Glossary
Liquidated damages
A sum named in a contract as payable on breach, which under section 74 of the Indian Contract Act, 1872 is a ceiling on reasonable compensation.
Liquidated damages are a sum the parties name in their contract as the amount payable if it is broken. Under section 74 of the Indian Contract Act, 1872, where such a sum is named the injured party may recover reasonable compensation not exceeding that sum. The named figure is a ceiling the court tests for reasonableness, not an amount that is automatically due.
It sits beside section 73, which gives compensation for loss that arose naturally in the usual course of things from the breach, or that the parties knew when they contracted to be likely to result from it. A vendor that did not know its customer was a regulated entity may argue that regulatory consequences were not in contemplation. Hence a contract that states the buyer's regulated status. The position is stated as at 9 October 2026.
Used in
- Delay and variation claims under an Indian construction contract turn on section 55, the section 74 ceiling and a narrow challenge under section 34
- An AI vendor's indemnity moves the money, not the responsibility: contracts, diligence and disclosure
- The Defence Procurement Manual 2025 halves the cap on liquidated damages until the inexcusable delay passes a quarter of the total delivery period
Sources
- ActThe Indian Contract Act, 1872 (sections 73 and 74), India Codeindiacode.nic.inOn this site: The Indian Contract Act, 1872
Cite this termLiquidated damages. Juris Eagle glossary. Stated as at 9 October 2026. https://juriseagle.com/glossary/liquidated-damages