only “real and
cases…where there is a stipulation in the nature
effective” cause in relation to the injury or
of penalty for forfeiture of an amount deposited
damage for which damages are claimed; in the
pursuant to the terms of contract which expressly
presence of multiple causes, the “dominant and
provides for forfeiture, the court has jurisdiction to
effective” cause is to be taken into consideration.54
award such sum only as it considers reasonable
but not exceeding the amount specified in the For establishing the causal link, courts follow
contract as liable to forfeiture.”48 various tests depending on what is warranted by
the facts and circumstances, one of which is the
Additionally, with respect to ‘stipulation by
way of penalty’, it has been noted that Section 74
applies where a sum is named as penalty to be 49. Natesa Aiyar v. Appavu Padayachi (1915) ILR 38 Mad 178
paid in future in case of breach, and not to cases 50. Abdul Gani & Co. v. Trustees of the Port of Bombay I.L.R. 1952
where a sum is already paid and by a covenant Bom. 747
51. Kunwar Chiranjit Singh v. Har Swarup A.I.R. 1926 P.C.1; In Kailash
Nath Associates v. Delhi Development Authority & Anr (2015) 4 SCC
136, it was observed that “Section 74 will apply to cases of forfeiture
of earnest money under a contract. Where, however, forfeiture takes
46. Iron & Hardware (India) Co. v. Firm Shamlal & Bros. AIR 1954
place under the terms and conditions of a public auction before agree-
Bom 423; Indian Oil Corporation v. Lloyds Steel Industries
ment is reached, Section 74 would have no application.”
Limited 2007 (4) ALR 84 (Delhi)
52. ibid
47. Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract
Act and Specific Relief Acts, vol 2 (updated 14th edn, LexisNexis 53. ibid
Butterworths Wadhwa) 1287
54. See Gray v. Barr [1971] 2 All ER 949 (CA); Kanchan Udyog v.
48. Fateh Chand v. Balkishan Das AIR 1963 SC 1405 United Spirits Limited (2017) 8 SCC 237

“but for” test, which is concerned with finding However, establishment of causation would
whether the damage would have accrued but not conclusively, make the defendant liable
for the acts of the defendant. In Reg Glass Pty where the injury caused is too “remote” to
Ltd v. Rivers Locking Systems Ltd,55 the defendant the breach of contract or not foreseeable
failed to install the door as per the terms of the or where the contractual terms provide for
contract which required a security door and exclusion of the liability of the defendant
locking system. When the plaintiff’s property under the given circumstances.
was subsequently burgled and a suit was filed
Additionally, there may be cases, where the
for claiming damages, the Court came to a
flow of causation is broken by external causes
conclusion that the burglary would not have
like those by third parties or acts of nature or
taken place had the defendant installed the door
by acts of the plaintiff himself or otherwise.
and locking system; thus ‘but for’ the defendants
In cases where there is contributory default
breach, the loss would not have been suffered.56
or negligence of the plaintiff, he would be
Acknowledging the “but for” test, in Alexander v.
disentitled from claiming damages. This would
Cambridge Credit Corp Ltd.,57 McHugh JA stated
depend on the consideration of the facts and
that the applicable tests ought to be decided
circumstances. This can be related with the
on the basis of the facts and circumstances
principles of equity that “He who comes into
and not limited to the “but for” test, rather,
equity must come with clean hands.”
a commonsensical approach is to be adopted
to establish a causal connection between the
breach of the contract and the loss or injury. IV. Remoteness of Damages
This was pointed out, on consideration of the
fact that there may be numerous factors causing As stated in the provisions relating to damages
the loss or injury and in such cases, the “but for” under the Indian Contract Act 1872, one
test may not helpful. of the vital requirements for an award of
damages is that the loss or damage “arose in
In the Indian context, in one of the landmark
the usual course of things from such breach;
cases relating to the application of the “but for”
or parties knew that such a loss or damage
test, the Hon’ble Supreme Court had stated that
could subsequently arise at the end of the
neglect of duty of the defendant to keep the
time of entering into the contract.”60 Thus, the
goods insured resulted in a direct loss of claim
defendant would not be liable for damages that
from the government (there was an ordinance
are remote to the breach of contract.61
that the government would compensate for
damage to property insured wholly or partially In the landmark case of Hadley v. Baxendale
at the time of the explosion against fire under (“Hadley v. Baxendale”),62 the principle
a policy covering fire risk).58 The Supreme governing remoteness of damages was
Court concluded that, “But for the appellants’ elaborated. The rules enunciated in this case
neglect of duty to kept the goods insured according were that a party injured by a breach of contract
to the agreement, they (the respondents) could have can recover only those damages that either
recovered the full value of the goods from govt. So should “reasonably be considered...as arising
there was a direct causal connection between the naturally, i.e., according to the usual course of
appellants’ default and the respondents’ loss.”59 things” from the breach, or might “reasonably be
supposed to have been in the contemplation of both
parties, at the time they made the contract, as the
55. (1968) 120 CLR 516 60. Indian Contract Act 1872, s. 73
56. ibid 61. See Union of India v. A.L. Ralia Ram AIR 1963 SC 1685; Thyssen
Krupp Materials Ag v. Steel Authority of India Ltd. 2017 SCC
57. (1987) 9 NSWLR 310
OnLine Del 7997
58. Pannalal Jankidas v. Mohanlal and Another AIR 1951 SC 144
62. Hadley v. Baxendale (1854) 9 EX 341; M. Lachia Setty Ltd. v.
59. ibid Coffee Board (1980) 4 SCC 636

probable result of the breach of it.”63 This forms the For this purpose, knowledge ‘possessed’ is of
basis of the understanding of special damages. two kinds: one imputed, the other actual.
In this case, the Court recognized that the failure Everyone, as a reasonable person, is taken
of the defendant to send the crankshaft for to know the ‘ordinary course of things’ and
repairs was the only cause for the stoppage of consequently, what loss is liable to result from
the mill of the plaintiffs, which resulted in loss a breach of contract in that ordinary course.
of profits. However, it added that: This is the subject matter of the ‘first rule’ in
Hadley v. Baxendale. But to this knowledge,
“…in the great multitude of cases of millers
which a contract-breaker is assumed to
sending off broken shafts to third persons by a
possess whether he actually possesses it or
carrier under ordinary circumstances, such
not, there may have to be added in a particular
consequences would not, in all probability, have
case knowledge which he actually possesses, of
occurred; and these special circumstances
special circumstances outside the ‘ordinary
were here never communicated by the
course of things,’ of such a kind that a breach
plaintiffs to the defendants.”64
in those special circumstances would be liable
If the plaintiffs can establish that the defendants to cause more loss. Such a case attracts the
were aware of the particular losses suffered by operation of the ‘second rule’ so as to make
the plaintiffs due to the actions or inactions of additional loss also recoverable.”66
the defendants, the latter shall be liable for such
This can be summed by referring to the
losses, if such losses do not occur in the normal
observation made by the Kerala High Court that:
course of events. In circumstances where it is
evident that the defendant has not assumed “The defendant is liable only for natural and
such risk as contemplated under the special proximate consequences of a breach or those
circumstances under the terms of the contract or consequences which were in the parties’
that any reasonable man would not have assumed contemplation at the time of contract… the
such risk, then mere knowledge of the special party guilty of breach of contract is liable only
circumstances would not make the defendant for reasonably foreseeable losses - those that a
liable for the corresponding loss or injury.65 normally prudent person, standing in his place
possessing his information when contracting,
Reiterating the finding in Hadley v. Baxendale,
would have had reason to foresee as probable
the following principles of remoteness and
consequences of future breach.”67
foreseeability were enunciated in Victoria
Laundry (Windsor) Ltd v. Newman Industries Ltd:
“In cases of breach of contract, the aggrieved
V. Damages for direct,
party is only entitled to recover such part of consequential and
the loss actually resulting as was at the time incidental losses and
of the contract reasonably foreseeable as
liable to result from the breach. What was at
damage
that time reasonably so foreseeable, depends
on the knowledge then possessed by the On breach of a contract, apart from the
parties or, at all events, by the party who later compensation payable “due to the loss or damage
commits the breach. caused”, the defendant is liable to compensate
for the losses and damage “consequent on such
loss or damage”. For example, in a contract for
construction of a building, where the builder has
63. Hadley v. Baxendale (1854) 9 EX 341; The Andhra Pradesh Mineral
Development Corporation Ltd. v. Pottem Brothers (2016) 4 ALD 354
64. Hadley v. Baxendale (1854) 9 EX 341 66. Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd. [1949]
2 KB 528; Pravudayal Agarwala v. Ram Kumar Agarwala AIR
65. H. G. Beale (ed.). Chitty on Contracts (28th edn, Sweet &
1956 Cal 41
Maxwell Ltd 1999) 1296; see also, Tower Vision India P. Ltd. v.
Procall P. Ltd. (2013) 112 CLA 364 (Del) 67. State of Kerala v. K. Bhaskaran AIR 1985 Ker 49 (para 12)

assured the building and erection to be complete of a relevant material by the defendant.
on time so that it can be let out on rent, if the However, loss of profits, which are not direct
construction is so bad that it falls down and is consequences of the breach of the contract
immediately rebuilt, subsequent to which, it would not attract damages except where the
could not be let out for earning house rent, the injured party has intimated the defendant of the
defendant builder is liable to compensate for the same or if such loss of profits are contemplated
expenses incurred in rebuilding the house, for by the parties.74 Most importantly, there must
rent lost, and for the compensation paid to the be a reasonable expectation of profit.75
potential lessee to whom the house would have
For example, in cases where unreasonable
been rented out.68 Consequential losses include
delays in delivery of machinery lead to loss of
those that covered under special damages, that is,
profitable contracts which were dependent on
such losses are reasonably be supposed to have
such machinery, and was known to the party
been in the contemplation of both parties, at the
expected to supply the machinery, damages can
time they made the contract, as the probable
be claimed for such loss of profits that could have
result of the breach of it.69
been made but not for the loss of the contract
Overhead costs, decreased profits come within that could have been procured.76 Further, a party
the ambit of direct losses;70 while incidental may also claim for loss of opportunities or loss of
losses refer to the costs incurred after gaining chance of gaining something, which results from
knowledge of the breach of the contract which a contractual breach. This is to compensate the
could be in the form of the transportation costs innocent party, who is deprived of the chance to
involved in shifting the goods on default of receive a particular benefit or avoid a particular
the purchaser to purchase the goods or costs risk, due to a contractual breach. It must be noted
incurred in looking for an alternative buyer. that the claim for loss of business opportunities
and loss of profits are usually not granted
Damages may also be claimed for future losses
simultaneously as they are principally the same.77
which are not in existence at the time of the
trial; and such damages shall be quantified Compensation for loss of enjoyment of money
separately wherever possible.71 Similarly, can also be claimed by a party who was entitled
expenses incurred prior to the contract may to the use of a certain sum of money under a
also be recovered as damages if they can be contract or award.78 Judicial precedents have
proved to reasonable foreseeable.72 settled that damages for loss of enjoyment
of money can be granted over and above the
basic damages or relief granted upon breach
VI. Damages for loss of profit of a contract. In B.V. Gururaj and etc. v. M.R.
Rathindran and Anr.79, the Madras High Court
Generally, the defendant would be accountable
while passing a decree for specific performance
for the loss of profits directly emerging from
directed the defendants to refund the earnest
the contractual breach,73 for example, loss
money to the plaintiff. However, the defendants
of normal profits due to delay in delivery
challenged the decree, depriving the plaintiff
of the use of the earnest money during the
pendency of the proceedings. On appeal, the
68. Indian Contract Act 1872, s 73 (illustration l)
69. Hadley v. Baxendale (1854) 9 EX 341; Pravudayal Agarwala v.
Ram Kumar Agarwala, AIR 1956 Cal 41
74. Bharat Coking Coke Ltd. v. L.K. Ahuja (2004) 4 SCC 109
70. Mcdermott International Inc. v. Burn Standard Co. Ltd. (2006) 11
75. Dwarka Dass v. State of Madhya Pradesh AIR 1999 SC 1031
SCC 181
76. Indian Contract Act 1872, s 73 (illustration i); See also, M/s A.T.
71. Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract
Brij Paul Singh & Ors. V. State of Gujarat (1984) 4 SCC 59
Act and Specific Relief Acts, vol 2 (updated 14th edn, LexisNexis
Butterworths Wadhwa) 1169 77. Mahanagar Gas Ltd. Mumbai v. Babulal Uttamchand & Co.,
Mumbai (2012) 4 Mh.L.J 344
72. ibid 1196
78. Sardar Mohar Singh v. Mangilal (1997) 9 SCC 217
73. National Highways Authority of India v. Hindustan Construction
Company (2016) 155 DRJ 646 (DB) 79. AIR 2010 Mad 129

court, while upholding the decree for specific the value of the use of the land for the period of
performance and refund of earnest money on delay” and the contract was not entered into for
merits, also enhanced the quantum of damages attaining pleasure or peace of mind.84
to include damages for loss of enjoyment of
the earnest money.80
VIII. Mitigation
VII. Damages for non- It is notable that a party claiming damages for
pecuniary losses breach of a contract should have performed or
was willing to perform the requisite part of the
contract. Thus, prior to a claim of damages, the
Damages are generally awarded to compensate
duty to mitigate losses is indispensable.85 As
for pecuniary losses. However, there may be
noted by Lord Aldine, L.C.,
instances where a party claims damages for the
non-pecuniary losses suffered. In this context, “The fundamental basis is thus compensation
the observation made by Lahoti J. on the basis for pecuniary loss naturally flowing from the
of a reference made to Chitty on Contracts81 is breach; but this first principle is qualified by a
noteworthy, wherein it was stated that, second, which imposes on a plaintiff the duty of
taking all reasonable steps to mitigate the loss
“Normally, no damages in contract will be
consequent on the breach and debars him from
awarded for injury to the plaintiffs feelings,
claiming any part of the damage which is due
or for his mental distress, anguish, annoyance,
to his neglect to take such steps.”86
loss of reputation or social discredit caused
by the breach of contract. The exception is For example, if a seller defaults in delivering
limited to contract whose performance is goods and, the purchaser purchases goods from
to provide peace of mind or freedom from another buyer at an exorbitant price, without
distress. Damages may also be awarded for trying to look for substitutes at a reasonably
nervous shock or an anxiety state (an actual close price, such a purchaser would be entitled
breakdown in health) suffered by the plaintiff, to damages that are calculated by considering
if that was, at the time the contract was made, the difference between the agreed price in the
within the contemplation of the parties as a not original contract and the normal market price.
unlikely consequence of the breach of contract.
The extent to which reasonable steps shall be
…however… refused to award damages for
taken by the plaintiff shall be judged based on
injured feelings to a wrongfully dismissed
the facts and circumstances of the given case.
employee, and confirmed that damages for
Nevertheless, it is advisable for the plaintiff to
anguish and vexation caused by breach of
act reasonably not only in his own interest but
contract cannot be awarded in an ordinary
also in the interest of the defendant and lower
commercial contract.”82
the damages by acting reasonably in the matter.
Thus, damages for mental anguish, and suffering Upon a failure to do so, he would not be entitled
may be awarded in cases where the contract itself to damages for losses which could have been
is for providing enjoyment or pleasure e.g. breach reasonably avoided.87
of contract of services to click photos during a
wedding.83 Damages of such nature shall not be
awarded where “the normal nature of damages is 84. Ghaziabad Development Authority v. Union of India & Anr AIR
2000 SC 2003
85. Murlidhar Chiranjilal v. Harishchandra Dwarkadas (1962) 1
SCR 653
80. ibid
86. British Westinghouse Electric and Manufacturing Company v.
81. A. G. Guest (ed.), Chitty on Contracts (27th edn, Sweet &
Underground Electric Railways (1912) A.C. 673, 689; Murlidhar
Maxwell Ltd 1994) vol 1, para 26.041
v. Harish Chandars AIR 1962 SC 366; Ishwardas v. Union of
82. Ghaziabad Development Authority v. Union of India & Anr AIR India AIR 1955 SC 468
2000 SC 2003
87. M. Lachia Setty & Sons Ltd v. Coffee Board Bangalore AIR 1981
83. Diesen v. Sampson (1971) SLT (Sh Ct) 49 SC 162; Union of India v. B Prahlad & Co. AIR 1976 Del 236

This duty to take reasonable steps to mitigate loss or damage resulting from such damage,
the loss is accompanied by the duty to refrain especially in the context of unliquidated
from resorting to unnecessary means that would damages, gains immense significance. The
aggravate the loss.88 Courts have often stated that damages awarded in case of breach of contract
such duties to mitigation would arise on breach aim at restoration of the party against whom
of a contract.89 Additionally, parties should ensure a breach has been committed to the position
that they perform their obligations in a bona fide which would have existed if the breach would
manner to avoid any breach or subsequent losses, not have taken place.93 Thus, the damages
since the day contract is entered into. awarded should not exceed the loss suffered or
likely to be suffered.94 For understanding the
The plaintiff shall be entitled to the expenses
relation between “damages” and “loss”,
incurred by him, besides any loss incurred while
the Supreme Court has observed that:
exercising reasonable steps towards mitigation
of losses arising from the breach of the contract “In the absence of any special circumstances the
by the defendant, irrespective of whether these measure of damages cannot be the amount of the
steps are successful or not.90 The purpose of the loss ultimately sustained by the injured party.
duty to mitigate losses is relevant mostly It can only be the difference between the price
in the context of assessment of damages which he paid and the price which he would
wherein the plaintiff shall not be entitled to have received if he had resold them in the market
damages for losses which have been mitigated. forthwith after the purchase provided of course
Nevertheless, there may be terms imbibed that there was a fair market then.… In other
within the contract to exempt the plaintiff from words, the mode of dealing with damages in
such a duty to mitigate losses.91 such a case is to see what it would have cost him
to get out of the situation, i.e., how much worse
off was his estate owing to the bargain in which
IX. Measure and calculation he entered into.”95
of damages
This follows illustration (a) to Section 73 of the
Contract Act, which provides that the measure
Following the “expectation interest”92 approach
of damages in this case is the sum by which the
for granting damages, it is ensured that the
contract price falls short of the price for which
value expected by the plaintiff from the contract,
the purchaser (promisee) might have obtained
is made good to him. Thus, ascertainment of the
goods of like quality at the time when they
damages is of utmost importance.
ought to be delivered.
The quantum of damages to be awarded is be
Thus, in a case where a party contracts with
distinguished from the measure of damages.
another for supplying certain goods at price
The former deals with the amount of damages
higher than the cost of procurement, and later
while the latter involves considerations of
the receiver refrains from accepting such goods,
law as well.With respect to assessment and
the supplier is entitled to damages to the extent
calculation of damages, the determination of
of the difference between the supply price
and the cost of procurement.96 Similarly, if a
88. Maharashtra State Electricity Distribution Company Limited v.
contractor abandons the ongoing construction
Datar Switchgear Limited & Ors. (2018) 3 SCC 133 work, the measure of damages is the cost
89. Burn & Co. Ltd v. Thakur Sahib Shree Lakhdirjee AIR 1924 Cal 427 incurred in completing the work.97
90. Banco de Portugal v. Walerlow & Sons Ltd. (1932) AC 452, 506
as cited in Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian
Contract Act and Specific Relief Acts, vol 2 (updated 14th edn, 93. R.K. Malik v. Kiran Pal, (2009) 14 SCC 1
LexisNexis Butterworths Wadhwa) 1260
94. Ghansiram v. Municipal Board AIR 1956 Bhop 65
91. Ralli Bros Ltd. Firm Bhagwan Das Parmeshwari Dass AIR 1945
95. Trojan & Co. v. RMNN Nagappa Chettiar [1953] SCR 789
Lah 35
96. Indian Contract Act 1872, s 73 (illustration (h))
92. L.L. Fuller and Willian R. Perdue Jr., ‘The Reliance Interest in
Contract Damages” (1936) 46 Yale Law Journal 52, 53 97. Dhulipudi Namayya v. Union of India AIR 1958 AP 533

On a similar note, in case of a failure to from the defendant; thus, the gains made by the
deliver goods, the receiver/buyer may procure plaintiff are set off against the losses suffered
substitutes if considered reasonable to do so, and as a result of the breach of the contract, apart
can later recover from the seller, any difference from consideration of the aspects of mitigation
in the price at which the buyer has subsequently by the plaintiff.100 Such gains could be savings
procured and the original contract price. The made by the plaintiff on being discharged from
attempts made by the buyer to diminish losses subsequent performance of the contract.
shall also be taken into consideration.
With respect to the formulae to be used
In case of delayed delivery, damages can be to ascertain the quantum of damages, there
calculated, proportionately, by considering is nothing specifically mentioned in the Contact
the losses suffered and the attempts of Act. Neither Sections 55 and 73 nor any other
mitigation by the plaintiff. relevant laws in India prohibit the applicability
of widely accepted formulae or deem them
With respect to calculation of damages
as contraventions to the existing legal regime.101
subsequent to breach of contract, there are
Thus, courts have preferred not to interfere
two important principles laid down by the
with the methods/formulae adopted by
Supreme Court, which are:
arbitrators or valuers for computation of
§§After proving the breach of contract, the party quantum of damages.102
claiming for damages is to be placed so far as
Regarding the time and place for assessment of
money can do it in as good a situation as if the
damages, generally, the ‘the value of the goods
contract had been performed, and
at the time and place at which they ought to
§§The plaintiff is duty-bound to take all have been delivered, that is, the value of the
reasonable steps to mitigate the loss resulting goods to the purchaser of such goods at the time
from the breach, and he would be prevented and place they ought to have been delivered’ is
from claiming any part of the damage which considered.103 If the goods were being purchased
is a consequence of his failure to mitigate for self-use and not re-sale, then additional
such damage or loss.98 factors like the nature of the intended use may be
considered. And for determining the market price
Thus, the explanation to Section 73 of the Indian
or value, courts refer to the buying price at which
Contract Act, 1872 provides that “the means
the purchaser can obtain equivalent goods of like
which existed of remedying the inconvenience
quantity at the time and place where the delivery
caused by non-performance of the contract
should have been made.104 In the absence of
must be taken into account.” The parties can
an appropriate market for determining the
also provide in a contract that in the event
market price, assessment can be made by
of breach, no compensation will be payable
referring to the closest market105 or the market
except for refund of amounts paid and such
to which the aggrieved promisee would resort
a term is enforceable.99
to, on the breach of the contract.106
With respect to measure of damages, there may
be corresponding stipulations made within the
contractual terms, wherein parties agree to a 100. British Westinghouse Electric and Mfg. Co. Ltd. v. Underground
specific measure of damages for breach. Electric Railways Co. of London Ltd. (1912) AC 673, 691; ibid 1160
The “net loss” approach takes into account the 101. Mcdermott International Inc v Burn Standard Co. Ltd. & Ors
(2006) 11 SCC 181
gains accrued by the plaintiff seeking damages
102. ibid
103. Hajee Ismail Sait and Sons v. Wilson And Co. AIR 1919 Mad
1053 (DB)
98. Murlidhar Chiranjilal v. Harishchandra Dwarkadas, AIR
104. ibid
1962 SC 366 following British Westinghouse Electric and
Manufacturing Company Limited v. Underground Electric 105. Saraya Distellery v. Union of India AIR 1984 Del 360; Buago Steel
Railways Company of London [1912] A.C. 673, 689 Furniture Pvt. Ltd. v. Union of India AIR 1967 SC 378
99. Syed Israr Masood v. State of Madhya Pradesh AIR 1981 SC 2010 106. ibid

As mentioned earlier, courts attach significance it must be noted, that the Section gives a
to the “…difference between the price which he paid discretion to give or refuse interest; and
and the price which he would have received if he had whatever the nature of the claim is, whether
resold them in the market forthwith after the purchase it is a claim to a fixed sum of money or to
provided of course that there was a fair market.”107 unliquidated damages, the Court is bound in
Thus, the fair market value is usually referred to every case to exercise a sound discretion.”112
for ascertaining the quantum of damages.
Interests that are granted as damages would be
calculated at the rate of interest that the person
X. Interests on damages to whom it ought to have been paid would have
got on it, if it had been paid per the terms of the
Generally speaking, interest, whether it is contract. Section 34 of the Civil Procedure
statutory or contractual, “represents the profit Code provides that rates for such interests shall
the creditor might have made if he had the use of not exceed 6%; however, where the liability
the money or the loss he suffered, because he had has arisen out of a commercial transaction,
not that use.”108 With respect to interests on the rate of such interest may exceed 6% per
damages, it is noteworthy that these damages annum, but shall not exceed the contractual
denote compensation to the plaintiff for being rate of interest or where there is no contractual
deprived of the damages till the judgment is rate, the rate at which moneys are lent or
made in his favour, and not merely an increase advanced by nationalized banks in relation to
in value of damages done to keep up with the commercial transactions.
inflation.109 Thus, a court may grant interests
from the date of filing of the suit till the
realization of the amount of damages.110
XI. Contractual Exclusion of
claim for damages
In the context of contractual breaches, grant of
interests on damages greatly depends on the
Under Indian Law, parties to a contract may
terms of the agreement, customs governing the
exclude or restrict liability for damages.113
payments and the relevant statutory provisions.111
This is done through the inclusion of express
Under Section 34 of the Civil Procedure Code,
provisions in the contract stating that no
1908, courts are required to exercise discretion
compensation will be payable in the event of
for granting interests on damages, for which the
breach or that the liability will be limited only
following observation is relevant:
to certain kinds of damages.114 This can also be
“No distinction is made in the Section [34] done to make liability for damages contingent
between an ascertained sum of money and upon certain events or even limit claim for
unliquidated damages…The expression ‘decree damages only to specific damages such as direct
for the payment of money’ is very general and or pecuniary damages. It is a common practice
to give it due effect, it must be construed as for contracting parties to categorically exclude
including a claim to unliquidated damages. indirect and consequential damages. Even
The Court is not bound to give interest, for, though such damages are generally not granted
in law, parties choose to make an express
exclusion to avoid ambiguity. Such terms are
107. Trojan & Co. v. RMNN Nagappa Chettiar [1953] SCR 789
enforceable, provided they are unambiguous
108. Dr. Sham Lal Narula v. Commissioner Of Income Tax AIR 1964
SC 1878; Secretary, Irrigation Department, Government of Orissa
v. G.C. Roy, 1992 (1) SCC 508
109. C.I.T. v. Dr. Shyam Lal Narula AIR 1963 (Punjab) 411
112. Bhagwant Genuji Girme v. Gangabisan Ramgopal AIR 1940
110. Kishan Lal Kalra v. NDMC AIR 2001 Del 402; Mahabir Prasad
Bom 369
Rungta v. Durga Datta AIR 1965 SC 1231; Mahant Tirupathi
Devasthanam AIR 1965 SC 1231 113. State of Jammu & Kashmir v. Dev Dutt Pandit AIR 1999 SC 3196
111. Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract 114. KSS KSSIIPL Consortium v. GAIL (India) Limited (2015) 4 SCC
Act and Specific Relief Acts, vol 2 (updated 14th edn, LexisNexis 210Mcdermott International Inc v. Burn Standard Co. Ltd. & Ors
Butterworths Wadhwa) 1251 (2006) 11 SCC 181

and conspicuous.115 It is pertinent to note that delay, disruption, underperformance, wasted

mere inclusion of other remedies for breach time, profits margins etc. in event of a breach
in the contract does not ipso fact exclude the or anticipated breach, are called on record
remedy of damages in case of breach.116 during trial if such evidence is relied upon
to establish the claim. In arbitrations either
Further, when limitation of liability or
the party or the arbitrator appoint an expert
exclusion of liability clauses are included in
to prove certain technical issues.
the contract, courts cannot award damages
greater than the liability undertaken therein.117 Entitlement to damages is derived on legal
However, if the limitation of liability clause is grounds but determination of quantum of loss
limited in scope, damages for situations beyond and damages is based on technical grounds. An
the scope of such clauses can be awarded.118 expert brings forth two crucial characteristics i.e.
independence and technical expertise.120 Various
Parties are also free to expressly agree to follow
kinds of damages, inter alia, loss of profits, future
a certain methodology or formula of
profits, wasted costs, loss of goodwill, defects,
computation of damages, thereby excluding
delay need to be computed to arrive at a correct
the mode of computation as stated in Section
estimate of loss and damages.121 Further, there
73 of the Indian Contract Act, 1872.119
are other indispensable aspects such as valuation
which involves the application of niche methods,
XII. Quantification of admittedly best understood by industry experts.122
damages by experts Valuation of losses requires consideration of the
counterfactual or ‘but for’ scenario.123 Hence, it is
and valuers encouraged that parties hire experts to evaluate
loss and quantify damages. To enable this,
The question of ascertaining loss and the various institutional and domestic arbitration
quantum of damages is often a technical systems provide for procedures to bring on
undertaking. In view of the rising complexity record testimony of party-appointed or tribunal-
of commercial disputes the practice of hiring appointed expert witnesses, expert reports
experts to quantify loss and damages has and even expert evidence.124 Section 26 of the
increased. Courts and tribunals award damages Arbitration and Conciliation Act 1996 provides for
based on claims made and proved by the parties. appointment of an expert by the tribunal.
Therefore, the onus of quantifying loss and
In Canada (Director of Investigation and Research)
damages is upon the party claiming it.
v. Southam Inc.125, the following was enunciated
As discussed, parties may choose to stipulate
in relation to experts:
liquidated damages in their contract or quantify
damages post an event or breach warranting
a claim. Further, an assessment of damages is 120. Vidya Rajarao, “Perspectives and Best Practices in Quantifying
also undertaken by courts and tribunals while Damages, Business Valuations and Expert Witnesses” Indian
Journal of Arbitration Law, available at: http://ijal.in/sites/
awarding damages. This requires knowledge default/files/IJAL%20Volume%205_Issue%201_Vidya%20
of various industry-related aspects, causes Rajarao.pdf [Accessed on 19 July 2018]
and effects of loss and skills of assessment and 121. Geoffrey Senogles & Julie Raneda’s, “Calculating And Presenting
Quantum In International Arbitration Practice; With An
valuation. Experts hired by parties to quantify
Emphasis On Construction Disputes -The expert’s perspective”,
available at: https://www.crai.com/sites/default/files/
publications/Calculating-and-presenting-quantum-in-
international-arbitration-practice.pdf
115. Syed Isar Masood v. State of Madhya Pradesh (1981) 4 SCC 289 [Accessed on 19 July 2018]
116. Rajeshwar Prasad Sinha v. Chunilal Daruka AIR 1942 Pat 269 122. ibid
117. Bharathi Knitting Co. v. DHL Worldwide Express Courier (1996) 123. John A Trenor, The Guide to damages in International Arbitration,
4 SCC 704 (2nd ed., Law Business Research Ltd, 2017) United Kingdom
118. Simplex Infrastructure Ltd. v. Siemens Ltd. (2015) 5 Mah LJ 135 124. IBA Rules on the Taking of Evidence in International
Arbitration 2010, articles 2, 5, 6
119. Maharashtra State Electricity Board v. Sterlite Industries (India)
Ltd. AIR 2001 SC 2933 125. [1997] 1 S.C.R. 748

“Experts, in our society are called that precisely upon expert testimony for valuation of shares.
because they can arrive at well-formed and For example, courts in India have ruled that
rational conclusions. If that is so, they should valuation of shares is a complex problem which
be able to explain, to a fair minded but less can be appropriately left to the consideration
well informed observer the reasons for their of experts in the field of accountancy as many
conclusions. If they cannot, they are not very imponderables enter the exercise of valuation
expert. If something is worth knowing and of shares.127 The same is true for quantification
relying upon, it is worth telling. Expertise of damages due to delays and disruptions
commands deference only when the expert is in construction contracts, damages due to
coherent. Expertise loses the right to deference loss of time, damages due to loss of business
when it is not defensible. That said, it seems opportunities etc. which require assessment
obvious that [Appellate Courts] manifestly of various commercial and contractual aspects
must give great weight to cogent views thus best analyzed by industry experts.
articulated [emphasis added].”
In the Indian context, in order to bring the
In India, although the trend of hiring ‘damages evidence of a witness as that of an expert on record,
expert’ has not completely solidified, but it has to be shown that he has made a special
parties have begun engaging expert valuers and study of the subject or acquired special experience
assessors for certain contractual disputes and therein.128 This suggests that the expert must
arrangements. In G. L. Sultania v. Securities and be skilled and have adequate knowledge in
Exchange Board of India,126 the court refused to the subject. Mere assertion by the expert is not
value the shares by itself, instead sought to rely sufficient to make his report reliable.129
127. Miheer H. Mafatlal v. Mafatlal Industries Limited AIR 1997 SC 506

128. State of HP v. Jailal (1999) 7 SCC 280
129. State of Maharashtra v/s Damus/o Gopinath Shinde and others
126. AIR 2007 SC 2172 (2009)9 SCC 221

4. Applicability of the law of damages

Apart from the Indian Contract Act, damages The Sale of Goods Act makes specific reference
have also found a special place in various other to special damages which can be claimed
areas, some of which are discussed below. by either parties under Section 61. This is in
accordance with the principle under Section
73 of the Indian Contract Act that the parties
I. Damages under Sale were aware of their obligations and that special
of Goods Act, 1930 damages could be claimed ‘which the parties
knew when they made the contract to be likely to
Sections 55-61 of the Sale of Goods Act, 1930 result from the breach of it’ referring to a special
govern breach of contracts for sale of goods. loss which is beyond the normal course of events.
In a contract for sale of goods, a breach is said
Measure of damages
to have occurred if the buyer wrongfully neglects
or refuses the pay for the goods in question.130 For The principles governing the measure of
such non-acceptance and non-payment for the damages under the Sale of Goods Act is similar
goods, the seller may sue the buyer for damages; to that of the Contract Act. If the seller/supplier
similarly, if the seller defaults in delivery of the is entitled to re-sell the goods in case of any
goods to the buyer, the buyer may sue the seller default by the first purchaser,135 and there is a
for damages,131 or for specific performance.132 subsequent resale of goods by the seller/supplier
Additionally, there may be a suit for damages in to another purchaser, the measure of damages
case of a breach of warranty by the seller as laid would be the difference between the initial
down under Section 59 of the Sale of Goods Act; contract price and the resale price.136 Similarly,
and in cases of anticipatory breach where one of if resale couldn’t take place, then the measure
the parties to the contract of sale retracts from the of damages would be based on the difference
contractual obligations before the date of delivery between the contract price and the market price
and the other party may choose to continue with on the date of breach.137
the contract till the delivery date or treat
The Sale of Goods Act recognizes the right
it as rescinded following a claim for damages.133
of determination of valuation of rights under
Under Section 61 of the Act, the seller is entitled
the terms of the contract wherein the parties
to the right to recover interests or special
may choose to agree upon on the measure
damages or to recover the money paid where
of damages in case of breach of contract.138
the consideration for such payment has failed.
Thus, parties may use the discretion of
The principles governing such claim for damages deciding upon pre-determined measure
under the Sale of Goods Act are primarily of damages while entering into a contract.
based on Section 73 of the Contract Act.134 The
For ascertaining the price relevant to fix the
significant difference is that Section 73 of the
value for which damages shall be granted,
Contract Act is more general, as compared
the price existing in the market at the place
with the Sale of Goods Act, which is specifically
applicable to sale of moveable property.
135. Sale of Goods Act, 1930, s. 54
136. Bismi Abdullah & Sons, Merchants and Commission Agents v.
130. Sale of Goods Act 1930, s 55 Regional Manager, Food Corporation of India, Trivandrum AIR
1987 Ker 56; V/O “Tvazhpromexport’ v. Mukand Limited, 2005
131. ibid ss. 56, 57
(3) ARB LR 406 Bom
132. ibid s 58
137. ibid; See also, P.S.N.S. Ambalavana Chettiar and Co. Ltd. v.
133. ibid s 60 Express Newspapers Ltd. AIR 1968 SC 741; M/s European Metal
Recycling Ltd. v. M/s Blue Engineering Private Ltd. 2009 SCC
134. A.K.A.S. Jamal v. Moola Dawood Sons and Co. AIR 1915 PC 48;
Online Del 4174
Rakesh Kumar Vats v. Vinod Kumar Chahel 2018 SCC Online
Del 9775 138. Sale of Goods Act 1930, s. 62

of delivery, and alternatively, the market price Additionally, an indemnified in India is entitled
at the nearest place, or the price prevailing in to sue the indemnifier even before incurring
the controlling market, or the price at the final any actual damage or loss and that an indemnity
destination of the goods shall be taken into is not necessarily given by repayment after
consideration.139 With respect to the time to payment but to ensure that the indemnified is
be considered for considering the market price not called upon to pay.145
required for determining the damages, the date
These are some of the reasons why such
on which the contract was to be performed by
provisions are heavily negotiated to limit the
delivery and acceptance as per the contractual
scope of claims in indemnity contracts. As is
terms, or at the time of refusal to perform such
understandable, the indemnifier tries to limit
a contract, would be the relevant date.140
the scope to the maximum extent possible
whereas the indemnified would try to keep the
II. Grant of damages under scope as broad as possible. Some of the drafting
indemnity contracts techniques used to limit the scope are:-
§§Nature of acts and extent to which protection

Unlike in cases of damages under Section 73 is provided
and 74, there is no specific bar for the quantum
§§Cap on value of losses covered
of damages under indemnity contracts. For
example, claims for unliquidated damages §§Defining the third party or contracts for
are restricted to only reasonable amounts and which protection is provided against losses as
foreseeable losses.141 For liquidated damages, opposed to all third parties and all acts
Indian courts have also limited the scope
§§Duty of the indemnified to mitigate, which
of liquidated damages to losses claimed to
is otherwise not a pre-requisite under
a reasonable amount, commensurate with
indemnity contracts.
the actual loss caused and only when the
damage is unquantifiable do they resort to the Section 125 of the Contract Act provides for
liquidated damage amount.142 However, in compensation of the indemnified with the
cases of damages under indemnity contracts, loss caused to him. Contracts can, however, be
the indemnified may recover all damages in drafted for the indemnified to not be liable to
respect of the indemnity contract from the pay in the first place rather the indemnifier
indemnifier.143 In the context of damages, it would have to protect the indemnified and
is to be noted that an indemnity contract and pay for the liability that has arisen. In 1942, the
its scope ought to be limited by appropriate Indian courts realized that not all indemnity
drafting since many of the statutory protections contracts are governed by the Contract Act
and limitations present in claim for damages are and there might be scope to indulge into
not present for contracts of indemnity.144 principles of common law and contract to give
full meaning and effect to the intention of the
parties. Such indemnity contracts also known
139. Wertheim v. Chicoutini Pulp Co. [1911] AC 301 (PC) as cited in

Satish J Shah, Pollock & Mulla The Sale of Goods Act (8th edn,
LexisNexis Butterworths Wadhwa 2011) 395. See also, Saraya
Distillery vs Union Of India and Anr. AIR 1984 Delhi 360.
145. Jet Airways (India) Limited v. Sahara Airlines Limited and Ors
140. Satish J Shah, Pollock & Mulla The Sale of Goods Act (8th edn, 2011 (113) Bom LR 1725, Khetarpal v. Madhukur Pictures AIR
LexisNexis Butterworths Wadhwa 2011) 396 1956 Bom 106; See also, Osman Jamal and Sons Limited v. Gopal
Purshattam (1928) ILR Cal 262: “Equity has always recognized
141. See, Indian Contract Act 1872, s. 73
the existence of a larger and wider right in the person entitled to
142. Kailash Nath Associates v. Delhi Development Authority & Anr indemnity. He was entitled, in a Court of Equity, if he was a surety
(2015) 4 SCC 136 whose liability to pay had become absolute to maintain an action
against the principal debtor and to obtain an order that he should
143. Indian Contract Act 1872, s. 125
pay off the creditor and relieve the surety (…) Indemnity is not
144. Total Transport Corporation v. Arcadia Petroleum Limited [1998] necessarily given by repayment after payment. Indemnity requires
1 Lloyd’s Rep. 351 that the party to be indemnified shall never be called upon to pay”

as “to hold harmless” were recognized.146 Hence, tort. As a result of this understanding, under
the indemnifier might be called upon to protect contract law, the plaintiff would have to show
from the loss rather than compensate for the that the loss flowed naturally and in the usual
loss. Going one step further, if the drafting has course of things from the breach, or was within
been done correctly, the indemnifier might the reasonable contemplation of the parties at the
also be liable to pay compensation before the time of making of the contract;149 whereas the
actual loss has happened but only if a clear and plaintiff in tort must show only that the loss was
enforceable claim exists against him.147 reasonably foreseeable by the party in breach.150
Consequently, parties tend to lay down all
III. Damages under tort possible circumstances that are foreseeable,
and contract law which has the additional advantage of ensuring
that the parties are more responsible towards
compliance with contractual terms, with
Generally speaking, damages are compensatory
minimization of breach of the contract.
in nature, under law of contracts as well as
tort. However, under law of contracts, damages
seek to compensate for the loss (resulting from IV. Grant of liquidated
being deprived of the expected profits from the damages in arbitral
contractual arrangement) suffered by a party
due to breach of contract, while in case of a proceedings
tort, damages provide for remedies to restore
the original position of the party against whom Damages constitute a significant remedy even
tort was committed to what it was prior to the in arbitral awards. In this context, it is
occurrence of such tort. Thus, unlike in case noteworthy that the principles governing
of contractual breaches, damages are mostly award of damages in case of civil suits shall
punitive in case of torts. Under contract law, the extent to arbitral proceedings as well. To claim
damages are compensatory in nature and not damages, the party making such claim has
punitive. As observed by the Canadian Supreme to lead evidence and establish loss as per the
Court, under contract law, punitive damages are principles governing damages. Even in case of
“very much the exception that the rule.”148 the liquidated damages, the arbitrator has to
be convinced that the claimant has proven the
This is in furtherance of the discussion of
losses or injury against which it is claiming
exemplary and aggravated damages, wherein
the liquidated damages and such damages shall
it can be concluded that in case of a tort, there
be awarded only to the extent of “reasonable
may be damages for distress, mental agony
compensation” which cannot exceed that the
and such other abstract losses; however,
amount so stated. The onus to prove such loss
damages are rarely awarded for such losses
or damage shall not cease except where actual
in case of breach of contract.
damage from the breach of contract cannot be
With respect to the remoteness of damages, it proved or calculated. Based on this reasoning,
can be inferred that the interpretation of recently a Division Bench of theBombay High
remoteness is broader under liabilities arising Court had upheld the finding of a Single Judge
from contractual breaches as compared with who had set aside the arbitral award on the
tortious liability. This results in limiting the ground that the award for grant of liquidated
scope of damages under contracts than under damages had been made even though no
evidence had been led to prove any loss or
146. Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, AIR

1942 Bom 302; Haji Sattar & Sons v. State Trading Corporation
Of India Ltd. 2011 (271) E.L.T. 340 (Mad.)
149. Hadley v. Baxendale (1854) 9 EX 341
147. Khetarpal Amarnath v. Madhukar Pictures AIR 1956 Bom 106
150. Cambridge Water Co. Ltd. v. Eastern Countries Leather plc [1994]
148. Whiten v. Pilot Insurance Company [2002] 1 RCS 595, 645 2 AC 264

damage.151 Thus, mere breach of contract does VI. Damages under contracts
not warrant an automatic grant of liquidated of employment
damages unless actual loss or injury is proven.
Further, arbitrators also have the power to award Damages can be claimed by employees for
interests on damages. The interest can be with wrongful dismissals resulting in breach of
respect to all three stages of arbitral proceedings employment contracts.156 Such damages
i.e. pre-reference, pendente lite and post award.152 would extend to loss of earnings along with
additional entitlements for the remaining term
of the contract. Except for cases where there is a
V. Damages under breach of implied terms of trust and confidence,
consumer laws generally, damages are not granted for injured
feelings and similar non-pecuniary losses.157
Amidst the volcanic growth of consumer law
Similarly, an employer is also entitled to
in India, damages have found a special place
damages from the employee for the breach
in the numerous decrees that are passed by the
of his duties as required under the contractual
relevant fora. The Consumer Protection Act,
terms. For example, an employer may recover
1986 provides that the defaulting seller may be
losses caused by the employee by forfeiting
directed to pay such amount as may be awarded
the salary for the notice period.158
by it as compensation to the consumer for any
loss or injury suffered by the consumer due to
the negligence of the opposite party; additionally, VII. Damages under cases
punitive damages may also be granted.153 relating to intellectual
Broadly speaking, damages under the Consumer property
Protection Act are awarded if the negligence
of the opposite party and subsequent loss or
Among the various reliefs entitled to the
injury to the consumer are proved.154 It is not
plaintiff in case of infringement of an
mandatory to lay down the exact loss or damage,
intellectual property right, for the purpose
in light of the fact that the consumer disputes
of this section, damages and account of profits
redressal fora should use their “best judgment”
shall be discussed. On damages being granted,
to determine the loss that can reasonably
the party causing the infringement has to
be used for grant of compensation.155 This
compensate the owner of the intellectual
is mainly because the difficulty with exact
property (“IP”) for the damage caused by him,
assessment of damage under consumer law
while account for profits aims at giving up
has been recognized, for example, it would
on the wrongful profits made by infringing
not be feasible to arrive at a conclusive finding
the rights of the owner of the IP. The plaintiff
regarding deficiency of services rendered by a
can recover damages for the loss sustained by
medical professional or an architect.
reason of the infringement, or if, he prefers,
payment of the profits resulting from the
151. Raheja Universal Pvt. Ltd. v. B.E. Bilimoria & Co. Ltd (2016) 3 infringement, but not both.159
AIR Bom R 637
152. Bhagwati Oxygen Ltd. v. Hindustan Copper Ltd. (2005) 6 SCC 462
153. Consumer Protection Act 1986, s 14(1)(d). See also, Kishan Rao
v. Nikhil Super Specialty Hospital & Another (2010) 5 S.C.R. 1
154. Air India v. Suganda Ravi Mashelkar, I (1993) CPJ 63 (64) (NC); 156. Nishikant Narayan Kale vs. Bajaj Tempo Limited (2017) 4 ALL
Dr. J.N. Barowalia, Commentary on the Consumer Protection MR 335
Act (5th edn, Universal Publishing Co. 2012) 673. See also,
157. Malik v. Bank of Credit and Commerce Intl SA [1997] 3 All ER 1 (HL)
Economic Transport Organization v. Charan Spinning Mills Ltd
(2010) 4 SCC 114 158. U.P. State Sugar Corporation Ltd. v. Kamal Swaroop Tondon
(2008) 2 SCC 41
155. Jaidev Prasad Singh v. Auto Tractor Ltd. I (1991) CPJ 34 (36) NC;
Nizam Institute of Medical Sciences vs. Prasanth S. Dhananka and 159. Ferrero Spa v M/s Ruchi International (CS(COMM) 76/2018), 02
Ors (2009) 9 SCR 313 April 2018

Under the Indian Copyright Act, 1957, relevant for calculation of damages, for example,
damages can be awarded in case of infringement mere printing of some pages of a book would
of a copyright; however, the party causing such not amount to conversion of the book till the
infringement shall not be liable to pay damages binding was complete and ready for sale.165
if the defendant proves that at the date of the
In case of a claim for accounts for profits made
infringement he was not aware and had no
by the defendant, the basic question relates
reasonable ground for believing that copyright
to the quantum copied. However, the plaintiff
subsisted in the work.160
is not entitled to calculate damages to include
Additionally, the owner of the copyright is his loss as well as profits of the defendant, he
entitled to remedies in respect of the conversion can use only one of these for the purpose of
of any infringing copies.161 In the former case, calculation of damages.166 Since account of
the measure of damages is the depreciation profits involves a lengthy process of verification
caused by the infringement to the value of the of records and books of accounts of the defendant,
copyright. In the latter, the normal measure it is often advised that the plaintiff may choose
of damages is the market value of the goods damages for loss suffered;167 in any event, if the
converted at the date of conversion;162 and the plaintiff opts for an account for profits, he is
copyright owner is entitled to treat all infringing entitled to an inspection of the books of accounts
copies of his work as his own. Damages for of the infringer.168 It is pertinent to note that
infringement and conversion are not mutually difficulty in assessment or measure of damages
exclusive, but cumulative, and in most cases, the is not considered as a ground sufficient for
plaintiff would be entitled to damages under both denying grant of damages.169
these heads.163 The plaintiff is entitled to all the
Similarly, Section 135 of the Trademarks
profits made by the defendant, even though the
Act, 1990 refers to damages as a relief in any
plaintiff would not have made that much himself
suit for infringement or for passing off of a
from exploiting the copyright.164 Ideally, the
trademark, wherein under some circumstances,
damage, to be recoverable at law, must be one
the court can only grant nominal damages e.g.
which can be measured in terms of money.
in case of certification or collective marks.170
Measurement of damages in case of copyright
is primarily based on the facts and
circumstances, e.g. grant of damages would 165. Caxton Publishing Co. v. Sutherland Publishing Co., [1939] AC 178
vary for unpublished copies as compared 166. Srimagal v. Books (India) AIR 1973 Mad 49; Pillalamari
Lakshikantam v. Ramakrishna Pictures AIR 1981 AP 224
with published ones. Similarly, in cases of
167. P. Narayanan, Law of Copyright and Industrial Designs (4th edn
conversion, the point of conversion would be (rep), Eastern Law House 2010) 331
168. Mishra Bandhu v. Shivaratanlal AIR 1970 MP 26; Samsung
Electronics Company Limited and Another v. G. Choudhury and
160. Copyright Act, section 55: “(1) Where copyright in any work has Anr. 2007 (136) DLT 605
been infringed, the owner of the copyright shall, except as otherwise
169. Chaplin v. Hicks (1911) 2 KB 786
provided by this Act, be entitled to all such remedies by way of
injunction, damages, accounts and otherwise as are or may be 170. Trademarks Act 1990, s 135: (1) The relief which a court may
conferred by law for the infringement of a right: grant in any suit for infringement or for passing off referred
Provided that if the defendant proves that at the date of the to in section 134 includes injunction (subject to such terms,
infringement he was not aware and had no reasonable ground for if any, as the court thinks fit) and at the option of the plaintiff,
believing that copyright subsisted in the work, the plaintiff shall not either damages or an account of profits, together with or
be entitled to any remedy other than an injunction in respect of the without any order for the delivery-up of the infringing labels
infringement and a decree for the whole or part of the profits made and marks for destruction or erasure…(3)“Notwithstanding
by the defendant by the sale of the infringing copies as the court may anything contained in sub-section (1), the court shall not grant relief
in the circumstances deem reasonable.” by way of damages (other than nominal damages) or on account of
profits in any case-
161. Section 58 (proviso)
(a) where in a suit for infringement of a trade mark, the
162. Caxton Publishing Co. v. Sutherland Publishing Co., (1938) 4 All infringement complained of is in relation to a certification trade
ER 389 (HL) mark or collective mark; or
(b) where in a suit for infringement the defendant satisfies the court-
163. ibid
(i) that at the time he commenced to use the trade mark complained of
164. Dam v. Kirk La Shelle, 175 Fed 902 (908); The Indian Performing in the suit he was unaware and had no reasonable ground for believing
Right Society v. Adventure Communication India Private Limited that the trade mark of the plaintiff was on the register or that the
(2012) ILR 6 Delhi 426 plaintiff was a registered user using by way of permitted use; and

Where the party claiming damages, fails to On infringement of a patent, generally, damages
establish substantial damage, courts tend to are calculated on the basis of the pecuniary
grant damages only to the extent of nominal equivalent of the injury resultant as natural or
damages.171 The principles governing grant direct consequences of the infringement.174 In
of damages or accounts of profits is the same a certain case where the patentee manufactured
for cases of infringement of trademark as well and sold a patented article, the court ascertained
as passing off. For measurement of damages, the number of articles sold less by the patentee
some of the factors to be considered are: and the profit that he would have made on each
article, and determined the product of the two as
§§loss sustained by the plaintiff, resulting from
the damages.175 And, where the patentee tends
the natural and direct consequences of the
to license out the products, the loss of royalties
infringement,
is considered for assessment of damages.176
§§drop in trade of the plaintiff pursuant to the
Judicial approach in granting damages in IP cases
infringing activities of the defendant (and not
market forces), Indian courts have started to display a more
liberal approach towards grant of damages in case
§§impact on the goodwill, reputation resulting
of infringement of rights relating to intellectual
from the infringing activities.
property by allowing grant of punitive damages
Alternatively, the plaintiff may also seek along with compensatory damages. This was
for account of profits made by the infringer identified in the case of Time Incorporated v.
irrespective of the loss suffered by him.172 Lokesh Srivastava (“Time Incorporated”),177
where the Delhi High Court observed that:
Under the Patents Act 1970, in a case of
infringement, damages or account of profits “…the time has come when the Courts dealing
may be granted except where it is proven that actions for infringement of trademarks, copy
on the date of the infringement, the defendant rights, patents etc. should not only grant
was unaware and had no reasonable grounds compensatory damages but award punitive
for believing that the patent existed or the damages also with a view to discourage
infringement occurs after a failure to pay any and dishearten law breakers who indulge in
renewal fee with the prescribed period and violations with impunity out of lust for money
before any extension of that period or there so that they realize that in case they are caught,
has been a usage of the invention before the they would be liable not only to reimburse
date of the decision allowing an amendment the aggrieved party but would be liable to
of a specification.173 pay punitive damages also, which may spell
financial disaster for them.”
This observation was followed in a series of
judgments like Adobe Systems, Inc and Anr. v. Mr.
(ii) that when he became aware of the existence and nature of the P. Bhooominathan and Anr,178 Microsoft Corporation
plaintiff’s right in the trade mark, he forthwith ceased to use the v. Raval,179 Microsoft Corporation v. Rajendra
trade mark in relation to goods or services in respect of which it was
registered,; or Pawar & Anr.180 and Hero Honda Motors Limited
(c) where in a suit for passing off, the defendant satisfies the court-
(i) that at the time he commenced to use the trade mark complained
of in the suit, he was unaware and had no reasonable ground for
174. P. Narayanan, Patent Law (4th edn (rep), Eastern Law House
believing that the trade mark of the plaintiff was in use; and
2010) 624
(ii) that when he became aware of the existence and nature of the
plaintiff’s trade mark he forthwith ceased to use the trade mark 175. Meters v. Matropolitan Gas Meters (1911) 28 RPC 157, 165 (CA)
complained of.”
176. P. Narayanan, Patent Law (4th edn (rep), Eastern Law House
171. Gujarat Ginning v. Swadeshi Mills AIR 1939 Bom 118; General 2010) 625
Electric v. Pyara Singh AIR 1974 P&H 14; Indian Performing Right
177. (2005) 30 PTC 3 (Del)
Society Ltd. vs. Debashis Patnaik and Ors. 2007 (34) PTC 201 (Del)
178. (2009) 39 PTC 658 (Del)
172. Syed Zakirali vs. Syed Zahidali and Ors. 2018 SCC Online Bom
1465 179. MIPR 2007 (1) 72
173. Patents Act 1970, s. 111 180. (2008) 36 PTC 697 (Del)

v. Shree Assuramji Scooters.181 In a recent ruling of conduct” (test adopted by Australian Courts).
2016, the Delhi High Court, on following Time The English Courts have, adopting the same
Incorporated, awarded punitive damages as high nature of test, have used the test of “dishonest
as one crore rupees.182 In Microsoft Corporation trader”, who deals in products knowing that
v. Deepak Raval,183 which involved a copyright they are counterfeit or “recklessly indifferent”
infringement action, the court awarded similar as to whether or not they are. … Damages
damages by referring to decisions on punitive are quantified in three categories viz., actual
damages by courts in other countries, and damages,184 damages to goodwill and
holding that Indian courts have recognized that reputation185 and exemplary damages186….
both compensatory and punitive damages are to [O]n this basis total damages are worked out
be awarded. The court observed that, to be Rs. 12,823,200. However, in the suit
damages claimed are Rs. 500,000. Therefore,
“…while awarding punitive damages Courts
I have no option but to limit the claim of the
have taken into consideration the conduct of the
plaintiff to Rs 500,000.”187
defendants which has “willfully calculated to
exploit the advantage of an established mark” This judgment includes a detailed comparative
(expression used by US Courts), which may study on the position relating to damages in IP
also be termed as “flagrancy of the defendant’s cases, across jurisdictions, which is as follows:188
Case Title Damages Awarded (In US Dollar) Damages in Rupees

United States
Microsoft Corp. v. G,D Treble profits plus $88,780 in Treble profits plus 39 lakhs
Systems America Inc., 872 F. Attorney fees and costs. in Attorney fees and costs
Supp.1329
Microsoft corporation v. Damages of $300,000 for Damages of Rs. 1 Crore 31
Grey Computer, et al, Civ. A. infringement of copyright plus lakhs for infringement of
No. AW 94-221 $3,889,565.16 as treble profits copyright plus Rs. 17 crore
3 lakhs as treble profits
Australia
Microsoft Corp. v. TYN Compensatory damages of Compensatory damages of
Electronics Pty. Ltd., [2004] $386,000 plus additional damages Rs. 1 crore 32 lakhs plus
FCA 1307 of $300,000 additional damages of Rs. 1
crore 3 lakhs
Microsoft Corporation v. Damages of $ 295,750 Damages of Rs. 1 crore
Golstar Pty Limited, [2003]
FSR 210
Microsoft Corp. v. Goodview Damages of $ 653,818.55 plus Damages of Rs. 2 crore
Electronics Pty. Ltd., [2000] additional damages of $ 500,000 25 lakhs plus additional
FCA 1852 damages of Rs. 1 crore 72
lakhs
184. Actual damages aim to place the plaintiff in the same posi-
tion as if the defendants caused no loss to the plaintiff.
185. These damages are in respect of the injury caused to the
goodwill and reputation of the plaintiff due to the infringing
activities of the defendant.
186. These damages are awarded if there is a flagrant violation
181. (2006) 32 PTC 117 (Del) by the defendants of the plaintiff’s rights, to set a deterrent
example for others.
182. Cartier International Ag & Others v. Gaurav Bhatia & Ors (2016)
65 PTC 168 (Del) 187. Microsoft Corporation v. Deepak Raval MIPR 2007 (1) 72
183. MIPR 2007 (1) 72 188. ibid

Autodesk Australia Pty Compensatory damage of $ 25,000 Compensatory damage of

Limited v. Cheung, (1990) plus additional damages of $ Rs. 8 lakhs 61 thousand
17 IPR 69 35,000 plus additional damages of
Rs. 12 lakhs
United Kingdom
Microsoft Corp. v. Electro- Court suggested an award of Court suggested an award
Wide Limited, [1997] FSR additional damages of additional damages
580
Microsoft Corporation v. Microsoft entitled to an account of Microsoft entitled to an
Plato Technology Limited, profits to the extent of 5000 Pounds account of profits to the
[1999] FSR 834 extent of Rs. 4 lakhs
Hong Kong
Microsoft Corp. Able Compensatory Damages of $ Compensatory Damages of
System Development Ltd., 32,575,064 and additional Rs. 18 crore 29 lakhs and
HCA17892/1998 damages of $ 3,257,506 additional damages of Rs. 1
crore 82 lakhs
China
Autodesk Inc. Beijing Longfa Compensation of RMB 1.49 million Compensation of Rs. 78
Construction & Decoration lakhs
Ltd.
Subsequently in another case of Microsoft However, when it comes to calculating

Corporation v. Rajendra Pawar & Anr., the quantum of damages, there are no set
Delhi High Court came up with the following parameters or guidelines and courts tend
observation, on similar lines: to rely on existing broad principles and
precedents. The trend adopted by the Delhi
“Perhaps it has now become a trend of sorts,
High Court has been often criticized as lacking
especially in matters pertaining to passing
any uniformity or continuity.190 Further, if the
off, for the defending party to evade court
distinction in the statutes between U.K. and
proceedings in a systematic attempt to
India are considered, it is seen that the U.K. Act
jettison the relief sought by the plaintiff. Such
specifically provides for additional damages,
flagrancy of the Defendant’s conduct is strictly
apart from the general damages,191 while
deprecatory, and those who recklessly indulge
the Indian statute does not. Thus, the award
in such shenanigans must do so at their
of punitive damages has also been criticized.
peril, for it is now an inherited wisdom that
Nevertheless, if a party has specifically pleaded
evasion of court proceedings does not de facto
for such additional damages, nothing prevents
tantamount to escape from liability. Judicial
the courts from granting such damages.
process has its own way of bringing to tasks
such erring parties whilst at the same time
ensuring that the aggrieved party who has
knocked the doors of the court in anticipation
of justice is afforded with adequate relief, both
in law and in equity. It is here that the concept 190. Eashan Ghosh, ‘Surveying the Damage: A Study of Damages
Payouts by the Delhi High Court in Trademark Infringement’
of awarding punitive damages comes into (2015) 11 The Indian Journal of Law and Technology 52
perspective.”189 191. Copyright Act 1956, s17(3): “Where in an action under this section
an infringement of copyright is proved or admitted, and the court,
having regard (in addition to all other material considerations) to –
(a) the flagrancy of the infringement, and
(b) (b) any benefit shown to have accrued to the defendant by reason
of the infringement, is satisfied that effective relief would not other-
wise be available to the plaintiff, the court, in assessing damages
for the infringement, shall have power to award such additional
189. Microsoft Corporation v. Rajendra Pawar & Anr. 2008 (36) PTC damages by virtue of this subsection as the court may consider
697 (Del.) appropriate in the circumstances.”

VIII. Damages under cases than those contained in the contract. Third, the
relating to Engineering, Eichleay Formula, which is used when it is not
possible to prove loss of opportunity and the
Procurement and claim is based on actual cost. In this formula the
Construction contracts total head office overheads during the contract
period is determined by comparing the value of
work carried out in the entire contract period for
In India, construction contracts are increasingly
the project with the value of work undertaken
being based on the Engineering, Procurement
by the contractor as a whole for the contract
and Construction model (“EPC”). These are
period. A share of head office overheads for
turnkey contracts in which the responsibility
the contractor is allocated in the same ratio
of designing, procurement of material and
and expressed as a lump sum to the particular
construction gets transferred from the owner to
contract. The amount of head office overhead
the contractor. The time and cost risks thereby
allocated to the particular contract is expressed
shifts to the contractor.
as a weekly amount by dividing it by the total
Generally speaking, construction contracts contract period. Finally, the period of delay is
involve high costs and stakes, therefore, delay multiplied by the weekly amount to give the
or breach can have substantial repercussions total sum claimed.
for the parties. Calculation of damages for
Further, in arbitrations relating to construction
underperformance, delay or non-performance
disputes, it is common practice for parties and
are of critical importance in construction
arbitrators to rely upon expert valuations, expert
disputes. Further, the calculation of actual
reports and expert witnesses.195 This emanates
loss suffered is relatively more challenging in
from the complex nature of such disputes and
construction disputes than in general disputes.
the granular details that can be best analyzed by
Usually, claims made in construction disputes
industry experts.
are with respect to damages due to loss of
profits, delay, disruption, loss of opportunity, It is pertinent to note that liability for breach
underperformance or non-performance.192 in construction contracts is determined on
a case by case approach. It is attributed to
In McDermott International Inc. v. Burn Standard
the party who is responsible for the delay or
Co. Ltd.193, the Hon’ble Supreme Court has
underperformance resulting in breach of the
analyzed various issues regarding computation
contract.196 Delay in completion of construction
of damages and enunciated certain formulae
cannot always be attributed to the contractor.
which are followed to compute loss and
It is settled law that when delay is due to acts
damages in construction disputes globally. First,
of the employer, he cannot be exonerated of
the Hudson Formula, which has been adopted
his responsibility to pay damages by granting
for the quantification of overhead losses in India.
194It uses the head office overhead percentage an extension of time unless the employer
establishes that the contractor has consented
from the contract as the factor for calculating
to accept the extension of time alone, in
the costs, and this may not necessarily have any
satisfaction of his claims for the delay.197
relation to the actual head office costs of the
contractor. It is for this reason that this formula
has been widely criticized in the industry. Second,
the Emden Formula, which uses the contractors 195. The Arbitration and Conciliation Act, 1996, s. 26. See
also, Geoffrey Senoges & Julie Raneda,‘Calculating And
actual head office and profit percentage rather Presenting Quantum In International Arbitration Practice
with An Emphasis On Construction Disputes- The expert’s
perspective’, available at: https://www.crai.com/sites/default/
files/publications/Calculating-and-presenting-quantum-in-
192. John A Trenor, The Guide to damages in International Arbitration, international-arbitration-practice.pdf [Accessed on 19 July 2018]
(2nd ed., Law Business Research Ltd, 2017) United Kingdom
196. Ramnath International Pvt. Ltd. v. Union of India & Ors. AIR 2007
193. (2006) 11 SCC 181 SC 509
194. A.T Brij Paul Singh v. State of Gujarat AIR 1984 SC 1703 197. ibid

Further, if the contract specifically limits To succeed in a claim for damages due to delay
liability to certain events or excludes claim for in construction, party claiming it needs to
some kind of damages, the court or tribunal establish that ‘time was of the essence’ in the
cannot act in violation of the terms of the contract. Time is not always of the essence in
contract to award damages beyond the scope of a construction contract, unless specifically
what the parties have agreed to.198 mentioned or specific features exist thereof.199
198. Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering

Enterprises & Anr. 1999 (9) SCC 283 199. Saradamani Kandappan v. S. Rajalakshmi (2011) 12 SCC 18

5. Law of damages in India, U.K. and

Singapore: An Overview
The Indian law of contracts is primarily rather than granting compensation to the
based on the common law. Thus, a noticeable aggrieved party for the loss suffered. Thus, in
similarity can be tapped between the two. such a scenario, the only remedy for
Similar is the case with Singapore. In the case the injured party would be to claim for
of Singaporean law of contracts, the extent actual damages upon proof of loss or injury.
of similarity is such that the Application of
Under the common law, it is pertinent to
English Law Act of Singapore incorporates
ascertain the question whether the sum
13 English commercial statutes as part of the
stipulated in a contract is in the nature of
Statutes of the Republic of Singapore.200
a penalty or liquidated damages is a question
However, there are some variations that can of law, since a stipulation in the nature of
be gathered from these regimes. For a better penalty would be legally invalid vide law
and more comprehensive understanding of of damages under contract law.
the same, an analysis has been made under
In the absence of any such distinction in the
the following heads:
Indian regime as far as the statutory language is
concerned, a liquidated damages clause need not
I. Liquidated damages and specifically state that liquidated damages are not
penalty clauses in the nature of a penalty. However, an important
mandate which is applicable across these regimes,
Singapore follows the common law approach is that the compensation paid by the party causing
when it comes to enforcement of liquidated breach has to be “reasonable”. Moreover, the
damages clauses as set out in the landmark practice enunciated by courts has been that the
English case,201 Dunlop Pneumatic Tyre Co Ltd v. statutory duty imposed on courts under Section
New Garage and Motor Co Ltd.202 wherein it was 74, remains “…not to enforce the penalty clause but
held that provision for liquidated damages will only to award reasonable compensation…”203 Further,
be enforceable only if, at the time of drafting: as has been already discussed, Section 74 applies
where a sum is named as penalty to be paid in
§§it was difficult to determine the damages
future in case of breach, and not to cases where
that would accrue if a contemplated breach
a sum is already paid and by a covenant in the
occurred; and
contract it is liable to forfeiture.204
§§the amount of the liquidated damages
provision was a reasonable estimate of the
actual suffered damage.
II. The principle of
remoteness of damages
On establishing the above, the party claiming
damages, would be dispensed with the need
As discussed earlier, the Hadley v. Baxendale rule
to prove actual damage. Meanwhile, a penalty
governs the principle of remoteness of damages
clause is legally invalid owing to the fact that
under the common law. The same has been
a penalty clause would be inserted with the
statutorily recognized in India under Section 74
intention to punish the party causing breach
of the Indian Contract Act, 1872.
200. Application of English Law Act, 1993 s. 4

201. Max Media FZ LLC v. Nimbus Media Pte Ltd. [2010] SGHC 30;
Hong Leong Finance Ltd v. Tan Gin Huay [1999] 2 SLR 153 203. Fateh Chand v. Balkishan Das AIR 1963 SC 1405
202. [1914] UKHL 1 204. Natesa Aiyar v. Appavu Padayachi (1915) ILR 38 Mad 178

On similar lines, the courts in Singapore have punitive damages in case of breach of contract,
been consistently faithful towards the Hadley v. as compared with tort claims. This has been
Baxendale rule.205 In a landmark judgment, the already discussed under section 2.4 of this paper.
Singapore Court of Appeal reaffirmed
However, recently, a Singaporean court
the applicability of the test for remoteness
confirmed applicability of punitive damages
as embodied in Hadley v Baxendale by rejecting
under contract law by holding that:
the assumption of responsibility test206 to
determine whether damages are too remote “…the court has the power in an exceptional
in a contractual claim.207 case to award punitive damages in the context
of a breach of contract, when the defendant’s
conduct in breaching the contract has been so
III. Grant of punitive damages highly reprehensible, shocking or outrageous
that the court finds it necessary to condemn
Distinguishing punitive damages from
and deter such conduct by imposing punitive
vindicatory damages, the English law approach
damages.” 209
is that since punishment is not the object of
vindicatory damages, they may be granted for
loss of chance, non-pecuniary losses etc.208 Courts
in U.K. and India have been adverse in granting
205. Robertson Quay Investment Pte Ltd v. Steen Consultants Pte Ltd
[2008] 2 SLR(R) 623; MFM Restaurants Pte Ltd v. Fish & Co
Restaurants Pte Ltd [2011] 1 SLR 150
206. In Transfield Shipping Inc v. Mercator Shipping Inc (The
Achilleas) [2009] 1 AC 61, remoteness was regarded as an issue
of construction of contract to determine whether a given
type of loss is one which a party has assumed contractual
responsibility for.
207. Out of the Box Pte Ltd v Wanin Industries Pte Ltd [2013] SGCA 15
208. The Attorney General of Trinidad and Tobago v. Ramanoop [2005] 209. Airtrust (Hong Kong) Ltd v. PH Hydraulics & Engineering Pte Ltd.
UKPC 15; [2006] 1 A.C. 328 (para 19) [2015] SGHC 307 (para 264)

6. Conclusion
Damages on breach of contracts are considered award damages in addition to or in substitution
to be advantageous than other remedies that of specific performance, depending on what is
may be available to parties suffering losses from warranted by a given situation.214 Moreover,
breach of contracts. Liquidated damages play stipulation for liquidated damages would
a significant role in cases where it is difficult not prevent a party from claiming specific
to ascertain the quantum of damages since performance.215 Similarly, plaintiffs may claim
that is pre-determined by inserting a clause for damages in addition to or in substitution of
on “liquidated damages” in the contract itself. injunctions sought from a court.216
Such clauses for liquidated damages aim at
Another remarkable progress is the approach
prevention of litigation to the extent possible.
of the judiciary, which is gradually becoming
This would also help in reducing the burden
liberal while granting damages. Courts have
to prove actual damage suffered pursuant to a
allowed enforcement of arbitral awards
breach, in order to claim damages. Liquidated
granting damages amounting to sums ranging
damages are preferred when the parties wish to
in crores of rupees.217 Additionally, in IP cases,
affix some assurance or security in the event of
courts have considered actual damages along
breach of contracts.210
with damages to goodwill and reputation and
Just like quantum of damages can be pre-decided exemplary damages, and valued damages to be
in a contract, there can also be exclusion of the Rs. 12,823,200.218
right to claim damages by express terms;211 or
Similarly, on taking into account the distinction
that in case of breach of contract, there would
between penalty and damages in the Indian
not be payment of compensation but refund of
context, it is seen that a party can claim penalty,
payments already made.212 Similarly, there may
as stipulated, along with unliquidated damages
be specific amounts laid down as compensation
on breach of a contract. However, it is suggested
for specific breaches, accordingly damages shall
that courts may consider being less stringent
be granted for a corresponding breach.213
as far as punitive damages are concerned. The
However, in case of liquidated damages, parties approach adopted in Singapore and Canada, to
shall not be entitled to damages that exceed the grant punitive damages in cases of contractual
amount that has been already ascertained and breaches in certain exceptional cases, may be
fixed as liquidated damages. Other drawbacks adopted as well, on an incisive analysis and
that are associated with damages include cases consideration of the facts and circumstances.
where damages do not suffice in respect of the
Conceptually and practically, damages have
losses or damage suffered by the party. This may
been effective in enforcement of contractual
lead to a situation which warrants a specific
obligations. This can be supported with the
performance by the other party instead of
progressive interpretations by the courts with
damages to enable restoration of the position of
respect to liquidated damages, for example.
the party prior to such contractual breach. Such
Courts have ensured that there is no windfall
situations may arise if the subject matter of the
for the parties in the presence of a clause
contract is of rare quality or indispensable for
for liquidated damages by asserting that the
the aggrieved party. Thus, courts may opt to
214. Specific Relief Act 1963, s. 21

210. Vishal Engineers & Builders v. Indian oil Corporation Ltd. 2012 1
Arb 253 (DB) 215. P. D’Souza v. Shondrilo Naidu AIR 2004 SC 4472
211. State of Jammu & Kashmir v. Dev Dutt Pandit AIR 1999 SC 3196 216. Specific Relief Act 1963, s. 40
212. Syed Israr Masood v. State of Madhya Pradesh (1981) 4 SCC 289 217. National Highways Authority of India v. Hindustan Construction
Company (2016) 155 DRJ 646 (DB)
213. Indian Drugs and Pharmaceuticals Ltd. v. Industrial Oxygen Co.
Ltd. AIR 1985 Bom 186 218. Microsoft Corporation v. Deepak Raval MIPR 2007 (1) 72

quantum of damages shall be reasonable and damages, the concerned party would not be
shall not exceed the amount stipulated as exempted from proving the loss or injury
liquidated damages. Moreover, even in a claim suffered subsequent to the breach of the
for damages under such a clause on liquidated contractual terms.

7. Table of Cases
Sl. No. Cases Relevant Extracts Para No. s
1. Union of India v. “…even if there is a stipulation by way of 11
Raman Iron Foundry liquidated damages, a party complaining
AIR 1974 SC 1265 of breach of contract can recover only
reasonable compensation for the injury
sustained by him, the stipulated amount
being merely the outside limit. It, therefore
makes no difference in the present case that
the claim of the appellant is for liquidated
damages. It stands on the same footing as a
claim for unliquidated damages”
2. Seth Thawardas “Government expressly stipulated, and 8
Pherumal v. Union the contractor expressly agreed, that
of India [1955] 2 Government was not to be liable for any loss
S.C.R. 48 occasioned by a consequence as remote
as this, then that is an express term of the
contract and the contractor must be tied
down to it. If he chose to contract in absolute
terms that was his affair.”
3. Airtrust (Hong Kong) “…the court has the power in an exceptional 264
Ltd v. PH Hydraulics case to award punitive damages in the
& Engineering Pte context of a breach of contract, when
Ltd [2015] SGHC the defendant’s conduct in breaching the
307 contract has been so highly reprehensible,
shocking or outrageous that the court finds
it necessary to condemn and deter such
conduct by imposing punitive damages.”
Penalty and Liquidated Damages
4. Dunlop Pneumatic For an understanding of what amounts to 4
Tyre Co Ltd v. New “penalty”, the court held that:
Garage & Motor Co “It will be held to be penalty if the
Ltd [1914] UKHL 1 sum stipulated for is extravagant and
unconscionable in amount in comparison
with the greatest loss that could conceivably
be proved to have followed from the breach…
It will be held to be a penalty if the breach
consists only in not paying a sum of money,
and the sum stipulated is a sum greater
than the sum which ought to have been
paid… There is a presumption (but no more)
that it is penalty when ‘a single lump sum
is made payable by way of compensation,
on the occurrence of one or more or all of
several events, some of which may occasion
serious and others but trifling damage’. On
the other hand: It is no obstacle to the sum
stipulated being a genuine pre-estimate
of damage, that the consequences of the
breach are such as to make precise pre-
estimation almost an impossibility …”

5. Iron & Hardware “… it would not be true to say that a person Page 745
(India) Co. v. Firm who commits a breach of the contract incurs
Shamlal & Bros. AIR any pecuniary liability, nor would it be true to
1954 Bom 423 say that the other party to the contract who
complains of the breaches has any amount
due to him from the other party.”
“…the only right which he has is the right to
go to a Court of law and recover damages.”
“…no pecuniary liablility arises till the Court
has determined that the party complaining
of the breach is entitled to damages.
Therefore, when damages are assessed, it
would not be true to say that what the Court
is doing is ascertaining a pecuniary liability
which already existed. The Court in the first
place must decide that the defendant is
liable and then it proceeds to assess what
that liability is. But till that determination
there is no liability at all upon the defendant.”
6. Kailash Nath “…the law on compensation for breach of 43
Associates v. Delhi contract under Section 74 can be stated to
Development be as follows:
Authority & Anr …In both cases, the liquidated amount or
(2015) 4 SCC 136
penalty is the upper limit beyond which
the Court cannot grant reasonable
compensation. Reasonable compensation
will be fixed on well- known principles that
are applicable to the law of contract, which
are to be found inter alia in Section 73 of
the Contract Act. Since Section 74 awards
reasonable compensation for damage
or loss caused by a breach of contract,
damage or loss caused is a sine qua non
for the applicability of the section. The
expression ‘whether or not actual damage
or loss is proved to have been caused
thereby’ means that where it is possible to
prove actual damage or loss, such proof is
not dispensed with. It is only in cases where
damage or loss is difficult or impossible to
prove that the liquidated amount named in
the contract, if a genuine pre- estimate of
damage or loss, can be awarded.”
7. Raheja Universal Pvt. The Division Bench reiterated the findings of 4
Ltd. v. B.E. Bilimoria the Single Judge on the observations made
& Co. Ltd (2016) 3 with respect to the arbitrator’s award on
AIR Bom R 637 liquidated damages:
“This court cannot permit a party to
supplement the reasons rendered by the
learned arbitrator by relying upon the
pleadings and documents which are not
considered by the arbitrator and cannot
probe into the mind of an arbitrator and
assume that the learned arbitrator must
have considered such pleadings, documents
and submissions of parties which are not
reflected in the award.”

8. Bharat Sanchar “…the question of holding a person liable 24

Nigam Ltd. v. for Liquidated Damages and the question
Motorola India Ltd. of quantifying the amount to be paid by
2009 (2) SCC 337 way of Liquidated Damages are entirely
different. Fixing of liability is primary, while
the quantification, which is provided for … is
secondary to it.”
9. Sir Chuni Lal Mehta “Where the parties have deliberately 11
& Sons v. Century specified the amount of liquidated damages
Spinning and there can be no presumption that they, at
Manufacturing Co. the same time, intended to allow the party
AIR 1962 SC 1314 who has suffered by the breach to give a go-
by to the sum specified and claim instead a
sum of’ money which was not ascertained or
ascertainable at the date of the breach.”
“By providing for compensation in express
terms the right to claim damages under the
general law is necessarily excluded…”
Remoteness of damages
10. Hadley v. Baxendale Subsequent to a contractual breach, an Pages 151-
(1854) 9 EX 341 injured party can claim which should 152
“reasonably be considered... [as] arising
naturally, i.e., according to the usual
course of things” from the breach or might
“reasonably be supposed to have been in the
contemplation of both parties, at the time
they made the contract, as the probable
result of the breach.”
11. Victoria Laundry “In cases of breach of contract, the aggrieved 32-34
(Windsor) Ltd v. party is only entitled to recover such part
Newman Industries of the loss actually resulting as was at the
Ltd [1949] 2 KB time of the contract reasonably foreseeable
528 as liable to result from the breach. What
was at that time reasonably so foreseeable,
depends on the knowledge then possessed
by the parties or, at all events, by the party
who later commits the breach.
For this purpose, knowledge ‘possessed’ is
of two kinds: one imputed, the other actual.
Everyone, as a reasonable person, is taken
to know the ‘ordinary course of things’ and
consequently, what loss is liable to result
from a breach of contract in that ordinary
course. This is the subject matter of the
‘first rule’ in Hadley v. Baxendale. But to
this knowledge, which a contract-breaker is
assumed to possess whether he actually
possesses it or not, there may have to
be added in a particular case knowledge
which he actually possesses, of special
circumstances outside the ‘ordinary course
of things,’ of such a kind that a breach in
those special circumstances would be liable
to cause more loss. Such a case attracts the
operation of the ‘second rule’ so as to make
additional loss also recoverable.”

12. State of Kerala v. K. “The defendant is liable only for natural 12

Bhaskaran AIR 1985 and proximate consequences of a breach
Ker 49 or those consequences which were in
the parties’ contemplation at the time
of contract… the party guilty of breach
of contract is liable only for reasonably
foreseeable losses - those that a normally
prudent person, standing in his place
possessing his information when contracting,
would have had reason to foresee as
probable consequences of future breach.”
13. Pannalal Jankidas “But for the appellants’ neglect of duty to 30
v. Mohanlal and keep the goods insured according to the
Another AIR 1951 agreement, they (the respondents) could
SC 144 have recovered the full value of the goods
from govt. So there was a direct causal
connection between the appellants’ default
and the respondents’ loss.”
(“But for” test)
14. Oil and Natural Gas “If the terms are clear and unambiguous 68
Corporation Ltd v. stipulating the liquidated damages in
Saw Pipes Ltd AIR case of the breach of the contract unless
2003 SC 2629 it is held that such estimate of damages/
compensation is unreasonable or is by way
of penalty, party who has committed the
breach is required to pay such compensation
and that is what is provided in Section 73 of
the Contract Act.”
“In some contracts, it would be impossible
for the Court to assess the compensation
arising from breach and if the compensation
contemplated is not by way of penalty or
unreasonable, Court can award the same
if it is genuine pre-estimate by the parties
as the measure of reasonable compensation”
15. Titanium Tantalum “Proximate and natural consequences are 12
Products Ltd. v those that flow directly or closely from the
Shriram Alkali and breach in the usual and normal course of
Chemicals 2006 (2) events - those which a ‘reasonable man’ or
ArbLR 366 Delhi a person or ordinary prudence would when
the bargain is made foresee, as expectable
results of later breach. The phrase ‘in the
parties’ contemplation’ normally means
in the reasonable contemplation of the
defendant.”
Measure and Calculation of Damages
16. Hajee Ismail Sait “…natural and fair measure of damages is Pages- 713,
and Sons v. Wilson the value of the goods at the time and place 718, 719
and Co. AIR 1919 at which they ought to have been delivered
Mad 1053 (DB) to the owner, which I read as meaning the
value of the goods to the owner of such
goods at the time and place they ought to
have been delivered.”
“…it is not the nearest market that always
governs but the place where, having
regard to all the facts of a particular case,
the plaintiff would without any material
inconvenience to himself procure the goods
in a manner that would throw the least
amount of hardship on the other party.”

17. Mcdermott “We do not intend to delve deep into the 106, 110
International Inc v. matter as it is an accepted position that
Burn Standard Co. different formulas can be applied in different
Ltd. & Ors (2006) 11 circumstances and the question as to
SCC 181 whether damages should be computed
by taking recourse to one or the other
formula, having regard to the facts and
circumstances of a particular case, would
eminently fall within the domain of the
Arbitrator.”
“…the aforementioned formula evolved
over the years, is accepted internationally
and, therefore, cannot be said to be wholly
contrary to the provisions of the Indian law.”
18. Murlidhar Chiranjilal “The two principles on which damages in 9
v. Harish Chandra such cases are calculated are well-settled.
Dwarkadas The first is that, as far as possible, he who
(1962) 1 SCR 653 has proved a breach of a bargain to supply
following British what he contracted to get is to be placed, as
Westinghouse far as money can do it, in as good a situation
Electric and as if the contract had been performed; but
Manufacturing this principle is qualified by a second, which
Company Limited v. imposes on a plaintiff the duty of taking
Underground Electric all reasonable step” to mitigate the loss
Railways Company consequent on the breach, and debars him
of London [1912] from claiming any part of the damage which
A.C. 673. 689 is due to his neglect to take such steps.”
19. M. Lachia Setty & “At the outset it must be observed that the 14
Sons Ltd v. Coffee principle of mitigation of loss does not give
Board Bangalore AIR any right to the party who is in breach of the
1981 SC 162 contract but it is a concept that has to be
borne in mind by the Court while awarding
damages”
Damages in IP
20. Time Incorporated “…the time has come when the Courts dealing actions for
v. Lokesh Srivastava infringement of trademarks, copy rights, patents etc. should
(2005) 30 PTC 3 not only grant compensatory damages but award punitive
(Del) damages also with a view to discourage and dishearten law
breakers who indulge in violations with impunity out of lust for
money so that they realize that in case they are caught, they
would be liable not only to reimburse the aggrieved party but
would be liable to pay punitive damages also, which may spell
financial disaster for them.”


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Regulatory, Legal and
An Introduction Tax Overview
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NDA Insights
TITLE TYPE DATE
Bombay High Court Quashes 197 Order Rejecting Mauritius Tax
Tax May 2019
Treaty Benefits
Payments For Online Subscription Services Not To Be Taxed As Royalty Tax May 2019
Taxation Of Unexplained Cash Credits: Recent Developments Tax May 2019
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Tax May 2019
Re-Emphasized
Delhi High Court Sets Aside The Arbitral Award Passed In The Airport
Dispute Resolution May 2019
Metro Express Dispute
Arbitration Clause In An Unstamped Agreement? Supreme Court Lays
Down The Law
English Court’s Dictum On The “Without Prejudice” Rule Dispute Resolution May 2019
Bombay High Court Settles Dust Over Validity Of ‘Options’ Under
Securities Law
Stamp Duty Stumps Brokers And Demat Transfers Regulatory May 2019
External Commercial Borrowings: Regulatory Framework Substantially
Regulatory May 2019
Relaxed
NDA Presents Regulatory Approaches On Crypto-Assets To The
Regulatory May 2019
Government Of India
To Strike While The Iron Is Hot: Sebi Relaxes Norms For Listing Of
Regulatory May 2019
Start-Ups

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MUMBA I S I L IC O N VAL L E Y BA N G A LO RE SI N G A P O RE M U M BA I B KC NE W DELH I MUNIC H NE W YORK

© Copyright 2019 Nishith Desai Associates www.nishithdesai.com

© Nishith Desai Associates 2019

© Nishith Desai Associates 2019 5

§§Merger Market 2018: Fastest growing M&A Law Firm in India

§§IFLR: Indian Firm of the Year 2013, 2012, 2011, 2010

6 © Nishith Desai Associates 2019

© Nishith Desai Associates 2019 7

© Nishith Desai Associates 2019

I. General and special damages 02

3. THE LAW OF DAMAGES UNDER INDIAN CONTRACT ACT, 1872 05

4. APPLICABILITY OF THE LAW OF DAMAGES 18

I. Damages under Sale of Goods Act, 1930 18

© Nishith Desai Associates 2019

© Nishith Desai Associates 2019

5. LAW OF DAMAGES IN INDIA, U.K. AND SINGAPORE: AN OVERVIEW 28

I. Liquidated damages and penalty clauses 28

© Nishith Desai Associates 2019

© Nishith Desai Associates 2019

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2 © Nishith Desai Associates 2019

V. Aggravated and Supreme Court’s finding in this respect is of

© Nishith Desai Associates 2019 3

there is no right to recover exemplary damages VI. Liquidated and

4 © Nishith Desai Associates 2019

3. The Law of Damages under Indian Contract

Section 73: Section 74:

Contract materialized Contract materialized

Breach of a contract Contract has a certain sum stipulated as

Loss or damage resulting from such breach

The loss or damage should be of such nature that:

Compensation for such loss or damage by

© Nishith Desai Associates 2019 5

I. Breach of contract II. Proof of damage for

6 © Nishith Desai Associates 2019

© Nishith Desai Associates 2019 7

8 © Nishith Desai Associates 2019

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10 © Nishith Desai Associates 2019

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12 © Nishith Desai Associates 2019

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14 © Nishith Desai Associates 2019

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and conspicuous.115 It is pertinent to note that delay, disruption, underperformance, wasted

16 © Nishith Desai Associates 2019

127. Miheer H. Mafatlal v. Mafatlal Industries Limited AIR 1997 SC 506

© Nishith Desai Associates 2019 17

4. Applicability of the law of damages

18 © Nishith Desai Associates 2019

§§Nature of acts and extent to which protection

139. Wertheim v. Chicoutini Pulp Co. [1911] AC 301 (PC) as cited in

© Nishith Desai Associates 2019 19

146. Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, AIR

20 © Nishith Desai Associates 2019

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22 © Nishith Desai Associates 2019

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Case Title Damages Awarded (In US Dollar) Damages in Rupees

24 © Nishith Desai Associates 2019

Autodesk Australia Pty Compensatory damage of $ 25,000 Compensatory damage of

Subsequently in another case of Microsoft However, when it comes to calculating

© Nishith Desai Associates 2019 25