Professional Documents
Culture Documents
Law of Damages in India: January 2017
Law of Damages in India: January 2017
Law of Damages
in India
January 2017
January 2017
MUMBAI SILICON VALLEY BANGALORE SINGAPORE MUMBAI BKC NEW DELHI MUNICH NEW YORK
Contents
1. INTRODUCTION 01
2. TYPES OF DAMAGES 02
I. Breach of contract 05
II. Proof of damage for a claim of liquidated damages 05
III. Causation 07
IV. Remoteness of Damages 08
V. Mitigation 10
VI. Measure and calculation of damages 11
VII. Interests on damages 13
6. CONCLUSION 25
7. TABLE OF CASES 27
1. Introduction
Damages, in simple terms, refer to a form of compen- in practical terms, there isn’t much difference and
sation due to a breach, loss or injury. As explained by compensation is often used to refer to damages as
Fuller and Perdue,1 damages may seek protection of well. Moreover, the Contact Act 1872, uses the term
“expectation interest”, “reliance interest” or “restitu- “compensation” in the sections referring to liquidated
tion interest”. Expectation interest (otherwise known and unliquidated damages, which shall be discussed
as performance interest) refers to placing the plaintiff subsequently.
in a position that he would have occupied, had the
Damages have gained much significance especially
defendant performed his promise by compensating
among commercial transactions, and as punitive
for the injury, thus, aiming at fulfilling the expec-
measures for violation of rights of concerned
tation of the promisee; reliance interest (otherwise
persons. The nature of damages granted across
known as status quo interest) refers to a restoring the
various areas varies significantly.
plaintiff to a position which he was in before the
promise was made in the course of which the promise
For example, with respect to damages granted under
altered his position by placing reliance on the prom-
indemnity contracts, it is pertinent to understand the
isor; and restitution interest refers to prevention of
significant differences between the two.4 Indemnity
gain by the defaulting promisor at the expense of the
is a kind of protection from third party losses, which
promisee or to compel the defendant to pay for the
is ensured by an indemnity agreement between the
values received from the plaintiff thereby preventing
claimant (indemnified) and the indemnifier.5
unjust enrichment.2
A claim for indemnity arises from the original
contract of indemnity while a claim for damages
“Damages” are often confused with “damage”.
arises on breach of a contract. Unlike damages under
However, it should be known that these two terms
ordinary contracts where the defendant has the
are significantly distinct, and different from each
primary liability to pay the damages, under indemnity
other. While “damages” refer to the compensation
contracts, the risk of future losses and liability to pay
awarded or sought for, “damage” refers to the injury
damages shifts to the indemnifier.
or loss which such compensation is claimed for or
being awarded. ‘Damage’ could be monetary or non-
Damages are popularly granted in cases of tort or
monetary (which could in cases where there is loss
on breach of contract. This paper broadly covers
of reputation, physical or mental pain or suffering)
damages in cases of contractual breaches in India,
while ‘damages’ refer to pecuniary compensation.
with a brief overview of claim and grant of damages
in cases of torts, indemnity contracts, arbitral
At this juncture, it is noteworthy that damages can be
proceedings, sale of goods, consumer law and
distinguished from compensation, in general. Com-
intellectual property rights (copyrights, trademarks
pensation is a broader concept which encompasses
and patents).
payments made to a person in respect of some kind
of loss or damage suffered due to reasons like acqui-
sition of property by another party, or statutory vio-
lations, termination of employments, requiring the
aggrieved party to be compensated; however, dam-
ages emanate from actionable wrongs.3 However,
1. L.L. Fuller and Willian R. Perdue Jr., ‘The Reliance Interest in 4. Refer to our article titled “Revisiting the Indemnity v/s Damages
Contract Damages’ (1936) 46 Yale Law Journal 52 Debate” available
2. ibid <http://www.nishithdesai.com/information/research-and-arti-
3. Halsbury’s Laws of England, Damages, vol 12 (4th edn) para cles/nda-hotline/nda-hotline-single-view/article/revisiting-the-in-
815 as cited in R.G Padia (ed.), Pollock and Mulla Indian Contract demnity-vs-damages-debate.html?no_cache=1&cHash=7a971fee-
and Specific Relief Acts, vol 2 (13th edn, LexisNexis Butterworths a52445663d1b3b87e707a6f5>
Wadhwa 2006) 1498 5. See, Indian Contract Act 1872, s 124
1
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2. Types of Damages
The nature of damages used or sought for depends on
the objective for which damages are being claimed for. III. Substantial damages
Thus, damages can be categorized into one or more of
the following kinds: Contrary to nominal damages, substantial damages
are awarded when the extent of breach of contract
is proved but there are uncertainties regarding
I. General and special calculation.
damages
IV. Aggravated and
Damages which arise in the normal course of events
are known as general damages while special dam- exemplary damages
ages refer to those that arise under circumstances
which were reasonably anticipated by the parties These damages are of such nature that they exceed
when they entered into the contract. Once a damage the damages ascertained, mostly resulting from
is proven, general damages are presumed to follow the mala fide conduct of the defendant. Aggra-
such damage, while specific proof of such damage is vated damages gain significance where the damage
necessary for which special damages are claimed.6 caused to the plaintiff are aggravated due to the
motives, conduct or manner of inflicting injury,
whereby the plaintiff’s feelings and dignity are
II. Nominal damages adversely affected resulting in mental distress.
Aggravated damages are mostly compensatory in
When a party approaches the court for claiming
nature since they aim at compensating the plain-
damages, the court has the discretion to award
tiff for the aggravated loss suffered. On the other
nominal damages. This may be awarded even when
hand, exemplary damages are punitive in nature
there is no actual loss or injury caused to a party
since they intend to punish the defendant and not
against whom a breach has been caused, or in cases
merely compensating or depriving the defend-
where there has been a violation of a legal right,
ants of the profits made.8 Since damages under
without any actual damage being proved. Thus, in
contractual breaches do not consider the motive
cases where a party fails to prove actual loss resulting
and conduct of defendants, it is to be understood
from a breach of contract, nominal damages may
that aggravated and exemplary damages are more
be granted. Additionally, nominal damages may be
prominent in torts and not under contractual
awarded where a technical breach of contract has
breaches.9 This is primarily because of the fact
been committed or when the breach has taken place
that the objective behind contractual remedies is
due to an external reason which is not attributable to
to compensate the promisee for the breach rather
the defendant.7
than compelling performance on the promisor.10
8. Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act
and Specific Relief Acts, vol 2 (updated 14th edn, LexisNexis Butter-
worths Wadhwa) 1173
9. The Common law approach has been that aggravated damages
6. Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act cannot be awarded in an action for breach of contract (Addis v.
and Specific Relief Acts, vol 2 (updated 14th edn, LexisNexis Butter- Gramaphone Co. Ltd. (1909) AC 488; Bliss v. SE Thames Regional
worths Wadhwa) 1171 Health Authority (1987) ICR 700); however, where fraud, oppres-
7. Weld & Co. v. Har Charn Das AIR 1921 Lah 316; Grant Smith and sion, malice etc. are established, exemplary damages may be
Co. and McDonnel Ltd v. Settle Construction and Dry Dock Co. AIR granted (Sheikh Jaru Bepari v. AG Peters AIR 1942 Cal 493; Alexan-
1919 PC 85 as cited in R.G Padia (ed.), Pollock and Mulla Indian der Brault v. Indrakrishna Kaul AIR 1933 Cal 706)
Contract and Specific Relief Acts, vol 2 (13th edn, LexisNexis Butter- 10. William S. Dodge, ‘The Case for Punitive Damages in Contracts’
worths Wadhwa 2006) 1519 (1999) 48(4) Duke Law Journal 629, 630
However, punitive damages may be granted in “i) The first is that exemplary damages, otherwise known
certain exceptional cases. The Canadian Supreme as punitive damages, are awarded against a defendant
Court’s finding in this respect is of utmost relevance, as a punishment, so that the assessment goes beyond
wherein it was observed that: mere compensation of the claimant. Whilst such dam-
ages are capable of being awarded in tort (albeit only in
“Punitive damages are very much the exception than the
very limited circumstances), there is no right to recover
rule, imposed only if there has been high-handed, mali-
exemplary damages for breach of contract. If any right to
cious, arbitrary or highly reprehensible misconduct that
damages arises in the present case, it would be founded
departs to a marked degree from ordinary standards of
upon (or by analogy with) a cause of action in contract.
decent behaviour. Where they are awarded, punitive
Therefore, as a matter of principle, exemplary damages
damages should be assessed in an amount reasonably
would not be recoverable in the present case. ii) The sec-
proportionate to such factors as the harm caused, the
ond answer is that, even if such an award is available
degree of the misconduct, the relative vulnerability of
in principle, it should be by reference to the principles
the plaintiff and any advantage or profit gained by the
developed in tort and subject to the restrictions laid down
defendant, having regard to any other fines or penalties
in Rookes v. Barnard [1964] AC 1129. The facts of the
suffered by the defendant for the misconduct in question.
present case do not fall within those principles.”12
Punitive damages are generally given only where the
misconduct would otherwise be unpunished or where Similarly, in India, courts have held that the nature
other penalties are or are likely to be inadequate to of compensation should be such that the award of
achieve the objectives of retribution, deterrence and compensation for damages cannot be considered
denunciation. Their purpose is not to compensate the either punitive or in the nature of a reward.13
plaintiff, but to give a defendant his or her just desert
(retribution), to deter the defendant and others from
similar misconduct in the future (deterrence), and to
V. Liquidated and unliqui-
mark the community collective condemnation (denun- dated damages
ciation) of what has happened. Punitive damages are
awarded only where compensatory damages, which to
In case of contracts, parties may agree to payment
some extent are punitive, are insufficient to accomplish
of a certain sum on breach of the contract. When
these objectives, and they are given in an amount that is
such stipulations are made in the contract, they are
no greater than necessary to rationally accomplish their
known as liquidated damages. On the other hand,
purpose.” 11
unliquidated damages are awarded by the courts
on an assessment of the loss or injury caused to the
Nevertheless, courts in U.K. and India have been
party suffering such breach of contract.
strict regarding grant of punitive damages in case
of contractual breaches. For example, in a recent
Under the Indian Contract Act 1872, unliquidated
case, the England and Wales High Court (Chancery
and liquidated damages are given under sections 73
Division), in an obiter, agreed with the claimants that:
and 74 respectively, which shall be discussed in the
subsequent chapter of this paper.
12. IBM United Kingdom Holdings Ltd & Another v. Dalgleish & Ors
(Rev 1) [2015]EWHC 389(Ch)
13. Kerala State Road Transport Corporation Rep. by the Managing
Director v. Feethambaran Rep. by his Next Friends Sukhmmari 1994
11. Whiten v. Pilot Insurance Company [2002] 1 RCS 595 (2) KLJ 646 (para 8)
3
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Damages are generally claimed and granted to the other party may acquiesce to the continuation of
enable restoration of the position of the plaintiff in the contract or rescind it.18 In case of an anticipatory
which he would have been, if the breach would not breach of contract, the plaintiff would be entitled to
have taken place. Generally, these damages are to be claim damages on establishing the intention to per-
claimed from the party causing such breach. In case form the contract prior to rescission of the contract.19
of liquidated damages under Section 74, claims can
be made by plaintiff as well as defendant.14
II. Proof of damage for
In case of liquidated damages, there is an assurance
of compensation since a reasonable compensation is
a claim of liquidated
agreed upon. Thus, it would be expected that since damages
the risks of a party causing a breach would be lesser
since damages are already stipulated for.
It is noteworthy that for a claim of liquidated dam-
ages, the clause “whether or not actual damage or loss
I. Breach of contract is proved to have been caused thereby” would not be
dispensing with the establishment of proof in toto.20
This emanates from the understanding that the rea-
“Breach of contract” constitutes the pre-condition for
sonable compensation agreed upon as liquidated
a claim of damages, be it liquidated, unliquidated or
damages in case of breach of contract is in respect of
otherwise. Thus, irrespective of the extent to which
some loss or injury; thus, existence of loss or injury
the defendant profits from the contractual arrange-
is indispensable for such claim of liquidated dam-
ment, there can be no claim for damages unless
ages.21 In such cases, the requirement to prove loss
there is a breach of the contract. Further, the party
or injury or damage may be dispensed with, if it is
committing the breach is liable to compensate by
difficult or impossible to prove that the genuinely
way of damages. To establish a breach, it has to be
pre-estimated can be awarded.22 Thus, it is expected
adjudicated upon and be proved, and not merely
that the stipulation for liquidated damages should
decided by the parties.15
be bona fide and a fair estimate of the damages aris-
A contract is said to be breached in case of contraven- ing from the breach, and not done with a sole intent
tion with the terms of the contract or when the prom- to penalize the other party.23 Courts have repeatedly
ise made is broken. It may so happen that the terms required parties to draft clauses within the contracts
are not complied in a manner which had been con- which aren’t ambiguous.
templated in the contract. For example, if a party con-
Irrespective of stipulations in the form of liquidated
tracts with another for repairing the other’s house in
damages, a plaintiff can recover damages to the
a certain manner, and the repair was not done in the
extent of the claim being reasonable compensation
manner which was decided, then the aggrieved party
for the injury sustained by him, and not the entire
in entitled to damages to the extent of costs of making
sum laid down as liquidated damages; thereby,
repairs in conformity with the contract.16
erasing the differences between liquidated damages
Damages may also be claimed in case of anticipatory and unliquidated damages.24 Thus, provisions
breach of contract. An anticipatory breach is said to
have been committed when a party refuses to per- 18. ibid
form, or has disabled himself from the performance 19. Foran v. Wight (1989) 168 CLR 385, 408 (Mason CJ)
20. ONGC v. Saw Pipes (2003) 5 SCC 705
of the promise in its entirety.17 In such a scenario,
21. ibid
22. ibid
14. Kailash Nath v. Delhi Development Authority (2015) 4 SCC 136
23. B.V.R. Sharma, ‘Adjudication of claim for damages under Sections
15. P Radhakrishna Murthy v. NBCC Ltd. (2013) 3 SCC 747; J.G. Engi- 73, 74 and 75 of Indian Contract Act, 1872’ <http://www.manupatra.
neers (P) Ltd., v. Union of India (2011) 5 SCC 758 co.in/newsline/articles/Upload/30C28D5D-262B-4A4A-AE17-C4D-
16. Indian Contract Act 1872, s 73 (illustration (f)) 86F92BCE0.pdf> accessed 10 September 2016
17. ibid s 39 24. Union of India v. Raman Iron Foundry AIR 1974 SC 1265
5
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relating to liquidated damages are required to the nature of a penalty. Where loss in terms of money can be
be drafted with clarity and it has to be proven that determined, the party claiming compensation must prove the
the amount was a genuine pre-estimate of the loss or loss suffered by him.”27
damage likely to be suffered. It is pertinent to note that
In the absence of such a proof or honest estimation by
amount stipulated as liquidated amount or penalty
the claimant, the court shall make an award for damages
is the “upper limit beyond which the court cannot grant
which is below the stipulated liquidated damages, by
reasonable compensation”.25 Meanwhile, other factors
taking into consideration a reasonable assessment of the
like extent of mitigation of losses, along with other facts
consequences of the breach of contract.28
and circumstances cannot be overlooked and warrant
sufficient consideration.
It is also possible for the parties to agree to liquidated
damages with respect to a specific type of breach only,
Based on this reasoning, recently a Division Bench of
and in such a case, if there is some other kind of breach,
the Delhi High Court had upheld the finding of
the damages in respect of such breach (which has not
a Single Judge who had set aside the arbitral award
been stipulated) would be unliquidated damages.29
on the ground that the award for grant of liquidated
damages had been made even though no evidence had
Often, prior to a claim of liquidated damages, courts
been led to prove any loss or damage.26
have required time as the essence of the contract,
or provide the other party with such notice so
Such mandates are required even in the presence of
that reasonable time is given for performing the
a pre-determined sum agreed by both the parties as
contractual obligations. On consideration of the
liquidated damages, so that there is no windfall profit in
facts of the case, in the case of Kailash Nath v. Delhi
case of a breach of a contract without resulting in kind of
Development Authority,30 it was observed that,
loss or damage.
25. ONGC v. Saw Pipes (2003) 5 SCC 705 29. Aktieselskabet Reider v. Arcos [1927] 1 KB 352
26. Raheja Universal Pvt. Ltd. v. B.E. Bilimoria & Co. Ltd (2016) 3 AIR Bom 30. (2015) 4 SCC 136, para 21
R 637 31. Iron & Hardware (India) Co. v. Firm Shamlal & Bros. AIR 1954 Bom 423
7
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door as per the terms of the contract which required a plaintiff himself or otherwise. In cases where there is
security door and locking system. When the plaintiff’s contributory default or negligence of the plaintiff, he
property was subsequently burgled and a suit was filed would be disentitled from claiming damages. This
for claiming damages, the Court came to a conclusion would depend on the consideration of the facts and
that the burglary would not have taken place had the circumstances. This can be related with the principles
defendant installed the door and locking system ; thus of equity that “He who comes into equity must come with
‘but for’ the defendants breach, the loss would not have clean hands.”
been suffered.41 Acknowledging the “but for” test, in
Alexander v. Cambridge Credit Corp Ltd.,42 McHugh JA
stated that the applicable tests ought to be decided on
IV. Remoteness of
the basis of the facts and circumstances and not limited Damages
to the “but for” test, rather, a commonsensical approach
is to be adopted to establish a causal connection
between the breach of the contract and the loss or As stated in the provisions relating to damages under the
injury. This was pointed out, on consideration of the Indian Contract Act 1872, one of the vital requirements
fact that there may be numerous factors causing the for an award of damages is that the loss or damage “arose
loss or injury and in such cases, the “but for” test may in the usual course of things from such breach; or parties
not helpful. knew that such a loss or damage could subsequently
arise at the end of the time of entering into the
In the Indian context, in one of the landmark cases
contract.”45 Thus, the defendant would not be liable for
relating to the application of the “but for” test, the
damages that are remote to the breach of contract.
Hon’ble Supreme Court had stated that neglect of duty
of the defendant to keep the goods insured resulted in In the landmark case of Hadley v. Baxendale (“Hadley v.
a direct loss of claim from the government (there was Baxendale”),46 the principle governing remoteness of
an ordinance that the government would compensate damages was elaborated. The rules enunciated in this
for damage to property insured wholly or partially at case were that a party injured by a breach of contract can
the time of the explosion against fire under a policy recover only those damages that either should “reason-
covering fire risk).43 The Supreme Court concluded ably be considered...as arising naturally, i.e., according to the
that, “But for the appellants’ neglect of duty to kept the goods usual course of things” from the breach, or might “reasonably
insured according to the agreement, they (the respondents) be supposed to have been in the contemplation of both parties,
could have recovered the full value of the goods from govt. at the time they made the contract, as the probable result of the
So there was a direct causal connection between the breach of it.”47 This forms the basis of the understanding
appellants’ default and the respondents’ loss.” 44 of special damages. In this case, the Court recognized
that the failure of the defendant to send the crankshaft
However, establishment of causation would not
for repairs was the only cause for the stoppage of the
conclusively, make the defendant liable where
mill of the plaintiffs, which resulted in loss of profits.
the injury caused is too “remote” to the breach of
However, it added that,
contract or not foreseeable or where the contractual
terms provide for exclusion of the liability of the “…in the great multitude of cases of millers sending
defendant under the given circumstances. off broken shafts to third persons by a carrier under
ordinary circumstances, such consequences would not,
Additionally there may be cases, where the flow of
in all probability, have occurred; and these special
causation is broken by external causes like those
circumstances were here never communicated by
by third parties or acts of nature or by acts of the
the plaintiffs to the defendants.” 48
41. Reg Glass Pty Ltd v. Rivers Locking Systems Ltd (1968) 120 CLR 516 45. Indian Contract Act 1872, s 73
42. (1987) 9 NSWLR 310 46. (1854) 9 EX 341
43. Pannalal Jankidas v. Mohanlal and Another AIR 1951 SC 144 47. Hadley v. Baxendale (1854) 9 EX 341
44. ibid 48. ibid
If the plaintiffs can establish that the defendants This can be summed by referring to the observation
were aware of the particular losses suffered by the made by the Kerala High Court that:
plaintiffs due to the actions or inactions of the
“The defendant is liable only for natural and proximate
defendants, the latter shall be liable for such losses,
consequences of a breach or those consequences which were
if such losses do not occur in the normal course
in the parties’ contemplation at the time of contract… the
of events. In circumstances where it is evident
party guilty of breach of contract is liable only for reasonably
that the defendant has not assumed such risk as
foreseeable losses - those that a normally prudent person,
contemplated under the special circumstances
standing in his place possessing his information when
under the terms of the contract or that any
contracting, would have had reason to foresee as probable
reasonable man would not have assumed such risk,
consequences of future breach.” 51
then mere knowledge of the special circumstances
would not make the defendant liable for the
Thus, a matter before the arbitrator, it was stated
corresponding loss or injury.49
that in case of floods not due to the unprecedented
rain, causing loss to the respondent, will not be
Reiterating the finding in Hadley v. Baxendale, the
attracted under force majeure clause which prevents
following principles of remoteness and foreseeability
performance of the contract and which could not
were enunciated in Victoria Laundry (Windsor) Ltd v.
have been foreseen or avoided by a prudent person.52
Newman Industries Ltd:
Thereby, rendering such an incident as foreseeable.
“In cases of breach of contract, the aggrieved party is
only entitled to recover such part of the loss actually
A. Damages for direct,
resulting as was at the time of the contract reasonably
foreseeable as liable to result from the breach. What
consequential and incidental
was at that time reasonably so foreseeable, depends on losses and damage
the knowledge then possessed by the parties or, at all
On breach of a contract, apart from the compensa-
events, by the party who later commits the breach.
tion payable “due to the loss or damage caused”, the
For this purpose, knowledge ‘possessed’ is of two defendant is liable to compensate for the losses and
kinds: one imputed, the other actual. Everyone, as a damage “consequent on such loss or damage”. For
reasonable person, is taken to know the ‘ordinary example, in a contract for construction of a build-
course of things’ and consequently, what loss is liable ing, where the builder has assured the building and
to result from a breach of contract in that ordinary erection to be complete on time so that it can be let
course. This is the subject matter of the ‘first rule’ in out on rent, if the construction is so bad that it falls
Hadley v. Baxendale. But to this knowledge, which down and is immediately rebuilt, subsequent to
a contract-breaker is assumed to possess whether which, it could not be let out for earning house rent,
he actually possesses it or not, there may have to the defendant builder is liable to compensate for the
be added in a particular case knowledge which he expenses incurred in rebuilding the house, for rent
actually possesses, of special circumstances outside lost, and for the compensation paid to the potential
the ‘ordinary course of things,’ of such a kind that a lessee to whom the house would have been rented
breach in those special circumstances would be liable out.53 Consequential losses include those that cov-
to cause more loss. Such a case attracts the operation ered under special damages, that is, such losses are
of the ‘second rule’ so as to make additional loss also reasonably be supposed to have been in the contem-
recoverable.” 50 plation of both parties, at the time they made the con-
tract, as the probable result of the breach of it.54
50. Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd. [1949] 2 53. Indian Contract Act 1872, s 73 (illustration l)
KB 528 54. Hadley v. Baxendale (1854) 9 EX 341
9
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Overhead costs, decreased profits come within the C. Damages for non-pecuniary
ambit of direct losses;55 while incidental losses refer losses
to the costs incurred after gaining knowledge of the
breach of the contract which could be in the form of the
Damages are generally awarded to compensate for
transportation costs involved in shifting the goods on
pecuniary losses. However, there may be instances
default of the purchaser to purchase the goods or costs
where a party claims for damages for the non-pecuniary
incurred in looking for an alternative buyer.
losses suffered. In this context, the observation made by
Damages may also be claimed for future losses which
Lahoti J. on the basis of a reference made to Chitty on
are not in existence at the time of the trial; and such
Contracts59 is noteworthy, wherein it was stated that,
damages shall be quantified separately wherever
possible.56 Similarly, expenses incurred prior to the
“Normally, no damages in contract will be awarded for injury
contract may also be recovered as damages if they can
to the plaintiffs feelings, or for his mental distress, anguish,
be proved to reasonable foreseeable.57
annoyance, loss of reputation or social discredit caused by the
breach of contract. The exception is limited to contract whose
B. Damages for loss of profit performance is to provide peace of mind or freedom from
distress. Damages may also be awarded for nervous shock
or an anxiety state (an actual breakdown in health) suffered
Generally, the defendant would be accountable for the
by the plaintiff, if that was, at the time the contract was made,
loss of profits directly emerging from the contractual
within the contemplation of the parties as a not unlikely
breach, for example, loss of normal profits due to delay
consequence of the breach of contract. …however… refused to
in delivery of a relevant material by the defendant. How-
award damages for injured feelings to a wrongfully dismissed
ever, loss of profits, which are not direct consequences
employee, and confirmed that damages for anguish and
of the breach of the contract would not attract damages
vexation caused by breach of contract cannot be awarded in
except where the injured party has intimated the defend-
an ordinary commercial contract.” 60
ant of the same or if such loss of profits are contemplated
by the parties.
Thus, damages for mental anguish, and suffering may
be awarded in cases where the contract itself is for
For example, in cases where unreasonable delays in
providing enjoyment, pleasure e.g. breach of contract of
delivery of machinery lead to loss of profitable con-
services to click photos during a wedding.61 Damages
tracts which were dependent on such machinery,
of such nature shall not be awarded where “the normal
and was known to the party expected to supply the
nature of damages is the value of the use of the land for
machinery, damages can be claimed for such loss of
the period of delay” and the contract was not entered
profits that could have been made but not for the loss
into for attaining pleasure or peace of mind.62
of the contract that could have been procured.58
55. Mcdermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 59. A. G. Guest (ed.), Chitty on Contracts (27th edn, Sweet & Maxwell Ltd
181 1994) vol 1, para 26.041
56. Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act and 60. Ghaziabad Development Authority v. Union of India & Anr AIR 2000 SC
Specific Relief Acts, vol 2 (updated 14th edn, LexisNexis Butterworths 2003, para 5
Wadhwa) 1169 61. Diesen v. Sampson (1971) SLT (Sh Ct) 49
57. ibid 1196 62. Ghaziabad Development Authority v. Union of India & Anr AIR 2000 SC
58. Indian Contract Act 1872, s 73 (illustration i) 2003
to a claim of damages, the duty to mitigate losses is the defendant, irrespective of whether these steps
indispensable. As noted by Lord Aldine, L.C., are successful or not.66 The purpose of the duty to
mitigate losses is relevant mostly in the context of
“The fundamental basis is thus compensation for
assessment of damages wherein the plaintiff shall
pecuniary loss naturally flowing from the breach;
not be entitled to damages for losses which have
but this first principle is qualified by a second, which
been mitigated. Nevertheless, there may be terms
imposes on a plaintiff the duty of taking all reasonable
imbibed within the contract to exempt the plaintiff
steps to mitigate the loss consequent on the breach and
from such a duty to mitigate losses.67
debars him from claiming any part of the daage which
is due to his neglect to take such steps.” 63
VI. Measure and
For example, if a seller defaults in delivering goods
and, the purchaser purchases goods from another calculation of
buyer at an exorbitant price, without trying to look
for substitutes at a reasonably close price, such
damages
a purchaser would be entitled to damages that are
calculated by considering the difference between the
Following the “expectation interest”68 approach
agreed price in the original contract and the normal
for granting damages, it is ensured that the value
market price.
expected by the plaintiff from the contract, is made
good to him. Thus, ascertainment of the damages is
The extent to which reasonable steps shall be taken
of utmost importance.
by the plaintiff shall be judged based on the facts
and circumstances of the given case. Nevertheless,
The quantum of damages to be awarded is be
it must be ensured that the plaintiff acts reasonably
distinguished from the measure of damages.
not only in his own interest but also in the interest
The former deals with the amount of damages while
of the defendant and lower the damages by acting
the later involves considerations of law as well.69
reasonably in the matter, failing which he shall not
With respect to assessment and calculation of dam-
be entitled to damages for losses which could have
ages, the determination of loss or damage result-
been reasonably avoided.64
ing from such damage, especially in the context of
unliquidated damages, gains immense significance.
This duty to take reasonable steps to mitigate
The damages awarded in case of breach of contract
the loss is accompanied by the duty to refrain
aim at restoration of the party against whom a breach
from resorting to unnecessary means that would
has been committed to the position which would
aggravate the loss. Courts have often stated that
have existed if the breach would not have taken place.
such duties to mitigation would arise on breach of
Thus, the damages awarded should not exceed the
a contract.65 Additionally, parties should ensure
loss suffered or likely to be suffered.70 For understand-
that they perform their obligations in a bona fide
ing the relation between “damages” and “loss”, the
manner to avoid any breach or subsequent losses,
Supreme Court has observed that:
since the day contract is entered into.
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“In the absence of any special circumstances the With respect to calculation of damages subsequent to
measure of damages cannot be the amount of the breach of contract, there are two important principles
loss ultimately sustained by the injured party. It can laid down by the Supreme Court, which are:
only be the difference between the price which he
paid and the price which he would have received if §§After proving the breach of contract, the party
claiming for damages is to be placed so far as
he had resold them in the market forthwith after the
money can do it in as good a situation as if the
purchase provided of course that there was a fair
contract had been performed, and
market then.… In other words, the mode of dealing
with damages in such a case is to see what it would
§§The plaintiff is duty-bound to take all reasonable
have cost him to get out of the situation, i.e., how
steps to mitigate the loss resulting from the
much worse off was his estate owing to the bargain
breach, and he would be prevented from claiming
in which he entered into.” 71
any part of the damage which is a consequence of
his failure to mitigate such damage or loss.74
This follows illustration (a) to Section 73 of the
Contract Act, which lays down says that the measure
Thus, the explanation to Section 73 of the Indian
of damages in this case is the sum by which the
Contract Act 1872 provides that “the means which
contract price falls short of the price for which the
existed of remedying the inconvenience caused
purchaser (promise) might have obtained goods of like
by non-performance of the contract must be
quality at the time when they ought to be delivered.
taken into account.” The parties can also provide
in a contract that in the event of breach, no
Thus, in a case where a party contracts with another
compensation will be payable except for refund of
for supplying certain goods at price higher than the
amounts paid and such a term is enforceable.75
cost of procurement, and later the receiver refrains
from accepting such goods, the supplier is entitled to
With respect to measure of damages, there may
damages to the extent of the difference between the
be corresponding stipulations made within the
supply price and the cost of procurement.72 Similarly,
contractual terms, wherein parties agree to
if a contractor abandons the ongoing construction
a specific measure of damages for breach.76
work, the measure of damages is the cost incurred in
completing the work.73 The “net loss” approach takes into account the gains
accrued by the plaintiff seeking damages from the
On a similar note, in case of a failure to deliver
defendant; thus, the gains made by the plaintiff are set
goods, the receiver/buyer may procure substitutes if
off against the losses suffered as a result of the breach
considered reasonable to do so, and can later recover
of the contract, apart from consideration of the aspects
from the seller, any difference in the price at which
of mitigation by the plaintiff.77 Such gains could be
the buyer has subsequently procured and the original
savings made by the plaintiff on being discharged
contract price. The attempts made by the buyer to
from subsequent performance of the contract.
diminish losses shall also be taken into consideration.
With respect to the formulae to be used to ascertain
In case of delayed delivery, damages can be calculated,
the quantum of damages, there is nothing specifically
proportionately, by considering the losses suffered
mentioned in the Contact Act. Neither Sections 55 and
and the attempts of mitigation by the plaintiff.
78. Mcdermott International Inc v Burn Standard Co. Ltd. & Ors (2006) 11
SCC 181
79. ibid
80. Hajee Ismail Sait and Sons v. Wilson And Co. AIR 1919 Mad 1053 85. Dr. Shamlal Narula v. Commissioner Of Income-Tax AIR 1964 SC
(DB) 1878
81. ibid 86. Kishan Lal Kalra v. NDMC AIR 2001 Del 402
82. Saraya Distellery v. Union of India AIR 1984 Del 360; Buago Steel 87. Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act
Furniture Pvt. Ltd. v. Union of India AIR 1967 SC 378 and Specific Relief Acts, vol 2 (updated 14th edn, LexisNexis Butter-
83. ibid worths Wadhwa) 1251
84. Trojan & Co. v. RMNN Nagappa Chettiar [1953] SCR 789 88. Bhagwant Genuji Girme v. Gangabisan Ramgopal AIR 1940 Bom 369
13
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Interests that are granted as damages would be liability has arisen out of a commercial transaction, the
calculated at the rate of interest that the person to whom rate of such interest may exceed 6% per annum, but
it ought to have been paid would have got on it, if it had shall not exceed the contractual rate of interest or where
been paid per the terms of the contract. Section 34 of there is no contractual rate, the rate at which moneys
the Civil Procedure Code provides that rates for such are lent or advanced by nationalized banks in relation to
interests shall not exceed 6%; however, where the commercial transactions.
15
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acceptance as per the contractual terms, or at the time These are some of the reasons why such provisions
of refusal to perform such a contract, would be the are heavily negotiated to limit the scope of claims
relevant date.97 in indemnity contracts. As is understandable, the
indemnifier tries to limit the scope to the maximum
extent possible whereas the indemnified would try to
II. Grant of damages under keep the scope as broad as possible. Some of the drafting
indemnity contracts techniques used to limit the scope are:-
III. Damages under tort and more responsible towards compliance with contractual
terms, with minimization of breach of the contract.
contract law
IV. Grant of liquidated
Generally speaking, damages are compensatory in
nature, under law of contracts as well as tort. However,
damages in arbitral
under law of contracts, damages seek to compensate for proceedings
the loss (resulting from being deprived of the expected
profits from the contractual arrangement) suffered by
a party due to breach of contract, while in case of a tort, Damages constitute a significant remedy even in
damages provide for remedies to restore the original arbitral awards. In this context, it is noteworthy that
position of the party against whom tort was committed the principles governing award of damages in case of
to what it was prior to the occurrence of such tort. Thus, civil suits shall extent to arbitral proceedings as well. To
unlike in case of contractual breaches, damages are claim damages, the party making such claim has to lead
mostly punitive in case of torts. Under contract law, the evidence and establish loss as per the principles governing
damages are compensatory in nature and not punitive. damages. Even in case of the liquidated damages, the
As observed by the Canadian Supreme Court, under arbitrator has to be convinced that the claimant has
contract law, punitive damages are “very much the proven the losses or injury against which it is claiming the
exception that the rule.”105 liquidated damages and such damages shall be awarded
only to the extent of “reasonable compensation” which
This is in furtherance of the discussion of exemplary
cannot exceed that the amount so stated. The onus to
and aggravated damages, wherein it can be concluded
prove such loss or damage shall not cease except where
that in case of a tort, there may be damages for distress,
actual damage from the breach of contract cannot be
mental agony and such other abstract losses; however,
proved or calculated. Based on this reasoning, recently
damages are rarely awarded for such losses in case of
a Division Bench of the Delhi High Court had upheld
breach of contract.
the finding of a Single Judge who had set aside the
arbitral award on the ground that the award for grant
With respect to the remoteness of damages, it can be
of liquidated damages had been made even though no
inferred that the interpretation of remoteness is broader
evidence had been led to prove any loss or damage.108
under liabilities arising from contractual breaches as
Thus, mere breach of contract does not warrant an
compared with tortious liability. This results in limiting
automatic grant of liquidated damages unless actual loss
the scope of damages under contracts than under tort.
or injury is proven.
As a result of this understanding, under contract law,
the plaintiff would have to show that the loss flowed
naturally and in the usual course of things from the
breach, or was within the reasonable contemplation V. Damages under con-
of the parties at the time of making of the contract;106
whereas the plaintiff in tort must show only that the loss
sumer laws
was reasonably foreseeable by the party in breach.107
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114. Copyright Act, section 55: “(1) Where copyright in any work has been
infringed, the owner of the copyright shall, except as otherwise provided
by this Act, be entitled to all such remedies by way of injunction, damages,
accounts and otherwise as are or may be conferred by law for the infringe-
ment of a right:
Provided that if the defendant proves that at the date of the infringement he
109. Consumer Protection Act 1986, s 14(1)(d) was not aware and had no reasonable ground for believing that copyright
subsisted in the work, the plaintiff shall not be entitled to any remedy other
110. See Air India v. Suganda Ravi Mashelkar, I (1993) CPJ 63 (64) (NC); Dr. than an injunction in respect of the infringement and a decree for the whole
J.N. Barowalia, Commentary on the Consumer Protection Act (5th edn, or part of the profits made by the defendant by the sale of the infringing
Universal Publishing Co. 2012)673 copies as the court may in the circumstances deem reasonable.”
111. Jaidev Prasad Singh v. Auto Tractor Ltd. I (1991) CPJ 34 (36) NC 115. Section 58 (proviso)
112. Malik v. Bank of Credit and Commerce Intl SA [1997] 3 All ER 1 (HL) 116. Caxton Publishing Co. v. Sutherland Publishing Co., (1938) 4 All ER 389
113. Mahommad v. Official Receiver AIR 1931 Lah 133 (HL)
the plaintiff would be entitled to damages under both to establish substantial damage, courts tend to grant
these heads.117 The plaintiff is entitled to all the profits damages only to the extent of nominal damages.125
made by the defendant, even though the plaintiff would The principles governing grant of damages or accounts
not have made that much himself from exploiting the of profits is the same for cases of infringement of
copyright.118 Ideally, the damage, to be recoverable at law, trademark as well as passing off. For measurement of
must be one which can be measured in terms of money. damages, some of the factors to be considered are:
Measurement of damages in case of copyright is primar- §§loss sustained by the plaintiff, resulting from
ily based on the facts and circumstances, e.g. grant of the natural and direct consequences of the
damages would vary for unpublished copies as com- infringement,
pared with published ones. Similarly, in cases of conver- §§ drop in trade of the plaintiff pursuant to the
sion, the point of conversion would be relevant for cal- infringing activities of the defendant (and not
culation of damages, for example, mere printing of some market forces),
pages of a book would not amount to conversion of the
book till the binding was complete and ready for sale.119 §§ impact on the goodwill, reputation resulting from
the infringing activities.
In case of a claim for accounts for profits made by the
Alternatively, the plaintiff may also seek for account
defendant, the basic question relates to the quantum
of profits made by the infringer irrespective of the loss
copied. However, the plaintiff is not entitled to calculate
suffered by him.126
damages to include his loss as well as profits of the
defendant, he can use only one of these for the purpose
Under the Patents Act 1970, in a case of infringement,
of calculation of damages.120 Since account of profits
damages or account of profits may be granted except
involves a lengthy process of verification of records and
where it is proven that on the date of the infringement,
books of accounts of the defendant, it is often advised
the defendant was unaware and had no reasonable
that the plaintiff may choose damages for loss suffered;121
grounds for believing that the patent existed or
in any event, if the plaintiff opts for an account for profits,
the infringement occurs after a failure to pay any
he is entitled to an inspection of the books of accounts of
renewal fee with the prescribed period and before any
the infringer.122 It is pertinent to note that difficulty in
extension of that period or there has been a usage of
assessment or measure of damages is not considered as a
the invention before the date of the decision allowing
ground sufficient for denying grant of damages.123
an amendment of a specification.127
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On infringement of a patent, generally, damages are Assuramji Scooters.135 In a recent ruling of 2016, the
calculated on the basis of the pecuniary equivalent of Delhi High Court, on following Time Incorporated,
the injury resultant as natural or direct consequences awarded punitive damages as high as one crore
of the infringement.128 In a certain case where the rupees.136 In Microsoft Corporation v. Deepak Raval,137
patentee manufactured and sold a patented article, which involved a copyright infringement action,
the court ascertained the number of articles sold less the court awarded similar damages by referring to
by the patentee and the profit that he would have decisions on punitive damages by courts in other
made on each article, and determined the product of countries, and holding that Indian courts have
the two as the damages.129 And, where the patentee recognized that both compensatory and punitive
tends to license out the products, the loss of royalties damages are to be awarded. The court observed that,
is considered for assessment of damages.130
“…while awarding punitive damages Courts have taken
into consideration the conduct of the defendants which
A. Judicial approach in granting has “willfully calculated to exploit the advantage of
damages in IP cases an established mark” (expression used by US Courts),
which may also be termed as “flagrancy of the defend-
Indian courts have started to display a more
ant’s conduct” (test adopted by Australian Courts). The
liberal approach towards grant of damages in case
English Courts have, adopting the same nature of test,
of infringement of rights relating to intellectual
have used the test of “dishonest trader”, who deals in
property by allowing grant of punitive damages
products knowing that they are counterfeit or “recklessly
along with compensatory damages. This was
indifferent” as to whether or not they are. … Damages
identified in the case of Time Incorporated v. Lokesh
are quantified in three categories viz., actual damages138,
Srivastava (“Time Incorporated”),131 where the
damages to goodwill and reputation139 and exemplary
Delhi High Court observed that:
damages140…. [O]n this basis total damages are worked
out to be Rs. 12,823,200. However, in the suit damages
“…the time has come when the Courts dealing actions
claimed are Rs. 500,000. Therefore, I have no option but
for infringement of trademarks, copy rights, patents
to limit the claim of the plaintiff to Rs 500,000.” 141
etc. should not only grant compensatory damages
but award punitive damages also with a view to
This judgment includes a detailed comparative study
discourage and dishearten law breakers who indulge
on the position relating to damages in IP cases, across
in violations with impunity out of lust for money so
jurisdictions, which is as follows:142
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.”
128. P. Narayanan, Patent Law (4th edn (rep), Eastern Law House 138. Actual damages aim to place the plaintiff in the same position as
2010) 624 if the defendants caused no loss to the plaintiff.
129. Meters v. Matropolitan Gas Meters (1911) 28 RPC 157, 165 (CA) 139. These damages are in respect of the injury caused to the
goodwill and reputation of the plaintiff due to the infringing
130. P. Narayanan, Patent Law (4th edn (rep), Eastern Law House activities of the defendant.
2010) 625
140. These damages are awarded if there is a flagrant violation by the
131. (2005) 30 PTC 3 (Del) defendants of the plaintiff’s rights, to set a deterrent example for
132. (2009) 39 PTC 658 (Del) others.
133. MIPR 2007 (1) 72 141. Microsoft Corporation v. Deepak Raval MIPR 2007 (1) 72
134. (2008) 36 PTC 697 (Del) 142. ibid
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Subsequently in another case of Microsoft Corporation v. However, when it comes to calculating quantum of
Rajendra Pawar & Anr., the Delhi High Court came up damages, there are no set parameters or guidelines
with the following observation, on similar lines: and, courts tend to rely on existing broad princi-
ples and precedents. The trend adopted by the Delhi
“Perhaps it has now become a trend of sorts, especially
High Court has been often criticized as lacking any
in matters pertaining to passing off, for the defending
uniformity or continuity.144 Further, if the dis-
party to evade court proceedings in a systematic
tinction in the statutes between U.K. and India are
attempt to jettison the relief sought by the plaintiff.
considered, it is seen that the U.K. Act specifically
Such flagrancy of the Defendant’s conduct is strictly
provides for additional damages, apart from the gen-
deprecatory, and those who recklessly indulge in such
eral damages145 while the Indian statute does not.
shenanigans must do so at their peril, for it is now an
Thus, the award of punitive damages has also been
inherited wisdom that evasion of court proceedings does
criticized. Nevertheless, if a party has specifically
not de facto tantamount to escape from liability. Judicial
pleaded for such additional damages, nothing pre-
process has its own way of bringing to tasks such
vents the courts form granting such damages.
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 of
awarding punitive damages comes into perspective.”143
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On similar lines, the courts in Singapore have However, recently, a Singaporean court confirmed
been consistently faithful towards the Hadley applicability of punitive damages under contract law
v. Baxendale rule.151 In a landmark judgment, by holding that:
the Singapore Court of Appeal reaffirmed the
“…the court has the power in an exceptional case to award
applicability of the test for remoteness as embodied
punitive damages in the context of a breach of contract,
in Hadley v Baxendale by rejecting the assumption of
when the defendant’s conduct in breaching the contract
responsibility test152 to determine whether damages
has been so highly reprehensible, shocking or outrageous
are too remote in a contractual claim.153
that the court finds it necessary to condemn and deter such
conduct by imposing punitive damages.”155
III. Grant of punitive dam-
ages
Distinguishing punitive damages from vindicatory
damages, the English law approach is that since
punishment is not the object of vindicatory
damages, they may be granted for loss of chance,
non-pecuniary losses etc.154 Courts in U.K. and India
have been adverse in granting punitive damages
in case of breach of contract, as compared with
tort claims. This has been already discussed under
section 2(IV) of this paper.
151. Robertson Quay Investment Pte Ltd v. Steen Consultants Pte Ltd
[2008] 2 SLR(R) 623; MFM Restaurants Pte Ltd v. Fish & Co Restau-
rants Pte Ltd [2011] 1 SLR 150
152. In Transfield Shipping Inc v. Mercator Shipping Inc (The Achilleas)
[2009] 1 AC 61, remoteness was regarded as an issue of construc-
tion of contract to determine whether a given type of loss is one
which a party has assumed contractual responsibility for.
153. Out of the Box Pte Ltd v Wanin Industries Pte Ltd [2013] SGCA 15
154. The Attorney General of Trinidad and Tobago v. Ramanoop [2005] 155. 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 have been consid- However, in case of liquidated damages, parties shall
ered to be advantageous than other remedies that not be entitled to damages that exceed the amount
may be available to parties suffering losses from that has been already ascertained and fixed as liqui-
breach of contracts. One of such advantages could be dated damages. Other drawbacks that are associated
that a claim for damages could be made as a matter of with damages include cases where damages do not
right, contrasted with other reliefs like specific perfor- suffice in respect of the losses or damage suffered
mance which are subject to and greatly influenced by by the party. This may lead to a situation which
judicial discretion and findings.156 For example the warrants a specific performance by the other party
Specific Relief Act lays down that the court may exer- instead of damages so as to enable restoration of the
cise its discretion not to grant specific performance position of the party prior to such contractual breach.
“where the performance of the contract would involve Such situations may arise if the subject matter of the
some hardship on the defendant which he did not contract is of rare quality or indispensable for the
foresee, whereas its non-performance would involve aggrieved party. Thus, courts may opt to award dam-
no such hardship on the plaintiff.”157 ages in addition to or in substitution of specific per-
formance, depending on what is warranted by
Liquidated damages play a significant role in
a given situation.161 Moreover, stipulation for liqui-
cases where it is difficult to ascertain the quan-
dated damages would not prevent a party from claim-
tum of damages since that is pre-determined by
ing specific performance.162 Similarly, plaintiffs may
inserting a clause on “liquidated damages” in the
claim for damages in addition to or in substitution of
contract itself. Such clauses for liquidated dam-
injunctions sought from a court.163
ages aim at prevention of litigation to the extent
possible. This would also help in reducing the Another remarkable progress is the approach of
burden to prove actual damage suffered pursuant the judiciary, which is gradually becoming liberal
to a breach, in order to claim damages. Liquidated while granting damages. Courts have allowed
damages are preferred when the parties wish to enforcement of arbitral awards granting damages
affix some kind of assurance or security in the amounting to sums ranging in crores of rupees.164
event of breach of contracts. Additionally, in IP cases, courts have considered
actual damages along with damages to goodwill
Just like quantum of damages can be pre-decided in
and reputation and exemplary damages, and valued
a contract, there can also be exclusion of the right to
damages to be Rs. 12,823,200.165
claim damages by express terms;158 or that in case of
breach of contract, there would not be payment of Similarly, on taking into account the distinction
compensation but refund of payments already made.159 between penalty and damages in the Indian context,
Similarly, there may be specific amounts laid down it is seen that a party can claim penalty, as stipulated,
as compensation for specific breaches, accordingly along with unliquidated damages on breach of a
damages shall be granted for a corresponding breach.160 contract. However, it is suggested that courts may
consider being less stringent as far as punitive damages
are concerned. The approach adopted in Singapore
and Canada, to grant punitive damages in cases of
156. R.G Padia (ed.), Pollock and Mulla Indian Contract and Specific Relief contractual breaches in certain exceptional cases,
Acts, vol 2 (13th edn, LexisNexis Butterworths Wadhwa 2006)
1476
157. Specific Relief Act 1963, s 20(2)(e) 161. Specific Relief Act 1963, s 21
158. State of Jammu & Kashmir v. Dev Dutt Pandit AIR 1999 SC 3196 162. P. D’Souza v. Shondrilo Naidu AIR 2004 SC 4472
159. Syed Israr Masood v. State of Madhya Pradesh (1981) 4 SCC 289 163. Specific Relief Act 1963, s 40
160. Indian Drugs and Pharmaceuticals Ltd. v. Industrial Oxygen Co. Ltd. 164. (2016) 155 DRJ 646 (DB)
AIR 1985 Bom 186 165. Microsoft Corporation v. Deepak Raval MIPR 2007 (1) 72
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may be adopted as well, on an incisive analysis and a clause on liquidated damages, the concerned party
consideration of the facts and circumstances. would not be exempted from proving the loss or
injury suffered subsequent to the breach of the con-
Conceptually and practically, damages have been
tractual terms.
effective in enforcement of contractual obligations.
This can be supported with the progressive interpre-
- Vyapak Desai, Shweta Sahu & Moazzam Khan
tations by the courts with respect to liquidated dam-
ages, for example. Courts have ensured that there is You can direct your queries or comments to the
no windfall for the parties in the presence of a clause authors at
for liquidated damages by asserting that the quan-
[email protected]
tum of damages shall be reasonable and shall not
[email protected]
exceed the amount stipulated as liquidated damages.
Moreover, even in a claim for damages under such
7. Table of Cases
Sl. No. Cases Relevant Extracts Para No. s
1. Union of India v. Raman Iron Foundry AIR “…even if there is a stipulation by way of liquidated damages, a party 11
complaining of breach of contract can recover only reasonable
1974 SC 1265
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 Pherumal v. Union of India “Government expressly stipulated, and the contractor expressly 8
agreed, that Government was not to be liable for any loss
[1955] 2 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) Ltd v. PH Hydraulics & “…the court has the power in an exceptional case to award 264
Engineering Pte Ltd [2015] SGHC 307 punitive damages in the context of a breach of contract, when
the defendant’s conduct in breaching the 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 Tyre Co Ltd v. New For an understanding of what amounts to “penalty”, the 4
Garage & Motor Co Ltd [1914] UKHL 1 court held that:
27
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6. Kailash Nath Associates v. Delhi Develop- “…the law on compensation for breach of contract under Section 74 can 43
ment Authority & Anr (2015) 4 SCC 136 be stated to be as follows:
…In both cases, the liquidated amount or penalty is the upper limit
beyond which the Court cannot grant reasonable compensation. Rea-
sonable 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. Ltd. v. B.E. Bilimoria The Division Bench reiterated the findings of the Single 4
& Co. Ltd (2016) 3 AIR Bom R 637
Judge on the observations made with respect to the
arbitrator’s award on liquidated damages:
12. State of Kerala v. K. Bhaskaran AIR “The defendant is liable only for natural and proximate consequences 12
of a breach or those consequences which were in the parties’ con-
1985 Ker 49
templation 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 v. Mohanlal and Another “But for the appellants’ neglect of duty to keep the goods insured 30
according to the agreement, they (the respondents) could have
AIR 1951 SC 144
recovered the full value of the goods from govt. So there was a direct
causal connection between the appellants’ default and the respon-
dents’ loss.”
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18. Murlidhar Chiranjilal v. Harish Chandra “The two principles on which damages in such cases are calculated 9
are well-settled. The first is that, as far as possible, he who has
Dwarkadas (1962) 1 SCR 653 fol-
proved a breach of a bargain to supply what he contracted to get is
lowing British Westinghouse Electric and to be placed, as far as money can do it, in as good a situation as
Manufacturing Company Limited v. Under- if the contract had been performed; but this principle is qualified
ground Electric Railways Company of Lon- by a second, which imposes on a plaintiff the duty of taking all rea-
sonable step” to mitigate the loss consequent on the breach, and
don [1912] A.C. 673. 689
debars him from claiming any part of the damage which is due to his
neglect to take such steps.”
19. M. Lachia Setty & Sons Ltd v. Coffee Board “At the outset it must be observed that the principle of mitigation 14
of loss does not give any right to the party who is in breach of the
Bangalore AIR 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 v. Lokesh “…the time has come when the Courts dealing actions for infringe-
ment of trademarks, copy rights, patents etc. should not only grant
Srivastava (2005) 30 PTC 3 (Del)
compensatory damages but award punitive damages also with a
view to discourage and dishearten law breakers who indulge in vio-
lations 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.”
About NDA
Nishith Desai Associates (NDA) is a research based international law firm with offices in Mumbai, Bangalore,
Palo Alto (Silicon Valley), Singapore, New Delhi, Munich and New York. We provide strategic legal, regulatory,
and tax advice coupled with industry expertise in an integrated manner.
As a firm of specialists, we work with select clients in select verticals. We focus on niche areas in which
we provide high expertise, strategic value and are invariably involved in select, very complex, innovative
transactions.
We specialize in Globalization, International Tax, Fund Formation, Corporate & M&A, Private Equity &
Venture Capital, Intellectual Property, International Litigation and Dispute Resolution; Employment and
HR, Intellectual Property, International Commercial Law and Private Client. Our industry expertise spans
Automotive, Funds, Financial Services, IT and Telecom, Pharma and Healthcare, Media and Entertainment, Real
Estate, Infrastructure and Education. Our key clientele comprise marquee Fortune 500 corporations.
Equally passionate about philanthropy, social sector and start ups, our role includes innovation and
strategic advice in futuristic areas of law such as those relating to Bitcoins (block chain), Internet of Things
(IOT), Privatization of Outer Space, Drones, Robotics, Virtual Reality, Med-Tech and Medical Devices and
Nanotechnology.
Nishith Desai Associates is ranked the ‘Most Innovative Asia Pacific Law Firm in 2016’ by the Financial Times
- RSG Consulting Group in its prestigious FT Innovative Lawyers Asia-Pacific 2016 Awards. With a highest-
ever total score in these awards, the firm also won Asia Pacific’s best ‘Innovation in Finance Law’, and topped
the rankings for the ‘Business of Law’. While this recognition marks NDA’s ingress as an innovator among
the globe’s best law firms, NDA has previously won the award for ‘Most Innovative Indian Law Firm’ for two
consecutive years in 2014 and 2015, in these elite Financial Times Innovation rankings.
Our firm has received much acclaim for its achievements and prowess, through the years. Some include:
IDEX Legal Awards: In 2015, Nishith Desai Associates won the “M&A Deal of the year”, “Best Dispute
Management lawyer”, “Best Use of Innovation and Technology in a law firm” and “Best Dispute Management
Firm”. IDEX Legal recognized Nishith Desai as the Managing Partner of the Year in 2014.
Merger Market has recognized Nishith Desai Associates as the fastest growing M&A law firm in India for the
year 2015.
World Tax 2015 (International Tax Review’s Directory) recognized NDA as a Recommended Tax Firm in India
Legal 500 has ranked us in tier 1 for Investment Funds, Tax and Technology-Media-Telecom (TMT) practices
(2011, 2012, 2013, 2014).
International Financial Law Review (a Euromoney publication) in its IFLR1000 has placed Nishith Desai
Associates in Tier 1 for Private Equity (2014). For three consecutive years, IFLR recognized us as the Indian “Firm
of the Year” (2010-2013) for our Technology - Media - Telecom (TMT) practice
Chambers and Partners has ranked us # 1 for Tax and Technology-Media-Telecom (2015 & 2014); #1 in
Employment Law (2015); # 1 in Tax, TMT and Private Equity (2013); and # 1 for Tax, TMT and Real Estate – FDI
(2011).
31
© Nishith Desai Associates 2017
Provided upon request only
India Business Law Journal (IBLJ) has awarded Nishith Desai Associates for Private Equity, Structured Finance
& Securitization, TMT, and Taxation in 2015 & 2014; for Employment Law in 2015
Legal Era recognized Nishith Desai Associates as the Best Tax Law Firm of the Year (2013).
ASIAN-MENA COUNSEL named us In-house Community ‘Firm of the Year’ in India for Life Sciences Practice
(2012); for International Arbitration (2011); for Private Equity and Taxation in India (2009). We have received
honorable mentions in ASIAN-MENA COUNSEL Magazine for Alternative Investment Funds, Antitrust/
Competition, Corporate and M&A, TMT, International Arbitration, Real Estate and Taxation and being Most
Responsive Domestic Firm.
We have won the prestigious ‘Asian-Counsel’s Socially Responsible Deals of the Year 2009’ by Pacific Business
Press.
We believe strongly in constant knowledge expansion and have developed dynamic Knowledge Management
(‘KM’) and Continuing Education (‘CE’) programs, conducted both in-house and for select invitees. KM and
CE programs cover key events, global and national trends as they unfold and examine case studies, debate and
analyze emerging legal, regulatory and tax issues, serving as an effective forum for cross pollination of ideas.
Our trust-based, non-hierarchical, democratically managed organization that leverages research and knowledge
to deliver premium services, high value, and a unique employer proposition has been developed into a global
case study and published by John Wiley & Sons, USA in a feature titled ‘Management by Trust in a Democratic
Enterprise: A Law Firm Shapes Organizational Behavior to Create Competitive Advantage’ in the September
2009 issue of Global Business and Organizational Excellence (GBOE).
Please see the last page of this paper for the most recent research papers by our experts.
Disclaimer
This report is a copyright of Nishith Desai Associates. No reader should act on the basis of any statement
contained herein without seeking professional advice. The authors and the firm expressly disclaim all and any
liability to any person who has read this report, or otherwise, in respect of anything, and of consequences of
anything done, or omitted to be done by any such person in reliance upon the contents of this report.
Contact
For any help or assistance please email us on [email protected] or
visit us at www.nishithdesai.com
33
© Nishith Desai Associates 2017
Provided upon request only
The following research papers and much more are available on our Knowledge Site: www.nishithdesai.com
NDA Insights
TITLE TYPE DATE
ING Vysya - Kotak Bank : Rising M&As in Banking Sector M&A Lab January 2016
Cairn – Vedanta : ‘Fair’ or Socializing Vedanta’s Debt? M&A Lab January 2016
Reliance – Pipavav : Anil Ambani scoops Pipavav Defence M&A Lab January 2016
Sun Pharma – Ranbaxy: A Panacea for Ranbaxy’s ills? M&A Lab January 2015
Reliance – Network18: Reliance tunes into Network18! M&A Lab January 2015
Thomas Cook – Sterling Holiday: Let’s Holiday Together! M&A Lab January 2015
Jet Etihad Jet Gets a Co-Pilot M&A Lab May 2014
Apollo’s Bumpy Ride in Pursuit of Cooper M&A Lab May 2014
Diageo-USL- ‘King of Good Times; Hands over Crown Jewel to Diageo M&A Lab May 2014
Copyright Amendment Bill 2012 receives Indian Parliament’s assent IP Lab September 2013
Public M&A’s in India: Takeover Code Dissected M&A Lab August 2013
File Foreign Application Prosecution History With Indian Patent
IP Lab April 2013
Office
Warburg - Future Capital - Deal Dissected M&A Lab January 2013
Real Financing - Onshore and Offshore Debt Funding Realty in India Realty Check May 2012
Pharma Patent Case Study IP Lab March 2012
Patni plays to iGate’s tunes M&A Lab January 2012
Vedanta Acquires Control Over Cairn India M&A Lab January 2012
Research @ NDA
Research is the DNA of NDA. In early 1980s, our firm emerged from an extensive, and then pioneering,
research by Nishith M. Desai on the taxation of cross-border transactions. The research book written by him
provided the foundation for our international tax practice. Since then, we have relied upon research to be the
cornerstone of our practice development. Today, research is fully ingrained
in the firm’s culture.
Research has offered us the way to create thought leadership in various areas of law and public policy. Through
research, we discover new thinking, approaches, skills, reflections on jurisprudence,
and ultimately deliver superior value to our clients.
Over the years, we have produced some outstanding research papers, reports and articles. Almost on
a daily basis, we analyze and offer our perspective on latest legal developments through our “Hotlines”. These
Hotlines provide immediate awareness and quick reference, and have been eagerly received.
We also provide expanded commentary on issues through detailed articles for publication in newspapers and peri-
odicals for dissemination to wider audience. Our NDA Insights dissect and analyze a published, distinctive legal
transaction using multiple lenses and offer various perspectives, including some even overlooked by the execu-
tors of the transaction.
We regularly write extensive research papers and disseminate them through our website. Although we invest
heavily in terms of associates’ time and expenses in our research activities, we are happy
to provide unlimited access to our research to our clients and the community for greater good.
Our research has also contributed to public policy discourse, helped state and central governments
in drafting statutes, and provided regulators with a much needed comparative base for rule making.
Our ThinkTank discourses on Taxation of eCommerce, Arbitration, and Direct Tax Code have been widely
acknowledged.
As we continue to grow through our research-based approach, we are now in the second phase
of establishing a four-acre, state-of-the-art research center, just a 45-minute ferry ride from Mumbai
but in the middle of verdant hills of reclusive Alibaug-Raigadh district. The center will become the hub for
research activities involving our own associates as well as legal and tax researchers from world over.
It will also provide the platform to internationally renowned professionals to share their expertise
and experience with our associates and select clients.
We would love to hear from you about any suggestions you may have on our research reports.
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© Nishith Desai Associates 2017
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