WHAT IS ACTUAL LOSS?

ACTUAL LOSS

The principle of actual loss or Actual damage has been derived under Section 74 of the Indian Contract Act. The actual loss or actual damages are those when any sum of amount is named in an agreement. The same has to be paid in case of breach of an agreement, or if the agreement has a clause of any stipulation by way of penalty, the party or plaintiff claiming for the loss of damage will be entitled to receive that amount from the party who has breached the contract.

Even if such a clause or any amount is not mentioned in the agreement, and the court observes that the plaintiff or claimant is entitled to receive the reasonable compensation for the damage, the court may grant the sum of amount in favour of Plaintiff.

Furthermore, the stipulation for interest from the date of default may be a stipulation by way of penalty.

REASONABLE COMPENSATION NOT EXCEEDING THE AMOUNT

The Hon’ble Calcutta High Court has laid down the settled principle of law in Dharam Chand Soni And Anr. Vs Sunil Ranjan Chakrabarty And Anr. AIR 1981 Cal 323 that the court shall grant reasonable compensation shall not exceed the actual amount mentioned in the agreement. The Court further held that Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties predetermined, or where there is a stipulation by way of penalty. But the application of enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer any special benefit upon any party; it merely declares the law notwithstanding any term in the contract predetermining damages or providing for forfeiture of any property by way of penalty, the Court will award to the aggrieved party reasonable compensation not exceeding the amount named or penalty stipulated. The Court's jurisdiction is not determined by the accidental circumstance of the party in a default being a plaintiff or a defendant in a suit. Use of the expression 'to receive from the party who has broken the contract' does not predicate that the Court's jurisdiction to adjust amounts which the party has paid in default cannot be exercised in dealing with a claim of the party complaining of breach of contract.

COMPENSATION CAN BE GRANTED MAY BE LESS THAN LIQUIDATED DAMAGES

The Delhi High Court in the matter of M/S. Herbicides (India) Ltd. vs M/S. Shashank Pesticides Pvt. Ltd. has laid down the precedence that the court can grant compensation less than liquidated damages mentioned in the agreement. If the court observes that the plaintiff suffered an actual loss that is less than liquidated damages mentioned in the agreement, then the court will grant only actual loss, irrespective of the number of liquidated damages mentioned. 

The court further held that in case agreement between parties provide for payment of liquidated damages, the party suffering on account of breach of contract even if it does not prove the actual loss/damage suffered by it, is entitled to reasonable damages unless it is proved that no loss or damage was caused on account of breach of contract. In such a case, the number of reasonable damages cannot exceed the number of liquidated damages stipulated in the contract. Hence, damages which the court will grant should have only that sum amount which the plaintiff or claimant has actually.

Author: Shweta Singh