Breach of Contract: Claim Damages When the Other Side Breaks the Deal

What the law lets you claim when a deal is broken

Section 73 of the Indian Contract Act, 1872 is where it starts. If the other party breaks the contract, you can claim compensation for the loss or damage that breach caused you. But not every loss. It has to be loss that flowed naturally from the breach in the ordinary course of things, or loss that both of you knew, when you signed, was likely if things went wrong. Remote and indirect losses don't count.

Money isn't the only remedy, though it's the usual one. If the contract names a sum payable on breach, Section 74 lets you claim reasonable compensation up to that sum. If you rightly end the contract because of the other side's breach, Section 75 gives you compensation for that too. And sometimes the court will go further. Under the Specific Relief Act, 1963 it can order the defaulting party to actually do what it promised, or stop it from doing something it agreed not to do.

Picking the remedy is the first real decision you'll make. For most broken supply and service contracts, a money claim is the right fit. Specific performance makes sense where money won't really replace what you lost, say a one-off asset or a long-term arrangement the court can actually enforce. Injunctions are for negative promises. Think of a distributor who agreed not to deal with your competitor. Or a former vendor using your confidential pricing.

First, is it really a breach?

A breach is a failure to do what was promised, doing it badly, or flatly refusing to do it. It can happen before the due date, too. Section 39 of the Contract Act says that when one side refuses to perform, or puts itself in a position where it can't, the other side may end the contract. Lawyers call this anticipatory breach. You then have a choice. Accept the refusal and terminate, or keep the contract alive and hold them to it.

Delay is trickier. Under Section 55, if time was of the essence, missing the date lets you avoid the contract. If it wasn't, the contract carries on and you claim compensation for the delay instead. Watch for one trap. If you accept late performance, you have to tell them at the time of acceptance that you'll be claiming compensation. Stay quiet and you may lose that claim. We see it with late deliveries that get signed for at the gate without a word.

And not every failure is a breach. Expect the other side to argue something. Maybe that the contract was frustrated under Section 56 by an event outside anyone's control, or that the force majeure clause kicks in. Maybe that you hadn't done your own part first. Or that later emails changed the terms. Test your position against those arguments before a termination letter goes out. A wrongful termination by you can flip the whole case, and then you're the party in breach.

The sections that decide these cases

Putting a number on damages

The idea behind damages is simple enough. As far as money can, the court tries to put you where you'd have been if the contract had been performed. If a supplier doesn't deliver, that usually means the extra cost of buying the same goods elsewhere at market price. If a client wrongly ends a service contract, it's normally the profit you'd have made over the rest of the term, minus the costs you saved and whatever you could reasonably have earned by taking on other work.

Lost profit can be recovered. You have to prove it, though. Judges want evidence from the time: the margin on this contract, how you've done in past years, orders you lost, your books. A figure worked up from a projection after the fight started rarely gets through cross-examination. Sometimes profit is just too hard to prove. Then a claim for wasted expenditure (money you spent relying on the contract) can be the safer way to go.

You're also expected to mitigate. If the supplier lets you down, buy elsewhere within a reasonable time, and if the client walks, start looking for replacement work straight away. Loss you could reasonably have avoided isn't recoverable. There's a flip side, and it helps you. Reasonable money you spend trying to keep the loss down can be claimed back. Keep the receipts.

Liquidated damages clauses, and why the figure isn't automatic

Lots of commercial contracts fix damages up front. A common one is 0.5 percent of the contract value for every week of delay, capped at 10 percent. Section 74 says you can get reasonable compensation up to that figure. Indian law doesn't split liquidated damages and penalties sharply the way English law does. Both are capped at the named sum. Both face the reasonableness test.

The working rules come from two Supreme Court decisions, ONGC v. Saw Pipes (2003) and Kailash Nath Associates v. DDA (2015). Where loss is hard to prove, a genuine pre-estimate can be awarded without detailed proof. Where loss can be proved, you must prove it. And where the breach caused no loss at all, nothing is payable just because the clause is there. Later decisions have kept applying and refining these rules. Treat the figure in your contract as a ceiling. It isn't a payout waiting to be collected.

Advocate B.K. Singh's first question on any liquidated damages claim is whether the client can show some real loss tied to the breach, even if it can't be pinned to an exact rupee figure. Claims that just multiply days of delay by the clause rate, with nothing to show the delay hurt anybody, tend to get cut down. Often sharply.

From breach to commercial suit, step by step

This is how a breach claim of Rs 3 lakh or more usually moves in Delhi NCR. Some matters can't wait. If goods are about to be sold off or your confidential information is being misused, we go straight to court for an injunction.

1. Keep the record as it is

   Save the contract and every amendment, the emails, site records, delivery papers and WhatsApp chats, exactly as they are. Don't tidy up spreadsheets. Don't delete drafts. Make a note of who in your team saw the key events happen.

2. Affirm or terminate?

   A serious breach lets you treat the contract as over, while a lesser one means you keep it going and claim compensation. Read the termination clause and any cure period first. Then send a written notice of breach that follows the contract's procedure to the letter.

3. Keep the loss down

   Line up substitute supply, a replacement contractor or other customers within a reasonable time. Hang on to the quotations and invoices. They'll be the backbone of your damages claim.

4. Add up the claim

   Put figures on everything: extra costs, lost profit, wasted expenditure, liquidated damages and interest. On bigger or technical claims, a chartered accountant's working or an engineer's report helps the numbers hold up.

5. Send a legal notice

   The notice says what went wrong, what it cost you and what you want, and it gives the other side a chance to settle. How we draft and serve these is on our page about legal notices for business dues.

6. Go through Section 12A mediation

   Unless you need urgent interim relief, you apply for pre-institution mediation before filing. Breach claims settle there fairly often, because the amount is usually open to argument. Our page on mediation before a commercial suit explains how it runs.

7. File the commercial suit

   If mediation fails, you file. The plaint goes in with every document in your power, a statement of truth and the court fee. What the plaint has to contain is on our commercial suit drafting page.

8. Keep the case moving

   Once the written statement is in, the court holds a case management hearing and sets timelines. If the defence is thin, an application for summary judgment under Order XIIIA can save you a full trial.

Proving what the breach cost you

Breach cases usually turn on the evidence of loss. The breach itself is often plain from the emails. It's the amount that gets fought over. So build the damages file as things happen, not in a rush when the plaint is being drafted.

Good evidence looks like this. Purchase invoices for substitute goods. Quotes from at least two vendors. The replacement contractor's bills, production records that show downtime, cancelled orders from your own customers, and your audited accounts. If the loss needs technical judgment (defective machinery, poor construction work), get an independent expert report soon after the event. One prepared years later carries far less weight.

Commercial procedure is kind to a claimant with a tidy file. Under the amended Order XI, both sides have to disclose all relevant documents in their power at the pleading stage, and anything not disclosed generally can't be relied on later without leave. Emails and messages are proved with a certificate under Section 63 of the Bharatiya Sakshya Adhiniyam, 2023. If the other side holds the evidence of what went wrong, ask for it through disclosure and inspection. Don't assume they'll hand it over.

Which court hears a breach of contract case

Most business contracts come within the definition of a commercial dispute in Section 2(1)(c) of the Commercial Courts Act, 2015. Most, not all. That covers supply, distribution, franchise, construction, technology services, partnership and shareholder agreements, leases of property used exclusively for trade, and plenty more. If the specified value is Rs 3 lakh or more, you're in a Commercial Court. For a damages claim, the value is the compensation you're claiming plus interest up to the date of filing.

In Delhi, commercial suits up to Rs 2 crore go to the District Judge (Commercial Court) at the district courts, whether that's Saket, Tis Hazari, Karkardooma or one of the others. Above Rs 2 crore, they go to the Commercial Division of the Delhi High Court. A proposal to raise the district court limit has been under consideration since late 2025. Check the current limit before you file. In Ghaziabad, Gautam Buddh Nagar, Gurugram and Faridabad, the suit goes to the court designated as the Commercial Court for that district. On territory, you can sue where the defendant carries on business or where the cause of action arose, unless an exclusive jurisdiction clause says otherwise. Our page on which court hears your case goes through it.

Before any of that, look for an arbitration clause. If there's one, the defendant can ask the court to send the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The suit usually stops there. Arbitration petitions, including urgent interim relief under Section 9, are dealt with on arbitrationlawyer.in. One more thing. A claim for unliquidated damages can't be filed as a summary suit under Order XXXVII. It needs a regular commercial suit.

How long it takes, and what it costs besides fees

Papers to pull together

The breaches that come through our door most

• Supply and sale of goods. The goods didn't come, came short, came in the wrong spec, or were rejected. The measure is usually the difference in market price. Our page on supply and sale of goods disputes has more.
• Technology and service contracts. Milestones missed, deliverables half-done, or the client pulling the plug without a valid reason. Most of these come down to the scope document and the acceptance emails. See IT and software contract disputes.
• Construction work. A contractor who abandons the site, defective work, delays, running bills left unpaid. Often both sides are claiming liquidated damages for delay against each other. See construction and infrastructure disputes.
• Distribution, dealership and franchise. The principal ends the arrangement without the notice the agreement promises, someone breaches the territory or non-compete terms, or the security deposit just never comes back.
• Commercial leases. A tenant leaves early during the lock-in, the lock-in rent goes unpaid, or the premises are handed back in nothing like the agreed condition.
• Confidentiality and non-solicitation. Your data gets misused, or someone you worked with starts poaching your clients and staff. Here an injunction usually matters more than damages.

It plays out differently depending on who you are

• Suppliers and manufacturers. When a buyer wrongly refuses the goods, you usually claim the price difference on resale, plus what you spent on storage and transport. Keep the resale clean and at arm's length. A quick sale to a friendly firm at a throwaway price won't help you.
• Service firms. Wrongful termination claims turn on the notice clause. If the contract lets the client terminate for convenience on 30 days' notice, your damages may stop at that notice period rather than run for the full term.
• Lenders and investors. A breach of covenant in a loan or investment agreement is usually a debt claim with contractual interest, often backed by guarantees. In the plaint, keep the debt and any damages claim apart.
• Startups. Lost profit is hard to prove for a young business with little track record. Wasted expenditure and specific losses are usually more realistic than projected revenue, however good the projections looked in the pitch deck.
• MSMEs. If the breach is non-payment to a registered micro or small supplier, MSMED Act interest and the Facilitation Council route may serve you better than a general breach claim. Keep your Udyam certificate handy.
• Large companies. Expect limitation of liability clauses, exclusions of consequential loss and caps linked to contract value. Between commercial parties, courts generally enforce them. Read them before you put a number on anything.

Where breach claims tend to go wrong

The worst mistake is terminating in a hurry. A business that's furious about a delay fires off a termination letter, skips the cure period, and the other side promptly treats that letter as a repudiation by you. Now the case is about your breach. Not theirs. When a breach file reaches Advocate B.K. Singh, the termination letter is the first thing he reads, because it often decides who the court sees as the wrongdoer.

Second, damages that can't be proved. Some plaints claim big sums for loss of reputation, mental agony or lost business opportunity. Between commercial parties those heads rarely succeed. They also push up the court fee. A smaller claim you can actually prove generally fares better than an ambitious one that falls apart in evidence.

Third, losing track of limitation and mediation. You have three years from the breach to file. Time spent in mediation is excluded from limitation, but only if you actually apply for it. We've met businesses that kept negotiating informally for two and a half years. By then there wasn't enough time left to finish mediation and prepare a proper plaint. That's a bad spot to be in.

Delhi, Noida, Ghaziabad, Gurugram: how they differ

In Delhi, breach claims go to the commercial courts in the district complexes or, for the big ones, the Delhi High Court's Commercial Division. Filing is mostly electronic now. Genuine injunction applications get heard quickly. But the court expects your plaint to spell out the urgency clearly, not just assert it.

In Uttar Pradesh, a contract with a party in Noida, Greater Noida or Ghaziabad takes you to the commercial courts for Gautam Buddh Nagar and Ghaziabad, with appeals to the Commercial Appellate Division of the Allahabad High Court. In Haryana, Gurugram and Faridabad have commercial courts at District Judge level, and appeals go to the Punjab and Haryana High Court. Court fee schedules differ from state to state. So the same claim can cost a different amount to file depending on where it's filed.

With parties in two states, it's partly tactics. Sue near the defendant's assets and execution is easier later, while suing near your own witnesses and records makes the trial easier. An exclusive jurisdiction clause may settle the question for you. Read it first.

This week, if the other side has broken the contract

• Read the termination, notice, dispute resolution and limitation of liability clauses. Slowly.
• Check for an arbitration clause, and for an exclusive jurisdiction clause.
• Save every email, chat and project file as it is, without editing anything.
• Write down the date of the breach, and next to it the date three years later.
• Do what you reasonably can to keep the loss down, and keep a record of it.
• Hold the termination letter until someone has checked it against the contract.
• Make a list of the people in your business who saw what happened and can say so in court.

When suing isn't worth it, and what to do next

Some breach claims aren't worth taking to court. Maybe your provable loss is small. Maybe the other side has a fair counter-claim, or the contract caps liability at a low figure. In those cases a commercial settlement may get you more, and sooner. If you want to keep the relationship, mediation can produce a revised deal instead of a judgment. We'd rather tell you this at the start than after you've paid the court fee.

If the breach is serious and the loss is real, move within time, follow the contract's procedure and build your evidence of loss with care. If the other side is about to sell off assets or misuse your information, you may need an urgent injunction alongside the main claim. Fees are discussed at the first meeting and agreed in writing, stage by stage.

Want your contract, the termination emails and your loss figures looked at before you act? Send them to Advocate B.K. Singh's team through our contact page.