Even if there is no specific evidence of loss suffered by the Party alleging breach, the delay caused itself can be taken to have resulted in loss including loss of interest on the capital.
Two questions arose in the instant matter for Courts consideration – When and to what extent can the stipulated liquidated damages for breach of a contract be held to be in the nature of penalty in absence of evidence of actual loss and to what extent the stipulation be taken to be the measure of compensation for the loss suffered even in absence of specific evidence; and whether burden of proving that the amount stipulated as damages for breach of contract was penalty is on the person committing breach?
The Apex Court held that even if there is no specific evidence of loss suffered by the Party alleging breach, the delay caused itself can be taken to have resulted in loss including loss of interest on the capital. Once it is held that the party complaining breach has suffered loss on account of breach of contract, and is entitled to compensation to the extent of loss suffered, it is for the other party to show that stipulated damages are by way of penalty. 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 genuine pre-estimate of loss, the actual loss need not be proved. Burden to prove that no loss was likely to be suffered is on party committing breach.
The jurisdiction of the court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; and compensation has to be reasonable. Under Section 73 of the Contract Act when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him. Delay in executing the work if results in loss and the aggrieved party in such situation is entitled to reasonable compensation.
Evidence of precise amount of loss may not be possible but in absence of any evidence by the party committing breach that no loss was suffered by the party complaining of breach, the Court has to proceed on guess work as to the quantum of compensation to be allowed in the given circumstances.
[M/s. Construction & Design Services vs. DDA]
Civil Appeal Nos. 1440-1441 of 2015)