Damages On The Form Of Penalties

1833 Words8 Pages
DAMAGES IN THE FORM OF PENALTIES
Section 73 and 74 of the Indian Contracts Act, 1872 (referred as ICA, 1872 hereinafter) provide the basic structure for enforcement, non performance and breach of contract. This paper deals with provisions regarding “penalties” on breach of the contract by one of the parties. Since sections 73 and 74 of the ICA, 1872 talk about the damages to be awarded in the case of breach and such damages shall be predefined in the contract while drafting the same and such pre estimation shall be just and of reasonable nature. Hence making the damages Liquidated.
LIQUIDATED DAMAGES
When parties by contract assess the damages to be paid irrespective of the actual damage are categorized as liquidated damages. Liquidated damages can be dictated to flow in two ways
1. Either by paying the sum of money due stipulated to the other party. Or
2. By forfeiting the amount already paid by the party who breaches the contract
Liquidated damages are a genuine “pre estimate of damages”.
DAMAGES
According to the section 73 of the ICA, 1872 the word damages has been used
Section 73 of the ICA, 1872 says that
“Compensation for loss or damage caused by breach of contract. - When a contract has been broken, the party who suffers by such breach is entitled to receive, form the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when
Get Access