Damages under Indian Contract Act, 1872

DAMAGES – MEANING

The term “damages” is not defined under the Indian Contract Act, 1872. However, in common parlance, it means an award of money to be paid by a defaulting party to a non-defaulting party as compensation for loss or injury caused on account of the defaulting Party’s breach of the terms and conditions of the contract.

In Common Cause v. Union of India [1999 (6) SCC 667], the Supreme Court extracted the definition of the word “damages”, as propounded by Mc Gregor at para 127 as follows:

“Damages are the pecuniary compensation, obtainable by success in an action, for a wrong which is either a tort or a breach of contract, the compensation being in the form of a lump sum which is awarded unconditionally.”

OBJECT OF AWARD OF DAMAGES

The object of an award of damages for breach of contract is to place the claimant, so far as money can do it, in the same situation, with respect to damages, as if the contract had been performed. (Anson’s Law of Contract, 28th Edition at Page 596). The focus of the ‘usual’ award is therefore the loss to the victim consequent on breach rather than the gain, if any, made by the perpetrator of that breach. 

THREE ESSENTIALS OF DAMAGES

The three basic essentials of damages of damages, as pointed out by the Supreme Court in Organo Chemical Industries v. Union of India (MANU/SC/0582/1979) are:

1. detriment to one by the wrongdoing of another;
2. reparation awarded to the injured through legal remedies, and
3. its quantum being determined by the dual components of pecuniary compensation for the loss suffered and often, not always, a punitive addition as a deterrent-cum-denunciation by the law. (

TYPES OF DAMAGES

• General and Special Damages;
• Consequential Damages;
• Pecuniary and Non-pecuniary Damages;
• Liquidated Damages;
• Aggravated Damages;
• Exemplary Damages;
• Compensatory and Non-compensatory Damages;
• Nominal Damages;
• Damages for Loss of Profit/Loss of Opportunity.

GENERAL/ DIRECT DAMAGES

• Section 73 of the Indian Contract Act deals with Direct Damages;
• It means damages which naturally arose in the usual course of things from such breach, or which the parties knew (when they made the contract) to be likely to result from the breach of it.

SPECIAL/ INDIRECT DAMAGES

• Special damages arise on account of the unusual/ special circumstances affecting the plaintiff and resulting into the consequential damage;
• They are not recoverable unless the special circumstances were brought to the knowledge of the defendant, so that the possibility of the special loss was in contemplation of the parties.
• Special damages do not mean serious damage in the sense of irreparable loss but damage affecting the plaintiff individually (or damage peculiar to the plaintiff) or beyond what is suffered by him in common with orders. (Halsbury Laws of India Volume 9 Page 160 as referred by National Green Tribunal in The Forward Foundation, A Charitable Trust and Ors. vs. State of Karnataka and Ors., MANU/GT/0075/2016)

DIFFERENCE BETWEEN GENERAL AND SPECIAL DAMAGES

Liability Aspect: In the context of liability for loss (usually in contract), general damages are those which arise naturally and in the normal course of events, whereas special damages are those which do not arise naturally out of the defendant’s breach.[1]

Recovery Aspect: Claim Special Damages are recoverable only where they were not beyond the reasonable contemplation of the parties (for example, where the plaintiff communicated to the defendant prior to the breach the likely consequences of the breach).[2]

Quantification Aspect: General damages are losses, usually but not exclusively, non-pecuniary, which are not capable of precise quantification in monetary terms. For example, damages for harm to reputation in actions for defamation and damages for pain and suffering in actions relating to personal injury. Special damages, in this context, are those losses which can be calculated in financial terms. These are generally pecuniary losses calculable at the time of trial, for example, claims for loss of earnings, whether past or future, or the cost of care in personal injury actions.[3]

Pleading Aspect: Special damage refers to those losses which must be specifically pleaded and proved[4] by evidence, and particulars of the special damage claimed must be specified in the plaint, whereas general damage is that which will be presumed to be the natural or probable consequences of the wrong complained of, with the result that the plaintiff is required only to assert that such damage has been suffered and quantification is left to the court.[5]

CONSEQUENTIAL DAMAGES

• In contract law, consequential damages are commonly referred as special damages or expectation damages.
• Unlike normal losses which are losses which every plaintiff will suffer such as general damage, consequential losses are anything above the normal losses such as profits lost or expenses incurred through the breach and are recoverable if they are not remote. (The Forward Foundation, A Charitable Trust and Ors. vs. State of Karnataka and Ors., MANU/GT/0075/2016 at para 52).
• Consequential damages do not flow directly and immediately from the act of the party but as a consequence of a wrongful act which are so proximate as to be recoverable. (Halsbury Laws of India Volume 9 at Page 16)
• Only such damages that are sufficiently proximate to the course of action as to be the natural consequence of the wrongful act, though even of an interim nature, are recoverable. (Halsbury Laws of India Volume 9 at Page 16)
• Unlike, direct damages which focus on the costs associated directly with the contract itself, consequential damage focus on the costs outside of the contract. (Reliance General Insurance Co. Ltd. vs. Anish Sebastian, MANU/CF/0466/2015)
• Examples of consequential damages: lost profits, lost products, lost revenues, lost time, damage to reputation, reduction in value, etc. (Reliance General Insurance Co. Ltd. vs. Anish Sebastian, MANU/CF/0466/2015)

We will discuss other types of damages and several other aspects of damages in our next post.

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[1] Halsbury Laws of India Volume 9 Page 16 as referred by National Green Tribunal in The Forward Foundation, A Charitable Trust and Ors. vs. State of Karnataka and Ors., MANU/GT/0075/2016

[2] Ibid.

[3] Ibid.

[4] VIACOM 18 Media Pvt . Ltd . vs . MSM Discovery Pvt . Ltd. at para 164; See also A. Valliammal vs. Chitra Travels and The Branch Manager, United India Insurance Co. Ltd., MANU/TN/3715/200

[5] Halsbury Laws of India Volume 9 Page 16 as referred by National Green Tribunal in The Forward Foundation, A Charitable Trust and Ors. vs. State of Karnataka and Ors., MANU/GT/0075/2016