Section 73, Indian Contract Act 1872 — What a Breach Is Worth

What the section does

• When a contract is broken, the party who suffers is entitled to compensation for loss or damage caused by the breach which naturally arose in the usual course of things.
• Loss that the parties knew, when they made the contract, was likely to result from a breach is also recoverable.
• Compensation is not given for any remote or indirect loss or damage sustained by reason of the breach.
• In estimating the loss, the means available for remedying the inconvenience caused by the non-performance must be taken into account — the duty to mitigate, expressed in the explanation to the section.

Recoverable

Natural and known loss. Remote or indirect loss is not compensated, and unmitigated loss is discounted.

Where people go wrong

• Pleading a large figure without evidence of the loss actually suffered.
• Ignoring mitigation. Steps that could reasonably have reduced the loss are taken into account against the claim.
• Assuming a penalty clause produces its number automatically — section 74 governs a stipulated sum and allows reasonable compensation, not necessarily the amount named.
• Failing to record, at the time of contracting, the special circumstances that make an unusual loss foreseeable.

Common questions

What damages can be claimed for breach of contract in India?

Under section 73, compensation for loss that arose naturally in the usual course of things from the breach, and for loss the parties knew when contracting was likely to result. Remote or indirect loss is excluded.

Does the injured party have to mitigate?

Yes. The explanation to section 73 requires the means available for remedying the inconvenience caused by non-performance to be taken into account when estimating loss.

Is a liquidated damages clause paid in full?

Not automatically. Section 74 entitles the injured party to reasonable compensation not exceeding the amount named, so the figure in the clause is a ceiling rather than a guarantee.

Act on this

• Section 27 — restraint of trade
• Contract risk scan

• Section 27 — restraint of trade
• Contract risk scan

About this summary

A plain-English summary of what this provision requires, not a reproduction of it and not legal advice. Read alongside the bare Act, and take advice on anything turning on your own facts.