Explainer · Contract Disputes

How to Claim Damages for Breach of Contract (2026)

Updated for 2026 · Claw Editorial

When the other side breaks a contract, the most common remedy you ask for is damages, meaning money to make good your loss. Indian law does not punish a breach; it compensates the injured party. So the real question is not whether the contract was broken, but what loss the breach caused you and how much of it the law will let you recover. The Indian Contract Act 1872 answers this through a few key sections: Section 73 for compensation for loss, Section 74 where the contract itself names a sum, and Section 75 where you rightfully cancel. This guide explains what you must prove, each kind of damages, the duty to cut your losses, and the time limit. Last verified October 2026.

01What you must prove

A damages claim stands on three legs. You have to show, first, that a valid contract existed; second, that the other side broke it, by not performing or by performing badly; and third, that the breach caused you a loss that the law recognises. If any leg is missing, the claim fails. A broken promise that causes no real loss earns only token damages.

The guiding idea in Indian law is compensation, not punishment. The court tries to put you in the position you would have been in if the contract had been performed, no better and no worse. That is why you cannot simply name a figure; you have to connect the breach to a loss and prove the loss with evidence such as invoices, cover purchases, correspondence and accounts.

02Section 73: compensation for loss

Section 73 of the Indian Contract Act 1872 is the main rule. It says that when a contract is broken, the party who suffers can recover compensation for any loss or damage caused to them which naturally arose in the usual course of things from the breach, or which both parties knew, when they made the contract, to be likely to result from a breach.

So Section 73 gives you two routes. The first covers ordinary losses that flow directly from the breach, such as the extra you paid to buy the same goods elsewhere. The second covers special losses, but only if the other side knew about the special circumstances at the time of contracting. Section 73 also makes clear that compensation is not given for any remote or indirect loss, and that similar compensation is available when an obligation resembling a contract is not discharged.

03Remoteness: which losses count

Not every rupee you lose after a breach is recoverable. The law draws a line at losses that are too remote. Indian courts apply the well-known rule from Hadley v Baxendale, which Section 73 reflects: you can recover losses that arise naturally from the breach, and special losses only if the defaulting party knew of the special circumstances when the contract was made.

Ordinary losses that flow from the breach are recoverable. An unusual or special loss is recoverable only if the other side knew about the special risk when they signed.

The practical lesson is to put the other side on notice of any unusual stake at the time of contracting, not after. If a delayed delivery will cost you a large downstream contract, say so in writing before you sign. That knowledge is what moves a special loss from remote and irrecoverable to within contemplation and recoverable.

04The duty to mitigate

The Explanation to Section 73 adds a duty you cannot ignore: in estimating the loss, the court takes into account the means that existed of remedying the inconvenience caused by the breach. In plain words, you must take reasonable steps to reduce your loss. You cannot sit back, let the loss grow, and then send the whole bill to the party in breach.

If a buyer refuses the goods, the seller is expected to resell them at a fair price and claim only the shortfall. If a supplier fails, the buyer is expected to find a reasonable substitute. You do not have to take unreasonable risks or spend wildly, but you cannot recover a loss you could sensibly have avoided. Keep proof of your mitigation steps, because the court will ask what you did to limit the damage.

05Section 74: liquidated damages and penalty

Many contracts name a sum payable on breach, such as a fixed amount for delay or a forfeiture of earnest money. Section 74 governs these. It says that where a contract names a sum to be paid on breach, or contains any other stipulation by way of penalty, the injured party is entitled to reasonable compensation not exceeding the amount named, whether or not actual damage is proved.

Two points matter. First, the named sum is a ceiling, not a guarantee. The court awards what is reasonable up to that figure, and will cut down a sum that looks like a penalty rather than a genuine pre-estimate of loss. Second, Section 74 relieves you of having to prove the exact loss, but the Supreme Court has held that you must still show that some loss was suffered and that the compensation claimed is reasonable. The line of cases from Fateh Chand through ONGC v Saw Pipes to Kailash Nath Associates has shaped this. For contracts of a fixed sum you can also sue as a liquidated money claim.

06Section 75: compensation when you rescind

Sometimes a breach is so serious that you lawfully end the contract rather than carry on. Section 75 protects you in that situation. It says a person who rightfully rescinds a contract is entitled to compensation for any damage they have sustained through the non-fulfilment of the contract.

So ending the contract does not cost you your right to claim. If you rightfully treat the contract as at an end because of the other side's breach, you can still sue for the loss that breach caused. The key word is rightfully: you must have had a genuine right to rescind, which usually comes from a serious breach or a refusal to perform. If you cancel without that right, you may be the one in breach. For when and how you can lawfully end a contract, see how to terminate a contract legally, and if you would rather force performance than take money, see specific performance of a contract.

07How to make the claim and the time limit

In practice, a damages claim usually runs like this:

• Document the breach and the loss. Keep the contract, the correspondence showing the breach, and proof of what the breach cost you.
• Send a demand or legal notice. Set out the breach, the loss, and the compensation you seek, and give a date to pay. For the structure, see how to send a legal notice for breach of contract.
• File a civil suit for damages in the court that fits the value and the place, usually where the defendant lives or where the contract was to be performed.
• Prove the loss at trial. The burden is on you to show the loss and your mitigation.

Watch the clock. A suit for compensation for breach of contract is generally subject to a three-year limitation under the Limitation Act 1963, usually counted from the date of the breach. For how that period is worked out, see the limitation period for a contract breach claim. If the agreement itself turns out to be unenforceable, the picture changes, so it is worth knowing what makes a contract void in India before you sue.

08Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

How much a court is likely to award, whether a clause will be read as a penalty, and how remoteness and mitigation have been applied all turn on precedent that keeps developing. Claw lets you search 30 crore+ judgments, with Supreme Court decisions from 1950 and High Court decisions from 1990, returning results in under 5 seconds, so you can see how courts have treated Section 73 remoteness, Section 74 liquidated damages and compensation on rescission before you frame your claim or defence. Once a suit is filed, Claw tracks the breach-of-contract and commercial court matters across 9,102 courts, benches and forums, with alerts when a new matter is filed or a hearing is listed, so you can follow a dispute by party name and never miss a date. You can also run a case search across Indian courts by party name to see whether the other side already faces recovery suits before you spend on litigation. Claw does not use your searches or documents to train its AI models. A clean search means nothing was found on the forums covered on the date searched under the names you used, and this is general information, not legal advice.

09Sources and further reading

• India Code (Indian Contract Act 1872, Sections 73, 74 and 75; Limitation Act 1963): indiacode.nic.in
• Indian Kanoon (judgments on Sections 73 and 74): indiankanoon.org
• eCourts (court case status): ecourts.gov.in
• Claw: clawlaw.in

This guide is general information, not legal advice. The right heads of damage and the amount turn on your facts and evidence, so consult a commercial litigation lawyer before you file.

10Frequently asked questions