Contract is a promise supported by some consideration upon which the remedy of specific performance or that of damages is available.[1] The party who is injured by the breach of the contract may bring an action for damages.

"Damages" refers to compensation in terms of money for the loss suffered by the injured party. The injured party has to prove the loss suffered.[2] The following two problems arise out of the action of damages:
Remoteness of damage
Measure of damage
Remoteness of Damage-
Theoretically, there may be endless consequences of a breach; the defendant cannot be liable for all of it. Hence, a limit is put on the liability beyond which the damage is said to be too remote and, therefore, irrecoverable. The next problem that arises is where to draw the line.

Hadley V. Baxendale-
In the year (1854) an attempt was made to define the extent of this line in the case of Hadley v. Baxendale[3].

Facts: The claimants, Mr Hadley and another, were millers and mealmen and worked together in a partnership as proprietors of the City Steam-Mills in Gloucester. They cleaned grain, ground it into meal and processed it into flour, sharps, and bran. A crankshaft of a steam engine at the mill had broken and Hadley arranged to have a new one made by W. Joyce & Co. in Greenwich. Before the new crankshaft could be made, W. Joyce & Co. required that the broken crankshaft be sent to them in order to ensure that the new crankshaft would fit together properly with the other parts of the steam engine. Hadley contracted with defendants Baxendale and Ors, who were operating together as common carriers under the name Pickford & Co., to deliver the crankshaft to engineers for repair by a certain date at a cost of £2 sterling and 4 shillings (current value of about £240.00).

Baxendale failed to deliver on the date in question, causing Hadley to lose business. Hadley sued for the profits he lost due to Baxendale's late delivery, and the jury awarded Hadley damages of £25 (present value about £2500). Baxendale appealed, contending that he did not know that Hadley would suffer any particular damage by reason of the late delivery.

Issue: Whether a defendant in a breach of contract case could be held liable for damages that the defendant was not aware would be incurred from a breach of the contract.

Decision: Alderson B Laid Down-
"Now we think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."

The defendants were held not liable on the basis of this principle.  As the fact that the mill was out of action for want of the shaft was a special circumstance affecting the plaintiff's mill and the same should have been pointed out to the defendant in clear terms.

This decision has always been taken as laying down two rules:
General Damages: It refers to the damages that arise naturally in the usual course of things from the breach itself. The defendant is liable for all the natural consequences of the breach of the contract.
Special Damages: It refers to the damages that arise on account of the unusual circumstances affecting the plaintiff. It is not recoverable unless the possibility of the same was discussed beforehand.

(2a) No Recovery of Special Damages When Special Circumstances Not Known:
Horne V. Midland Railway Co[4]
Plaintiff a shoemaker was to supply a quantity of shoes to the French army. He was charging them at a unusually high rate. The shoes were consigned to the defendant railway company telling them that it must reach by 3rd Feb, nothing extraordinary about the same was conveyed. The consignment was delayed and the consignee refused to accept it. Plaintiff had to sell the goods at half the rate of contract.
Plaintiff claimed the difference between the contract price and the price at which the goods were actually sold.
The loss was of extraordinary nature and hence it cannot be claimed.

Columbia Saw Mill Co V. Nettleship[5]
Parts of a saw mill were packed in several cases and handed over to defendant, a carrier. A case was lost and as a result a complete mill could not be erected and operated.
Price of the lost part and the profit he could have earned if the mill was operated.
Court allowed recovery of the price of lost piece but the intended use of the mill was held to be too remote.
Willes J further pointed that special damages are only recoverable when the party sought to be charged is aware of the occurrence of such circumstances.[6]

(2b) Special Circumstances Already Within Knowledge of Contract Breaker:
Simpson v London & North Western Railway[7], it was held that is the party breaking the contract is aware of the special circumstances then he is liable and communicating the same is not necessary.

Relationship Between Two Rules Re-Examined:
In Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd[8], the substance of the proposition laid down is: Only such loss is recoverable as was foreseeable at the time of making of contract from breach of it. Foreseeability depends upon knowledge.

Everyone as a reasonable person, is taken to know the "ordinary course of things" and consequently to know what loss is liable to result from the breach in the ordinary course.

For this purpose, knowledge possessed is of two kinds: one imputed, and the other actual. Every one as a reasonable person, is taken to know the "ordinary course of things" and consequently to know what loss is liable to result from a breach of the contract in that ordinary course. This is the subject matter of the "first rule" Hadley v Baxendale. But to this knowledge which the defendant is assumed to possess must be added his actual knowledge of the special circumstances of the case showing the possibility of more loss arising from the breach. Such a case attracts the operation of the "second rule" so as to make the additional loss recoverable.
C.Czarnikow Ltd. V Koufos[9] That there are not two rules formulated in Hadley v Baxendale but only two different instances of the application of a single rule.

To the same effect is the decision of the House of Lords in Monarch SS Co Ltd v Karlshamns Oljefabriker (A/B)[10].

Facts: A British vessel was chartered in April 1939, by a British company for carrying cargo of soyabeans from Manchuria to port in Sweden. But owing to delay caused by the vessel's unseaworthiness, she did not reach that port before the outbreak of war between Great Britain and Germany. Consequently, the ship was prohibited from going to its destination and ordered to discharge at Glasgow. The plaintiff, who needed soya beans for their business as they were not locally available, incurred expenses in forwarding them in neutral ships.

Held: It was held that the loss was due to un-seaworthiness of the ship and the defendants were liable for it.

Section 73 Incorporates Two Rules of Hadley V Baxendale:
It is declared by the section that compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach. [11] It also declares that same principles will apply where there has been a breach of a quasi-contractual obligation.

Compensation is recoverable for any loss or damage-
Arising naturally in the usual course of things from the breach, or
Which the parties knew at the time of the contract as likely to result from the breach.
The burden of proof lied on the plaintiff to show that damages have been sustained and what shall be the measure of converting the loss into money.

Liability In Ordinary Cases
The extent of liability in ordinary cases is what may be foreseen by "the hypothetical reasonable man". It is necessary that some loss should be shown by evidence.

Madras Railway Co.. V. Govinda Rau[12]
Facts: Plaintiff, a tailor had delivered a sewing machine and some cloth the defendant railway company to be sent to a place where he was expected to carry on his business with special profit by reason of a forth-coming festival. Due to the fault of the company, the transmission of the machine got delayed. Plaintiff had not conveyed his special purpose to the defendant.
Issue: Plaintiff claimed the expenses of travelling up to the place of festival and of staying there and the loss of profits which he would have earned.
Held: Court held that the damages claimed were too remote. All of this was due to the frustration of the special purpose and that was not known to the company.

Building Contract:
Works and building contracts are undertaken only with a view to earning profits, the party committing the breach would be liable for the contractor's loss in terms of expected profits. 

Difference Between Market Price And Contract Price (Sale And Suppy Transactions)
In a sale transaction, damages are generally awarded on the basis of the difference between the contract price and market price. If the seller defaults, the byer may have to buy elsewhere at an extra cost. If the buyer defaults, the seller may have to make a forced sale which may bring him less money than what he would have obtained under the contract. Such difference is recoverable as damages. The buyer is under a duty to keep his loss to the minimum by buying his material elsewhere so as to keep the business going.[13]

Murlidhar Chirajilal V Harishchandra Dwarakadas[14]
Facts: There was a contract for supplying canvas to be consigned to Calcutta, free on rail (f.o.r.) Kanpur. The transport and labour chares were to be bore by the buyer. The seller failed to supply at Kanpur and the question was whether damages were to be assessed according to Kanpur or Calcutta prices were whether the seller was entitled to profits which he could have made on resale at Calcutta.

Held: The goods were deliverable at Kanpur and therefore damages should be assessed according to the difference between contract and market prices at Kanpur., for that was the only loss which would be said to have arisen naturally in the usual course of things from the breach.


Whether Actual Purchase Or Sale of Goods Necessary
Union of India V. Commercial Metal Corpn[15]
High court of Delhi held that it is not necessary on default by the seller to deliver, the plaintiff should have actually bough the goods elsewhere and only then claim the difference. The court said that damages could be claimed on market basis.

Saraya Distillery V. Union of India[16]
The same ruling was observed here. The court said that the injured party can recover compensation on the basis of the difference between the contract and market prices without actually purchasing the goods. All that has to be proved is the buying price at which the injured party can obtain substitute goods.

Maharashtra Seb V Sterlite Industries (India) Ltd[17]
The court held that plaintiff was not entitled to any compensation without actually acquiring the material elsewhere and then showing the loss.

Loss of Profits Is A Special Loss-
Loss of profits which are to accrue upon resale cannot be recovered unless it is communicated to the other party that the goods are for resale upon a special contract.

Consequences of Delay In Transit-
The plaintiff's money remained blocked for the period. He was allowed to recover interest on the money by way of damages for the loss.[18] In another case of delay and damage, the railways have been held liable to the extent to which the value of the goods had diminished.[19]

Escalation of Costs-
A works contract was in writing. Delay in completing the works was due to the contrator's fault. It seemed that he was delaying things in order to take advantage of escalation of prices. Full payment was already made to him according to the originally agreed rates. A quantum meruit suit for recovering escalated costs was held to be not maintainable.[20]

Compensation For Liability To Third Party Before Payment-
Where, on account of the seller's default, the buyer was not able to keep his commitment under a sub-sale and became liable to compensate the third party, the court said that there is no rule of law that a liability without payment does not constitute a recoverable loss.

Measure of Damages
Once it is determined whether general or special damages have to be recovered they have to be evaluated in terms of money. It is governed by some fundamental principles.

1.Claim For Damages Is Not Debt:
A claim for damages arising out of breach of contract, whether for general or liquidated damages, remains only a claim till its adjudication by the court and becomes a debt only after the court awards it.

2. Damages Are Compensatory, Not Penal:
It is well-settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far asmoney can do so, as if his rights have been observed.[21] When this is accomplished, the primary aim or principle of the law of damages has been fulfilled.[22]

Robinson V Harman[23]
Facts: The defendant having agreed to grant a lease of a certain property to the plaintiff, refused to do so. The court allowed the plaintiff by way of damages the expenses incurred by him on the preliminary legal work and also for the profits which he would have earned if the lease had been granted to him.

Parke B stated the principle thus:
What damages is the plaintiff entitled to recover? The rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.

Thus, damages are given by way of compensation for the loss suffered by the plaintiff and not for the purpose of punishing the defendant for the breach.[24]

3. Inconvenience Caused By Breach:
The inconvenience caused by the breach may be taken into account sometimes. Hobbs v London & South-Western Rly Co[25], where a train pulled its passengers to a wrong direction and consequently the plaintiff and his wife, finding no other conveyance e, nor a place to stay, had to walk home at midnight, the jury allowed 8 euros as the damages for the inconvenience suffered.
In the case of McMahon v Fields[26], the decision given in Hobbs v London & South-Western Rly Co. was criticized and damages were allowed when the plaintiff's horses were turned out of the defendant's stable in breach of contract and they caught a cold before an alternative accommodation could be found for them.

4. Loss Caused By Misrepresentation:
The price at which a thing is purchased and its difference with the real value, when representation about it is discovered, is the yardstick for compensation.

Naughton V O’callaghan[27]
Facts: A horse was purchased described as fit for races. But it turned out to be of different breed. This was discovered after a long process of trial and error and after discovery its market value was much less.
Held: Where an article purchased as a result of misrepresentation could have been resold immediately after the sale for the price paid but by the time the misrepresentation was discovered its value had fallen by reason of a defect in it which had then become apparent, the appropriate measure of damages would be the difference between the purchase price and its value at the time when misrepresentation is discovered and not the difference between the purchase price and its actual value at the time of purchase.

5. Incidence of Taxation:
Since the principle is that of compensation, and no more than compensation, the benefits, if any, that the plaintiff has received against the loss suffered are to be taken into account. For example, when a dismissed employee receives, unemployed benefits, his compensation is reduced by that amount. If he is given compensation for loss of prospective earnings, the amount of income tax which he would have to pay on the amount, if he receives as earning would go to reduce the compensation.

6. Nominal Damges (No Loss Situation)
Where the plaintiff suffers no loss the court may still award him nominal damages in recognition of his right. This is in discretion of the court. The court may altogether refuse to award any damages or may award even substantial damages. It has been pointed out by the Delhi High Court, following some earlier High Court decisions, that section 73 does not give any cause of action unless and until damage is actually suffered. Reliance was also placed upon the Privy Council decision in Mackay v Kameshwar Singh[28] where it was observed that the difference, if the market price exceeds the contract, is the sole damage in general recoverable and a contract of resale or repurchase is immaterial.

Prakash Narain J did not agree with this contention. He took the Privy Council decision to be no authority for the proposition that irrespective of whether there was any loss, damages must be paid and that the decision is only in the context of quantum of damages. Thus, he refused to countenance the view that compensation can be awarded when there has been no loss or damage.

7. Pre Contract Expenditure:
Pre-contract expenditure may be recovered as damages if it was within the contemplation of the parties. The Court of Appeal laid down this principle in Anglia Television Ltd  v Reed.[29] Here, a television artiste who having been engaged as a leading actor for a television film, repudiated the contract. The producer was unable to find a substitute and, therefore, had to abandon the project. The loss of profit was incapable of being estimated. The court allowed him as damages the money spent by him in engaging a director, a designer, etc., as this kind of expenditure was within the contemplation of the parties.
This view is supported by the recent decision in Lloyd v Stanbury.[30]

Facts: There was a contract for the sale of land. In anticipation of the contract- and before it was concluded- the purchaser went to such expense in moving a caravan to the site and getting his furniture there. The seller got into a contract but later on broke it.

Claim: The purchaser claimed loss on profit and cost of moving the caravan.

Held: The land had not increased in value, so the purchaser could not claim for any loss of profits. But he could recover the cost of moving the caravan and furniture, because it was "within the contemplation of the parties when the contract was signed."

8. Mental Pain And Suffering And Punitive Damages (Non-Pecuniary Loss)
In ordinary cases damages for mental pain and suffering caused by the breach are not allowed.[31] It is not appropriate to award damages for anguish and vexation cause by breach of contract when the contact is an ordinary commercial one. But they may be allowed in special cases.

The House of Lords in Addis v Gramophone Co. Ltd.[32]listed three situations in which mental pain and suffering can be taken into account:
Action against a banker for refusing to pay a customer's cheque when he has in his hands funds of the customer
Action for breach of promise of marriage (now abolished in England)
Where the vendor of real estate, fails to make title.

9. Compensation For Non-Pecuniary Loss
House of Lords in their decision in Farley v. Skinner,[33]held that there is no reason why compensation for non-pecuniary damages should not be allowed.

The claimant was considering the purchase of tranquil country property. He instructed a surveyor to report on the volume of aircraft noise in the area. The surveyor negligently reported that the property was unlikely to be affected by the noise. The claimant brought the property and subsequently discovered that it was significantly affected by such noise. He brought an action against the surveyor to recover compensation.
The court approved the award of 10,000 Euros as damages for breach of a contractual duty of care in respect of survey report.

10.Damages For Breach of Confidence
Damages are also allowed for breach of confidence.

Fraser V Thames Television Ltd[34]
Three television formed a rock group. They conceived an idea of creating a show which revolves around their individual and group life. This resulted in a written agreement which provided some payment to the ladies but forbade the company from using the idea unless the ladies were given the opportunity to act and they declined it. Without giving the opportunity, the company produced the programme with great commercial success.
The company was held liable in damages to the ladies.

Duty To Mitigate [S.73 (Explanation)]
Where goods were sold 4.5 months after breach in a crashing market, that was held to be not reasonable and F.C.I. was allowed to recover only nominal damages. Forfeiture of the earnest money of Rs 1000 was considered to be sufficient.

Similarly, where a seller refuses to perform the contract, the buyer should buy the goods if they are available from any alternative source and cannot recover any further loss that may be due to his own neglect.[35]

Exclusion of Section 73: Arbitration Clause
Whether in the context of terms and conditions of a contract it is permissible to provide that Section 73 would not apply and the special terms of the contract should be applied for making out recoverable loss, the court said that it depends upon the appreciation of the facts of the case and if the arbitrator had followed the special provision, no fault in his award could be found for that reason alone.[36]

Liquidated Damages And Penalty (S.74)
English Law:
The parties to a contract may determine beforehand the amount of compensation payable in the event of breach. According to English law a sum so fixed may fall in any of the following two categories:
Liquidated damages, or
Penalty.
If the sum fixed represents a genuine pre-estimate of the probable damage that is likely to result from the breach, it is liquidated damages. A sum less than the amount of probable damage is also regarded as liquidated damages. The whole of such sum is recoverable.

Dunlop Pneumatic Tyre Co. Ltd V. New Garage & Motor Co. Ltd.[37]
Facts: A manufacturer of tyres supplied a quantity of tyres to a dealer on the condition that they would not be sold below the list prices and that liquidated damages, not penalty, of 5 euros would be payable for every tyre sold in breach of the agreement. The dealer committed the breach.

Issue: Whether the above sum was intended as a genuine compensation for the loss suffered.
Held: House of Lords held it to be liquidated damages.

Lord Dunedin stated the effect of cases in the following propositions:
The expression used by the parties is not conclusive. The court must find out whether the payment stipulated is in truth a penalty or liquidated damages.
The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damages.
The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract.

Various tests have been suggested, to assist the task:
(4.1) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greater loss that could conceivably be proved to have followed from the breach.
(4.2) It will be penalty if the breach consisted only in not paying a sum of money and the sum stipulated is a sum greater than the sum which ought to have been paid.
(4.3) There is a presumption (but no more) that it is penalty, when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion a serious and others but trifling damage".[38]

Court's Power To Reduce Specified Amount:
If the sum fixed by both the parties, is held to be liquidated damages then it recoverable in full. But if it is viewed as "penalty", it is rejected. Damages will then be calculated according to the ordinary principles. The warning given by DIPLOCK LJ should be kept in mind:[39]

The court should not be astute to descry a penalty clause in every provision of a contract which stipulates a sum to be payable by one party to the other in the event of breach by the former.

It was further added by Cheshire and Fifoot:
Such a stipulation reflects good business sense and is advantageous to both parties. It enables them to envisage the financial consequence of a breach; and if litigation proves inevitable, it avoids the difficulty and legal costs, often heavy, of proving what loss has in fact been suffered by the innocent party.

An illustration of "penalty" in Ford Motor Co. v. Armstrong[40] may be referred to:
The defendant, a retailer, received from the plaintiffs, supplies of cars and parts and agreed not to sell any item below the listed price. A sum of 250 euros was payable for every breach as "agreed damages".

Heavy Amount As Evidence of Penalty:
The House of Lords in their decision in Bridge v Cambell Discount Co Ltd.[41] held that whether two-thirds of the price is made payable in the event of a default, that should be viewed as a "penalty". The Court of Appeal pointed out in a subsequent case,[42] that where the hire and purchase agreement which, in the event of default, provides for the payment of the full amount or a fixed amount whether the default takes place in the beginning or towards the end of the period of agreement, is bound to be regarded as a penalty.

Similarly, where the sum of money payable being very small and the agreement provides that in the event of default a large sum would become payable, that is obviously a penalty.

Figure Fixes Constitutes Ceiling:
Where the figure of compensation assessed by the parties carries some sense, whether it is reasonable or not, it will constitute the ceiling, and nothing more than that would be recoverable.

Cellulose Acetate Silk Co. Ltd. V Widness Foundry[43]
Facts: A contract for the delivery and erection of a certain machinery provided that the contractor would have to pay 20 euros as penalty for each day of default. The contractor delayed the completion of the work by thirty weeks. According to the contract his liability was 600 euros. But the purchaser's claims 5850 euros being the actual loss suffered by them by reason of the delay.

Held: They were entitled to claim only 600 euros.

Stipulation For Payment On Events Extraneous To Breach of Contract:
A contract providing for payment of money by one party on the occurrence of a specified event, rather than on the breach of a contractual duty owed by that party cannot be a penalty. A person who guaranteed the payment of promissory notes issued by a contractor against which loans were provided, could not avoid his liability by showing that the amount covered by the promissory notes would have amounted to penalty.[44]

Applicable Whether Stipulation Is For Payment In Cash Or Kind:
There is no difference between a penalty for non-payment of money due under a contract and a penalty for the non-performance of some other obligation and, there is no distinction between a penalty which requires the payment of money and a penalty which requires the transfer of property.

Rule Stated In Section 74:
The rule is that where a sum is named in a contract as the amount to be paid in case of breach, regardless whether it is a penalty or not, the party suffering from breach is entitled to receive reasonable compensation not exceeding the amount so named. The court cannot order damages beyond that. The distinction between liquidated damages and penalty has been abolished in India. The courts award reasonable compensation not exceeding the stipulation. The courts knock down agreements which are unconscionable and extravagant. Whether or not the party has proved to have suffered actual loss, is immaterial.[45]

This has certain advantages over the English system. The section dispenses with the necessity of laying down rules for distinguishing liquidated damages from penalty. According to English Law, the court must either accept the amount in whole or reject it in whole. In India, the court need not reject the amount. It may either accept the amount or reduce it to what appears reasonable.

One Party Not To Be Adjudicating Authority:
In a case before the Supreme Court, a clause in a contract was to effect that for any breach of the conditions of the contract the first party shall be liable to pay damages to the second party as may be assessed by the second party. This clause was held to be void because it had the effect of making a party also a judge to decide breach and assess damages.[46]

Breach And Right To Compensate Must Be Established:
The injured party has to prove that there has been a breach of contract on the part of the other party and therefore the remedial system provided in the contract is exercisable.

Engg Works V Kerala Industries[47]
Claim: Claim was for refund of the amount retained by the other party as liquidated damages of breach. A decree for refund of the was passed without going into the question whether delay in completion of the work was caused due to lapses on the part of one party or the other or whether the guarantee had become invokable. The case was sent back to trial court for fact finding as to breach and its consequences.

The court has to make its own assessment of the amount of loss caused by the breach. It cannot blindly follow the contract clause in awarding damages without adjudication.[48]

Unilateral deduction from final bill not permissible
It has been held that unilateral deductions towards liquidated damages from the contractor's final bill are not permissible. Even if there is a breach, the aggrieved party cannot of its own work out liquidated damages and deduct the amount from the final bill.

Security Money
Security money paid in respect of other contracts cannot be forfeited in respect of the contract under dispute, but bill-money due to the contractor under other contracts may be so used.

A clause in a contract provided that all moneys or compensation payable to the government under the terms of the contract may be realized out of the security deposit or money due under any other account.

The Supreme Court came to the conclusion that this clause enabled the government to realize its claim from money due to the contractor in respect of other contracts and the security deposited under the present contract but not the security deposit belonging to other contracts.[49]

Where a contract for the supply of gas in cylinders was being performed in installments and there was such a breach in respect of one installments which entitled the purchaser to terminate the contract, he was allowed compensation at the rate fixed in the contract for the failure to supply the remainder. To attract Section 74 it is not necessary that a contract should be broken in entirety.[50]

Minimum Charges
Minimum charges for supply of electricity have been held to be not by way of penalty. The maintenance of a supply line does not cost something and if a consume does not consume to a certain figure, the supplier may recover from him the specified minimum in order to meet his costs. This requires that the minimum should be reasonable in the circumstances and not arbitrary.[51]

Interest By Way of Damages:
Interest in generally not awarded by way of damages. There has to be an agreement to that effect or statutory provisions. When money due is wrongfully withheld, interest can be demanded even in the absence of agreement. But for that purpose, a written demand is mandatory. In the absence of any such thing as that, the plaintiff was allowed interest at the rate of 6%. The withheld payment was due under the contract.[52]

Bank's Service Charged:
As per the terms and conditions of the issue of the credit card, the holder of the cad had to pay a service charge if he did not pay to the bank within the stipulated time the amount used through the credit. This was held to be not a penalty. The fact that the bank was not complying with certain requirements of the Service Tax Charges Act would not alter the nature of the charge.[53]

Statutory Compensation:
Where compensation is payable in terms of a statutory provisions, the Supreme Court has held that the provision applicable would be one that is in force at the time of cause of action and not one that was in force at the time of the contract.

Padma Srinivasan V Premier Insurance Co Ltd[54]
Facts: The plaintiff's husband was killed by a goods lorry which was insured with the defendant insurance company. At the time of the policy, the statutory compensation for loss of life under the Motor Vehicles Act, 1939, was Rs. 20,000. By the time of the accident the Act had been amended by raising the compensation money to Rs 50,000.

Held: The court allowed the revised figure. This did not amount to retrospective operation, because the accident had taken place after the amendment. The result would have been different if the accident had happened before the amendment or if the parties had contracted only on the basis of law as it then stood.

A Statutory contract means that it is a contract with some statutory content which generally contain provisions regarding determination of tariff as per, for example, Section 43-A(2) of the Electricity Supply Act, 1948 regarding determination of tariff. The court was dealing with a power purchase agreement. [55]

Common Features Between English And Indian Laws
The distinction between liquidated damages and penalty is not altogether irrelevant to the section. Its relevance, in the first place, arises from the fact that the amount contemplated by the parties will be reduced only if it appears to be by way of penalty. Otherwise the whole of it is recoverable as liquidated damages. Secondly, the first explanation to the section uses the word "penalty". It provides that "a stipulation for increased interest from the date of default may be a stipulation by way of penalty".

Another common feature between English common law and Indian law is shown by the decision of the Supreme Court in Chunilal V. Mehta & Sons Ltd. v. Century Spg. & Mfg Co. Ltd[56], where it has been held by the Court that "by providing for compensation in express terms the right to claim damages under the general law is necessarily excluded".

End-Notes
[11] State of Rajasthan v. Nathu Lal, AIR 2006 Raj 19.
[12] ILR (1898) 21 Mad 172.
[13] Sarvaraya Textiles Ltd. v. N. Rajagopal & Co, 2005 AIHC 3372 (AP).
[14] AIR 1962 SC 366.
[15] AIR 1982 Del 267.
[16] AIR 1984 Del 360.
[17] AIR 2000 Bom 204.
[18] Union of India v Steel Stock Holder's Syndicate, (1976) 3 SCC 108.
[19] Union of India v B. Prahlad & Co. AIR 1976 Del 236.
[20] Gujarat Housing Board v Harilal Jethalal, AIR 2001 Guj 259.
[21] Victoria Laundry (Windsor) Ltd v Newman Industries Ltd, (1949) 2 KB 528.
[22] Friedman Iron & Supply Co. v J.B. Beaird & Co., (1952) 63 SO 2d 144.
[23] (1848) 18 LJ Ex 202.
[24] Graham v Campbell, (1878) 7 Ch D 490 (CA).
[25] (1875) LR 10 QB 111.
[26] (1881) 7 QBD 591 (CA).
[27] (1990) 3 All ER 191.
[28] AIR 1932 PC 196
[29] (1972) 1 QB 60
[30] (1971) 2 All ER 267.
[31] Withers v General Theatre Corpn Ltd, (1933) 2 KB 536.
[32] 78 LJ KB 1122.
[33] (2001) 4 All ER 801.
[34] 1984 QB 44.
[35] Rodocanachi v Milburn, (1886) 18 QBD 67 (CA).
[36] Maharashtra SEB v Sterlite Industries (India), 2001 8 SCC 482.
[37] Dunlop Pneumatic Tyre Common object Ltd v New Garage and Motor Co. Ltd, 1915 AC 79.
[38] Elphinston v Monkland Iron & Coal Co, (1886) 11 AC 332 (HL)
[39] Robophone Facilities Ltd v Blank, (1966) 1 WLR 1428.
[40] (1915)31TLR 267 (CA).
[41] 1962 AC 600.
[42] Anglo-Auto Finance Co. Ltd v James, (1963) 3 All ER 566.
[43] (1933) AC 20.
[44] Export Credit Guarantee Deptt v Universal Oil Products Co, (1983) 1 WLR 399.
[45] Punjab Woollen Textiles Firm V Bank of India, AIR 1992 P&H 158.
[46] State of Karnataka v Shree Rameshwara Rice Mills, (1987) 2 SCC 160.
[47] AIR 2001 Ker 326.
[48] Uma Minerals v Malabar Cements Ltd, AIR 2003 Ker 146.
[49] Union of India v K.H. Rao, (1977) 1 SCC 583.
[50] Indian Drugs and Pharmaceuticals Ltd v Industrial Oxygen Co (P) Ltd, 1984 Mah LJ 142.
[51] Mahavir Khandsari Sugar Mill v Maharashtra SEB, AIR 1993 Bom 279.
[52] Y.P. Ganesan v T.N. Civil Supplies Corpn Ltd (2006) 1 CTC 277 (Mad).
[53] Central Bank of India Ltd v Manipur Vasant Kini, (2000) 1 Mah LJ 744.
[54] (1982) 1 SCC 613.
[55] Indian Thermal Power Ltd v State of M.P., (2000) 3 SCC 379.
[56] AIR 1962 SC 1314.
[1] Sunrise Associates v. Govt of NCT of Delhi, (2006) 5 SCC 603.
[2] Sudesh Prabhakar Volvoikar v. Gopal Babu Savolkar, (1996) 5 Bom CR 1.
[3] (1843-60) ALL ER Rep 461.
[4] (1873) LR 8 CP 131.
[5] (1961-63) All Er Rep 339.
[6] Dominion of India v. All India Reporter Ltd, AIR 1952 Nag 32.
[7] (1876) 1 QBD 274.
[8] (1949) 2 KB 528.
[9] (1966) 2 QB 695.
[10] 1949 AC 196.