The Global Damages Review: India


India follows the common law system. Judicial decisions of the courts of the UK (or other common law jurisdictions) are not binding on courts in India. However, such precedents have persuasive value and may be turned to for guidance in situations where the courts in India may have not established the jurisprudence on a particular question of law.

The law of damages in India pertaining to breach of contracts is contained in the provisions of Sections 73 and Section 74 of the Indian Contract Act, 1872 and judicial decisions pertaining to these provisions. There are also provisions for damages in several other statutes such as the Sale of Goods Act, 1930,2 statutes pertaining to the protection of intellectual property rights. This chapter contains the law of India on damages from breach of contracts, more specifically compensatory damages and does not include the law of damages in tort or under specific statutes.

The law of damages in India is prone to misconceptions largely because the statute itself is quite antiquated and the resulting extensive reliance on English law, which may not be contextually understood. However, Indian courts have over the years pronounced judgments that adopt developments in common law on the subject and with conceptual clarity, which can only be lauded.

The law on damages

i Section 73 of the Indian Contract Act, 1872 (Section 73)

Section 73 embodies the common law on damages first set out in Hadley v. Baxendale.3

The statute itself refers to 'compensation' and provides that the party suffering the breach must be compensated for loss or damage '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'.

Section 73 further clarifies that there can be no compensation for any 'remote or indirect loss or damage' sustained by reason of the breach.

ii Breach of contract – an essential prerequisite

An essential prerequisite for a damages claim is breach of a contract.

The common law principle that a party cannot be allowed to benefit from its breach is well recognised. Accordingly, in early decisions it was found to be essential that the plaintiff had performed or was prepared to perform its obligations under the contract and was not itself in breach.

This rule is commonly followed in contracts for simple transactions such as sale of a chattel or property where the buyer who defaults in paying consideration cannot recover damages from the seller in breach. However, in more complex commercial transactions where a suit for damages can be expected to be followed by a counterclaim, the plaint should be decided on the question of which party committed the first breach as well as the question of whether the subsequent breach was consequential to the first breach and whether the obligation to perform the subsequent breach was qualified by the performance of the first breach. A party may also have breached an obligation separate and distinct from the one for which it instituted the plaint, in which case a set-off for the counterclaim may be allowed if both breaches are found to have occurred independently of each other.

iii Underlying principle of damages as a remedy for breach

Damages as a remedy for breach of contract is premised on the fundamental principle that the plaintiff who has suffered a loss because of breach must be put in the same position in which it would have been, had such breach not have occurred. This follows the English law principle set out in Robinson v. Harman.4

This principle was reiterated in British Westinghouse Electric and Mgf Co Ltd v. Underground Electric Railways Co of London Ltd,5 quoted as follows:

That as far as possible he who has proved a breach of a bargain to supply what he has contracted to get is to be placed as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis thus is compensation for the pecuniary loss which naturally flows from the breach, or as stated by Lord Wright in Monarch Steamship case,6 broad principle of the law of damages is that the party injured by the other party's breach of contract is entitled to such money compensation as will put him in the position he would have been in but for the breach.7

This approach is commonly referred to as 'expectation interest', which requires the courts to endeavor to restore the plaintiff's position as if the contract had not been breached (i.e., as if the expectations from the performance of the contract had been realised). Such damages would include compensation for the loss because of the defective performance or curing of such defective performance and the loss or cost incurred as a direct consequence of such defective performance.

It follows that the damages arising out of breach may either be what one would normally expect (also referred to as direct or general damages) and loss arising as a consequence of the breach (also referred as indirect or special damages). Direct damages are losses, costs and expenses that would normally arise, while consequential damages are peculiar to the plaintiff and may not therefore be said to follow naturally from the breach. It is necessary that the fact that such damages may arise was within the knowledge of the parties at the time that the contract was entered into.

It is noteworthy that the test of whether the parties had knowledge at the time of entering into the contract of the loss or damage likely to result by its breach is different from the test set out in Hadley v. Baxendale, which requires only a reasonable supposition that the parties had been in contemplation of such damages as the probable outcome of breach. The distinction is not strictly followed by courts in India, which adopt the criteria of whether it is reasonable to suppose that the implications of breach would likely have been known and not whether it was actually known or disclosed.

It has been recognised8 that:

The word 'contemplation' is considered more accurate to describe the state of mind required for operation of the second branch of the rule, than foresight or reasonable foresight.9 As regards contemplation, the plaintiff need not show that the parties contemplated the breach, or that the defendant actually considered the loss likely to result from it,10 but that a reasonable person in the position of the defendant would have concluded, upon consideration of the matter that the given type of loss was like to result.11

Nevertheless, the principle in Robinson v. Harman, when applied to consequential damages could result in some difficulty in ascertaining the measure of such damages, especially because the question of whether the consequential loss was within the reasonable contemplation of parties is applied. In Kanchan Udyog Ltd v. United Spirits Ltd (Kanchan Udyog),12 the Supreme Court of India in consideration of the question of the casual connection between the breach and the loss sustained relied on Chitty on Contracts within Kanchan Udyog to find that the 'important issue is whether a particular loss was within the reasonable contemplation of the parties'.

iv Duty of mitigation of loss

Indian courts have recognised the English law principle of the duty of the plaintiff to mitigate the loss caused by breach of the contract.

The Explanation to Section 73 of the clarifies as follows:

In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

The Supreme Court of India in Murlidhar Chiranjilal v. Harishchandra Dwarkadas,13 in setting out the measure of damages, held that when a breach of a bargain to supply goods is proved, the party must 'be placed, as far as money can do it, in as good a situation as if the contract had been performed; but this principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claim in any part of the damage which is due to his neglect to take such steps'.

v No gain or benefit

Section 73 in its terms is compensatory in nature. Further, to put the plaintiff in the same position as it would have been if there were no breach, it follows that the damages awarded must be commensurate with the loss incurred. The plaintiff cannot therefore benefit from the breach and damages for breach cannot include an element of profit. This is so even if the defendant has gained from the breach and the measure of the damages awarded is less than the quantum of the profit reaped by the defendant. Damages are based on loss to the plaintiff and not the gain to the defendant.

It follows as a natural corollary that any gain or benefit to the plaintiff arising as a direct consequence of the breach of the contract should be adjusted from the amount of loss sustained.

vi Exemplary or punitive damages

The provisions for damages for breach of contract are compensatory in nature. The objective of damages is to place the injured party in the same position as if performance had occurred, and damages are not intended to be a deterrence against breach. Indian law does not therefore require damages to be punitive or exemplary.

This general rule pertains only to damages for breach of contract. In the recent past, Indian courts have awarded punitive damages in cases of tort, breach of duty and violation of intellectual property rights. These aspects are not within the scope of this chapter.

vii Causation

An important aspect to be determined is whether the breach caused the loss. This is apparent from Section 73 itself according to which the plaintiff suffering a breach is entitled to compensation 'for any loss or damage caused to him thereby'. There has to be a clear nexus between the breach of contract and the loss or damage to be compensated.

It is noteworthy that the nexus of the breach to the loss to the plaintiff is required to be proximate or causa proxima, and not remote if damages have to be awarded as a remedy for the breach.

The law pertaining to causation reiterated by the Supreme Court of India, is similar to English law and may be summarised as follows:

  1. if the loss or damage to the plaintiff did not occur consequential to the breach, damages would not be awarded; and
  2. if there is more than one cause for the plaintiff sustaining loss or damage, the breach must be the dominant cause for the loss or damage.

There could be situations where there are two causes for the occurrence of the loss, both of which contributing equally to such loss while one of the causes is breach of the contract. There is as yet no definite finding on such a situation in Indian law. English law, however, imposes liability for breach on the defendant in such a situation.

viii Claims for loss of profit attributable to breach of contract

The 'expectation interest' of the plaintiff requires that the injured party be placed in the same situation as it would be if there were no breach of the contract. This may be further classified into two requirements: (1) that the injured party or plaintiff be put in the same situation as if the performance of the contract had not been breached, and (2) further, that where the performance is designed to put the injured party in a position where it would enable it to carry on business and earn profits, then it must be compensated for such profits lost in the absence of performance.

A commonplace example is where the contract breached is one of supply of goods where the buyer would have in turn used the goods to trade or convert to finished products, which when sold would have reaped a profit.

It is noteworthy that a claim for loss of profit is not an exception to the general rule that damages cannot include an element of gain. The profits lost are those that would have been earned, but for the occurrence of the breach. Further, profits that are not earned are in fact a loss and a claim for damages comprising of loss of profits is in fact a claim for compensation of a loss.

ix Incidental losses

The rule of causa proxima need not limit damages for incidental losses. The classification of losses such as 'incidental' does not determine the question of whether these would be awarded as damages, as the nomenclature of damages and losses is not relevant.

Incidental losses include those that may not necessarily pertain to the subject matter of performance, but this does not mean that such losses become remote only because they may be said to be incidental. The test of causation and remoteness is to be applied only in determining how losses arose, and the question of whether the losses are incidental or not is not a determining factor.

Incidental losses may also be sustained in discharging the duty of mitigation and would therefore arise after the event of breach becomes known.

Incidental losses may be either in the normal course of things or consequential and where these are consequential, the question of whether these were in the contemplation of the parties at the time of the contract would be a factor to be considered.

x Reliance interest

A claim for damages comprising of compensation for expenses incurred in preparation of expected performance by the counter party is maintainable to protect what is said to be 'reliance interest', that is, outlays made in reliance of the contract and on the belief that performance will be forthcoming as per the contract. In the absence of performance and subsequent breach of the contract, the plaintiff party having made such outlay incurs a loss to that extent.

While a claim premised on reliance interest is maintainable, it is noteworthy that such a claim, if awarded, would put the plaintiff in a situation as if it would not have entered into the contract in the first place. This is in contrast to expectation interest, where the premise is to put the plaintiff in a situation as if performance had occurred. It is not therefore normally open to a plaintiff to sue for damages under expectation interest as well as reliance interest.

xi Specific Relief Act

The rule of enforcement bestowed upon courts in India the discretion to enforce performance of a contract. Certain contracts, however, were not enforceable.14 These included contracts of a personal nature or one where the enforcement would require ongoing supervision of the court. Further, a contract was not specifically enforceable if compensation in damages was considered to be adequate relief for its non-performance.

An amendment to this statute15 now provides that specific performance is in fact the rule subject to limited exceptions. Therefore, specific performance is now a statutory relief to be granted instead of an equitable discretionary relief. In particular, the general rule commonly applied according to which specific performance would not be granted where damages were considered to be an adequate relief is no longer in force and the statute now requires strict enforcement of contracts. This amendment adopts the rule for specific performance found in civil law jurisdictions. How the jurisprudence on this amendment will evolve is something to be considered, as the author is of the view that disputes based on the doctrine of frustration and impossibility of performance are bound to arise.

xii Indemnity

Indemnity is conceptually different from damages. The right to be indemnified arises from an obligation of contract while damages are a consequence of breach of an obligation in a contract. In most situations the distinction is, however, moot. In Krishnaswami Iyer v. Thathia,16 it has been famously held that these two rights are 'confounded and the reason for the confusion is that when the contract is broken, indemnity is often found to coincide with the measure of damages.'

The question of whether the right of indemnity should be preferred often arises and is a vexed one. While the view that an indemnity is wider in scope and extent under the statute itself is correct, the author is of the view that the matter does not lend itself to such generalities that should not therefore by used as truisms. Because indemnity is an absolute obligation, the extent of liability largely depends on the terms of the contractual provisions. In commercial contracts it is not uncommon for parties to provide an absolute limit on indemnity, sometimes with subsidiary limits on indemnity for each type of breach. There may also be aspects pertaining to the validity or survival of the indemnity obligation (as opposed to the law of limitation in case of damages for breach). On the other hand, indemnity for breach of representations and warranties could also result in other legal rights.

xiii Risk purchase clauses

The correct measure of damages for breach of a contract for the supply of goods or the performance of work would be the price that the injured party was able to obtain for similar goods or services. The party in breach will be liable in respect of the alternative contract entered into as long as it is for the purchase of the same item or the same work. Indian courts have held that in such a subsequent purchase the objective parameters of such subsequent tenders must be the same, so as to ensure that it is comparable to the contract in breach.17 In such cases the costs incurred by the party in breach in attempting to perform are not relevant.

In public works and infrastructure contracts it is commonplace to find 'risk purchase' clauses where a company imposes on the contractor the obligation to bear the cost of purchases at its risk and costs. Such clauses are very broadly crafted and are to be found in standard form contracts imposed by public sector undertakings. Because such clauses may set out obligations that may be far more extensive than the general principle of damages, the first question that arises is whether such clauses necessarily need to be interpreted according to the law of damages. This again would depend on the language of such clauses, including especially whether they are stated to be remedies for breach or are to be read as contractual obligations imposed as alternative to performance.

The concept of substituted performance has been incorporated in the statute by an amendment.18 The injured party will therefore have the option to either sue the party in breach for specific performance or cause substituted performance after due notice in writing of not less than 30 days calling upon the party in breach to perform the contractual obligations.

Substituted performance does not impinge on the right of the party suffering the beach from claiming compensation.19 The author is of the view that once substituted performance is opted for, this provision can allow compensation only for losses attributable to the non-performance. Examples that come to mind are expenses incurred on inviting bids for the substituted performance and losses arising from delay caused by the non-performance of the contract (i.e., between the date on which performance was due and the date on which the substitute performance occurred). It is also noteworthy that this amended provision does not refer to damages under the provisions of the law,20 but rather compensation. Although these provisions in turn specify compensatory damages, the language of the amendment is likely to refer to litigation on the question of its interpretation.

xiv Onus of proof

The onus of proof of the breach, and the loss suffered is on the plaintiff. The quantum of damages must be proved with reasonable certainty. Any fact that enables a court to determine the amount of damages to be awarded is considered to be a relevant fact.21

xv Liquidated damages

Where a contract contains provisions specifying the amount payable consequential to a breach (or a stipulation for penalty) the injured party is entitled to receive 'reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for'.22 While judicial pronouncements have settled the law on the question of liquidated damages, this provision continues to remain prone to controversy.

It is common for parties to specify the quantum of damages expected to be sustained in the event of a breach, in an effort to meet the test that such damages were in contemplation at the time of the contract. This expectation, however, may be misplaced because the rule for consequential damages pertains to the nature of the loss to be incurred and not so much its quantum. Further, the statutory provision itself reiterates the fundamental principle of 'reasonable compensation' and specifies that liquidated damages is in the nature of an upper limit and it is only damages that are considered reasonable that ought to be awarded.

The provision is typically fortified by language providing that the parties consider the specified sum to be a genuine pre-estimate. In situations where it is difficult to quantify the amount of damages, a question may arise as to how the parties arrived at the pre-determined sum at the time of the contract itself when it could not lend itself to estimation after the loss is sustained. However, in such cases, the statutory provision would enable the party suffering the breach to claim the amount specified. It would be up to the defendant to establish that the pre-estimate is not 'reasonable compensation' under the circumstances. The legal position therefore is that while stipulation in a contract that the parties consider the amount specified to be a genuine pre-estimate would be persuasive, the courts will not be precluded from looking into the question of whether the specified amount constitutes 'reasonable compensation'. This also follows from the dictum that parties can negotiate a contract but cannot bargain on remedial rights. The Supreme Court of India in Bharat Sanchar Nigam Ltd v. Motorola India Pvt Ltd23 found that a provision preventing a party from contesting a pre-determined sum would amount to an agreement in restraint of proceedings.

It is noteworthy that while the provision requires that a breach of contract ought to have occurred, it also states that 'reasonable compensation' is payable 'whether or not actual damage or loss is proved to have been caused thereby'. The question that arises is whether the language of the statute does not require the plaintiff to prove that loss or damage was caused as a proximate cause of the breach.

If the statute prescribes for only 'reasonable compensation' and the parties have agreed that they consider the pre-determined sum to be a genuine pre-estimate, then the burden of proof to demonstrate that such pre-estimated quantum is not 'reasonable compensation' shifts to the defendant. This does not mean that the pre-estimated quantum stated in the contract would be payable regardless of any other consideration.

The authoritative decision on this provision of Indian law is Fateh Chand v. Balkishan Das,24 where a five-member constitutional bench of the Supreme Court of India upheld the principle that the plaintiff is entitled to 'reasonable compensation' and further that this test has to be ascertained having regard to the conditions existing on the date of the breach. This decision also set out the principle that the term 'whether or not actual damage or loss is proved to have been caused thereby' does not mean that compensation would be due even if no loss is sustained. Once the measure of 'reasonable compensation' is stated to be the norm, it is axiomatic that compensation paid even where no loss is demonstrably suffered would not be considered 'reasonable'. This phrase therefore only shifts the burden of proof away from the plaintiff. The decision in Re. Fateh Chand25 sets out this principle as follows:

Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of “actual loss or damage”. It does not justify the award of compensation when in consequence of breach no legal injury at all has resulted . . .

A later decision of the Supreme Court of India, Oil & Natural Gas Corporation Ltd v. Saw Pipes Limited,26 overruled an award by an arbitral tribunal which concluded that the purchaser should prove the loss suffered because of delay in supply of goods. This decision is consistent with the principle set out In Re Fateh Chand that the onus of proof to show that the amount stated is not 'reasonable compensation' is on the defendant and not on the plaintiff.

This sum and substance of this decision is that where the parties have agreed that a pre-determined loss is likely to result from breach, it would not be necessary to lead evidence to disprove the loss. The meaning of the phrase 'whether or not actual damage or loss is proved to have been caused thereby' is clarified to mean that once parties have agreed that a loss of a specified sum is a genuine pre-estimate it would not be necessary for the plaintiff to prove the loss. It would still, however, be open to the defendant to disprove the presumption of the loss suffered as 'reasonable compensation' and the plaintiff would be awarded the pre-determined amount, or the amount considered by the court to be 'reasonable compensation', whichever is less.

These principles have been clarified and reiterated by the Supreme Court of India in Kailash Nath Associates v. Delhi Development Authority and Anr,27 which clarified that liquidated damages can be awarded only if it is a genuine pre-estimate of damages and found to be such by the court. Only 'reasonable compensation' can be awarded not exceeding the amount of liquidated damages agreed upon. It was also reiterated that reasonable compensation or loss caused by breach of contract is sine qua non for the applicability of the statutory provision on liquidated damages.

Quantum of damages

i Measurement and quantification

The measure of damages depends on several principles that have been discussed above. The actual quantification of the damages is concerned with the computation of the compensation due. This is referred to commonly as 'quantum' owing to the fact that proceedings on quantum of damages to be awarded usually follow the establishment of the case on damages.

Sometimes it may not be possible to quantify the damages to not be taken to mean damages which are penal or exemplary. The correct reference is in substance or what is considered to be real or equitable.

Conversely, in cases where there is a breach, but no loss is proved, nominal damages (i.e., damages of a token amount to signify the breach) may be awarded.

ii Expert evidence

The role of experts is recognised in Indian law. Evidence of experts is considered to be of higher probative value and may be rejected only on limited grounds such as bias or fraud. Cases where there are multiple experts representing each party can get complex. One of the first tasks then is to ensure that the evidence of experts offering different opinions is comparable and on the same set of assumptions. The qualifications and background of the experts is also a significant consideration. When it comes to computation of damages, knowledge and qualification in accountancy may be considered essential, but industry knowledge and expertise is indispensable in many cases.

Owing to the rule of causa proxima, a test which is commonly used by parties and their respective experts is the 'but for' test. The analysis undertaken answers the question framed as follows: 'but for' the breach, what would be the loss (if any) suffered by the plaintiff? Although extensive studies of market conditions and the like are conducted, the opinion of the expert must be clear on the question of whether all factors that have a bearing on the answer to this question have been considered. For instance, where an expert is considering the question of loss sustained in a commercial contract, they may undertake a study to show that the market share decreased as a result of the breach. Even if this proposition is substantiated by a detailed market study, the manner in which the expert addresses the question of whether there were factors, other than the breach itself, which could have led to loss of market share, would be determinative in assessing the probative value of the evidence furnished.

Recent case law

i Koninlijke Philips NV v. Amazestore (2019)(260 DLT 135)

The facts of the case

The plaintiff sought a permanent injunction restraining violation of multiple statutory and common law rights. They also sought a decree in damages from the defendants for infringement of copyright and passing off of trade dress – for the passing off of the defendants' impugned products (beard trimmers) as belonging to the plaintiff by use of trademarks, trade dress and copyright, which were identical or deceptively similar to those of the plaintiff.

The plaintiff claimed actual damages and additionally aggravated damages on account of the extreme bad faith actions and the wrongful conduct of the defendants.

The decision

The High Court of Delhi, holding the defendants liable for violation of statutory and common law rights on multiple counts, found that the plaintiff had proved the facts stated in the plaint and that the products of the defendants bore a close resemblance to those of the plaintiff. A permanent injunction to prevent infringement was therefore granted and compensatory damages awarded.

While considering the claim for aggravated (exemplary) damages, the High Court of Delhi referred to the principles set out in Hindustan Unilever Limited v. Reckitt Benckiser India Limited,28 which in turn relied on the decisions of the House of Lords in Rookes v. Barnard29 and Cassell & Co Ltd v. Broome.30

The High Court of Delhi noted that punitive and exemplary damages might be awarded for wrongful conduct by the defendant that have been calculated by him or her to make profit for himself or herself that may well exceed the compensation payable to the claimant.31 In such cases, the defendant calculates that even after having paid damages imposed by courts he or she would still stand to gain from the wrongful acts,32 and noted with emphasis the observation of the House of Lords that: 'Exemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay.'

The High Court of Delhi also noted the three conditions set out In Re Rookes v. Barnard, which are to be satisfied before an award for aggravated or exemplary damages is granted. First, that the plaintiff cannot recover exemplary damages unless he or she is the victim of the punishable behaviour. Second, the cautionary restraint that the award of damages ought not to 'amount to a greater punishment than would be likely incurred if the conduct were criminal'.33 And thirdly, that although the means of the parties are irrelevant in the assessment of compensation, they are nevertheless material in the assessment of exemplary damages.

Thereafter, relying on In Re Cassell & Co, the High Court further concluded that such damages are not to be added as separate components but rather awarded in substitution, although the rounded total sum shall have to be calculated by adding an additional amount to the compensatory damages.

The significance of the decision

This judgment authoritatively sets out the contemporary law on exemplary or aggravated damages. Although the decision itself pertains to infringement of intellectual property rights, its applicability to cases of tort in a broader sense is not limited. While the important conditions to be satisfied are set out in the judgment, it is significant that the most fundamental requirement is the clear finding of deliberate bad faith conduct as was evidently proven in this case.

In this context, while the court concluded that the bad faith intention of the defendants to infringe the plaintiffs' rights was evident, it also considered added misdemeanours such as wilful contempt and failure to appear to defend the case against them.

ii Fortune Infrastructure and Anr v. Trevor D'Lima & Ors (2018)(5 SCC 442)

The facts of the case

The respondents had booked property in the year 2011 in a redevelopment project undertaken by the appellants. In 2015, the appellants, being aggrieved by the fact that the appellants were unwilling to deliver the property, approached the National Consumer Disputes Redressal Commission (NCDRC) with prayers to declare the appellants to be deficient in service and unfair trade practices and for directions that the property be delivered. Alternatively, the respondents prayed for an equivalent property. The respondents also prayed for compensation for inconvenience, mental agony and legal costs.

The NCDRC ruled in favour of the respondents, directing the appellants to refund the amounts paid by the respondents for the property and also directed the payment of compensation and legal costs. The appellants maintained that, owing to the increase in costs beyond expectations, they had transferred the project to another company.

The decision

On appeal, the Supreme Court of India ruled in favour of the respondents. In doing so, it held that while the general principle consistently applied is that damages are compensatory and that the innocent party is to be placed, as far as money can, in the same position as if the contract had been performed, this rule is more qualified within the real estate sector.

Noting that the appellants had not given any valid reasons as to why the project property was transferred to another company, despite their contractual obligation to the respondents (having received a major part of the consideration), the Supreme Court of India held that: (1) the appellants were required to show that they were unable to transfer the property to the respondents; and (2) even though there was no delivery period stipulated in the agreement, a reasonable time has to be taken into consideration. Given that there had been no redevelopment of the property, there was deficiency of service.

On the quantum of damages, the Supreme Court of India ruled that while it is settled that damages have to be considered at the time of the breach, this rule allows flexibility and needs to be assessed in the facts and circumstances of each case.

However, the Supreme Court of India also held that the claim of the respondents granted by the NCDRC surpassed the actual loss-based damages and held that damages awarded should be compensatory and not result in an element of gain to the party suffering the breach.

The significance of the decision

This decision suggests that Indian courts may be inclined to consider the principles of damages as flexible and capable of liberal application in matters concerning consumer rights. Nonetheless, the generally accepted principle that damages are compensatory in nature remains sacrosanct.

iii Halliburton Offshore Services v. Vedanta Ltd

The facts of the case

The broad agreement between the parties was that the contractor would carry out two sets of works as part of the project namely drilling and completion (including drilling, completion and associated well services) as well as surface facility operations for the development of surface facilities. The project had a commencement date and a completion date. Various consequences were provided in case of delays in execution of the project.

One of the warranties given by the contractor was that it would achieve the milestones as per the milestone dates contained in the contract. It also warranted that it had the capability, expertise, manpower and the required technical and financial resources to undertake the project. Under clause 6, the contractor guaranteed that it would achieve each milestone by the milestone date. Failure to achieve the milestones entailed payment of liquidated damages in terms of clause 6.2.

The work was not completed as per the stipulated timelines. The company served repeated notices upon the contractor. On 18 March 2020, the contractor invoked the force majeure clause owing to the covid-19 pandemic and sought further time to complete the project.

The decision

While restraining invocation and encashment of the bank guarantees by way of an ad-interim injunction until the next date of hearing, the Court opined that the question as to whether there is force majeure or not depended on the construction of the contract. The principles laid down in Energy Watchdog v. Central Electricity Regulatory Commission34 were applied to the facts of the present case in order to assess whether the performance of the contractor was prevented by the force majeure condition.

In particular, the following principles are relevant:

  1. The impossibility of performance under Section 56 of the ICA would include impracticability or uselessness keeping in mind the object of the contract.
  2. If an untoward event or change of circumstance totally upsets the very foundation upon which the parties entered into their agreement, it can be said that the promisor finds it impossible to do the act which he or she had promised to do.
  3. Express terms of a contract cannot be ignored on a vague plea of equity.
  4. Risks associated with a contract would have to be borne by the parties.
  5. Performance is not discharged simply if it becomes onerous between the parties.
  6. Alteration of circumstances does not lead to frustration of a contract. Courts cannot generally absolve performance of a contract either because it has become onerous or due to an unforeseen turn of events. The doctrine of frustration must be applied narrowly.
  7. A mere rise in cost or expense does not lead to frustration.
  8. If there is an alternative mode of performance, the force majeure clause will not apply.
  9. The terms of the contract, its matrix or context, the knowledge, expectation, assumptions and the nature of the supervening events have to be considered.
  10. If the contract inherently has risk associated with it, the doctrine of frustration is not to be likely invoked.
  11. Unless there was a break in identity between the contract as envisioned originally and its performance in the altered circumstances, the doctrine of frustration would not apply.

The significance of the decision

The court held that the performance by the contractor would be excused if it is 'prevented or hindered or delayed by any natural event including a pandemic or plague'. The question is whether the contractor, in this case, was prevented, hindered or delayed by covid-19 in the punctual performance of its obligations.

It was finally concluded by the court that the question as to whether covid-19 would justify non-performance or breach of a contract had to be examined on the facts and circumstances of each case. Not every breach or non-performance can be justified or excused merely by invoking covid-19 as a force majeure condition. A court would have to assess the conduct of the parties prior to the outbreak, the deadlines that were imposed in the contract, the steps that were to be taken, the various conditions that were to be complied with and only then assess whether a party was genuinely able to justify its non-performance by reason of the covid-19 pandemic.

The Delhi High Court finally held that any violation or non-performance could not be justified or excused solely because covid-19 was invoked as a force majeure scenario; instead, the Court would have to consider whether the party was taking all possible actions to comply with its contractual obligations.


1 Percival Billimoria is a senior counsel at Chambers of P S Billimoria. The author acknowledges Aamir Khan and Sanandika Pratap Singh for assistance rendered.

2 Prior to the enactment of the Sale of Goods Act, 1930, provisions pertaining to sale of goods were contained in Chapter VII of the Indian Contract Act, 1872.

3 (1854) EWHC J70.

4 (1848) 1 Ex 850.

5 (1912) AC 673 at 689 per Lord Haldane, [1911-13] All ER Rep. 63 at 69.

6 Monarch Steamship Co Ltd v. A/B Karlshamns Oljefabriker (1949) AC 196 at 220 per Lord Wright, [1949] 1 All ER 1 at 12.

7 Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act and Specific Reliefs Acts, Volume II (updated 14th edn, LexisNexis Butterworths), page 1158.

8 Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act and Specific Reliefs Acts, Volume II (updated 14th edn, LexisNexis Butterworths), pages 1190–1191.

9 The Heron II, Koufos v. C Czarnikow Ltd (1969) 1 AC 350, [1967] 3 All ER 686 at 716 per Lord Upjohn, [1967] 3 WLR 1491 (HL).

10 Brown v. KMR Services Ltd [1995] 4 All ER 598 at 621 per Stuart-Smith LJ, (1995) 2 Lloyd's Rep. 1 (CA).

11 The Heron II, Koufos v. C Czarnikow Ltd (1969) 1 AC 350, [1967] 3 All ER 686 at 700-701 per Morris, [1967] 3 WLR 1491 (HL).

12 (2017) (8 SCC 237).

13 (1962) 1 SCR 653, or AIR 1962 SC 366.

14 Section 14 of the Specific Relief Act, 1963.

15 The Specific Relief (Amendment) Bill, 2018.

16 AIR 1928 Mad 43.

17 Daisy Trading Corporation v. Union of India 2011(3) Arb LR 3 (Del)(DB).

18 Section 20 of the Specific Relief Act, 1963.

19 Section 20(4) of the Specific Relief Act, 1963.

20 Section 73 and Section 74 of the Contract Act, 1872.

21 Section 12 of the Indian Evidence Act, 1872.

22 Section 74 of the Indian Contracts and Specific Reliefs Act.

23 (2009) 2 SCC 337.

24 AIR 1963 SC 1405.

25 ibid.

26 (2003) 5 SCC 705.

27 (2015) 4 SCC 136.

28 2014)(57) PTC 495.

29 1964) 1 All ER 367.

30 (1972) AC 1027.

31 The other categories are oppressive, arbitrary or unconstitutional action by the servants of the government, and any case where exemplary damages are authorised by the statute.

32 The High Court of Delhi emphasised the following observation in the judgment of the House of Lords: 'Where a defendant with a cynical disregard for the plaintiff's rights has calculated that the money to be made out of his wrongdoing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity.'

33 Especially since heavy damages awarded would be without the safeguards that criminal law affords to an offender.

34 (2017) 14 SCC 80.

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