Author: Monika Gurjar, Dharmashastra National Law University, Jabalpur
INTRODUCTION
The history of contract dates-back to ancient times where people used to enter into contract especially for domestic purposes. With the advancement of society and its need the nature of contract has also changed and had become complex. In a modern world, every individual is dependent on other, such interdependence is visible in modern complex market structure. Due to such interdependence, the consequences of breach (violation) of contract sometimes becomes grave. To regulate this, and to prevent such grave losses, the government came with the Indian Contract Act which provides remedy to the innocent parties of the contract. The Act in its Section 2 (h) says contract is as an agreement which is enforceable by law, which means the parties to the contract are legally bound to perform the promise made. The infringement or non-performance of the terms and conditions of the contract is called breach of contract.
Keywords: contract, breach, damages, liquidated, unliquidated
INSTANCES OF BREACH OF CONTRACT
After the formation of contract fulfilling all the prerequisites provided under section 10 (agreements that became contract), the parties to the contract becomes bound to perform the promises made to each other in the form of terms & conditions in the contract. The act under its Section 37 mentions the right and duties of the parties to the contract. And any deviation or omission to perform the conditions of contract leads to the infringement of contract.
The refusal of the either party to perform the promise made in the contract wholly, or if party is partially performing the contract and the other party does not give acquiescence to it, in such cases the party partially performing the promise becomes liable of breach of contract as provided in section 39 of the act.
When there is a time bound contract (time is of essence of contract) between the parties, where the obligations need to be performed within the prescribed time limit, if any party who enters the contract fails to discharge his obligations within that fixed time limit, then such failure leads to breach of contract according to section 55 of the contract act.
REMEDIES UNDER INDIAN CONTRACT ACT
There are three kinds of remedy that are available to the party suffering from the breach of contract. These are;
- Compensation
In case of non-performance (breach) of contract, the remedy available to the non- breaching party is compensation for the actual loss caused to the party. Under the Indian contract act, this compensation is mentioned as damages which is present in two forms;
- Liquidated Damages: As the term indicate liquidates damages is the amount to be paid in case of breach which is decided or determined by the parties before suffering the breach or during the time of formation of contract. Section 74 of the act says that if there is genuine pre estimate amount decided by the parties then, in such kind of cases actual loss to the party is not required to be proved, and mere breach of conditions of contract gave rise to damages under this section.
- Unliquidated Damages: There are cases of violation of conditions of contract where the party had not decided the amount that will be payable if either partybreaches the contract, in such conditions reasonable compensation is decided by the court by taking into consideration the actual loss suffered, mitigating factors and the relation of loss with the act of breach. The aforementioned is given in section 73 of Indian Contract Act, 1872.
- Penalty
Section 74 deals with the case where the parties to the contract had stipulated the compensation or amount as penalty then the actual loss caused to the aggrieved party needs to be proved. The reason for penalty in the contract is to deter the parties and to ensure the performance of the contract.
- Specific Performance
The other remedy available to the aggrieved party is provided under section 10 of specific relief act whereby the party can get the decree of specific performance of contract from the court, to compel the party (breaching party) to perform the contract. The circumstances where such remedy can be given by the court is provided under the specific relief act.
RECENT DEVELOPMENTS
1. M/s Devchand Construction v. Union of India[1]
In the case M/s Devchand Construction v. Union of India, the Kerala high court held that mere breach or failure to properly perform the terms of contract does not automatically give right to seek compensation in section 73 and 74 of Indian contract Act, but such breach shall cause actual damage or loss to the aggrieved party. Therefore, the section 73, 74 and 75 cannot be invoked if the party had not suffered any loss.
2. The Indian Hotels Company Ltd. v. Union of India and Ors[2]
In case of “The Indian Hotels Company Ltd. v. Union of India and Ors”, the Delhi high court repeated the settled law that “section 74” of the Indian contract act which provides for liquidated damages cannot be invoked at stage of pre-formation of contract.
3. The Chairman, Coal India Limited & ors vs Star Cement Limited[3]
The Meghalaya High Court, in “The Chairman, Coal India Limited & ors vs Star Cement Limited” held that in event of breach of contract, the party claiming compensation from the party in breach is only entitled to the amount to the extent of loss suffered by it, unless there is genuine pre-estimate decided by the parties.
4.Emerge Tech Global Services P Ltd. v. Mr M.R. Vindhyasagar & Anr
In case of “Emerge Tech Global Services P Ltd. v. Mr M.R. Vindhyasagar & Anr” the madras high court had made a distinction between the restitutionary damages and the compensatory damages. It further said that the purpose of compensatory damages is to made the good the loss caused to the aggrieved party and are provided in cases where the damages are identifiable. However, restitutionary damages are awarded to disgorge the benefit received by the breaching party at the expense of non- breaching party.
CONCLUSION
The idea behind the contract act is to prevent the parties of the contract from injustice and exploitation. In a contemporary scenario, contracts are made on days-to-days basis at different levels such as the contract between big corporate firms which involves a large amount of money. In such cases, breach of conditions of contract by any party puts the other party into great loss, which is unjust for that party. The Indian contract act by following the principle of natural justice provided appropriate remedy to the parties. The section 74 of the act creatively protects the interest of both the sides.
REFERENCES
Online Articles / Sources Referred
Adjudication of claim for damages under Sections 73, 74 and 75 of Indian Contract Act, 1872 B. V. R. Sarma
Cases Referred
Devchand Construction v. Union of India
The Indian Hotels Company Ltd. v. Union of India and Ors
The Chairman, Coal India Limited & ors vs Star Cement Limited
Emerge Tech Global Services P Ltd. v. Mr M.R. Vindhyasagar & Anr
Statutes Referred
Indian Contract Act, 1872
[1] Devchand Construction v. Union of India, (2022) SCC OnLine Ker 826
[2]The Indian Hotels Company Ltd. v. Union of India And Ors. 2022 LiveLaw (Del) 287
[3] Coal India Ltd. v. Star Cement Ltd., (2023) SCC OnLine Megh 323
