The Law on Compensation for Breach of Contract II

My Lord, When and to what extent can stipulated liquidated damages for a breach of a contract be held to be in the nature of penalty in absence of evidence of actual loss?

[Loss must be proved in all cases where the reasonable possibility exists of proof as considered by Hon’ble Justice R.F. Nariman in Kailash Nath, 2015 (1) SCALE 230]

Even in absence of specific evidence – once, it is held that there has been a loss on account of breach of contract and there is an entitlement to compensation – in a given case, when a highest limit is stipulated instead of a fixed sum, a part of it can be held to be reasonable compensation and the remaining by way of penalty.

My Lord, To what extent the stipulation can be taken to be the measure of compensation for the loss suffered even in absence of specific evidence?

The party complaining of breach can certainly be allowed reasonable compensation out of the said amount if not the entire amount. If the entire amount stipulated is a genuine pre-estimate of loss, the actual loss need not be proved.

Hon’ble Justice Adarsh Kumar GoelM/s. Construction & Design Services v. Delhi Development Authority, [Civil Appeal Nos. 1440-1441 of 2015].