Under the Indian Contract Act, 1872, Section 73 and Section 74
provide for unliquidated and liquidated damages respectively.
Unliquidated Damages are the damages awarded by the courts on the
basis and assessment of actual loss or injury caused to the party
suffering breach of contract. Whereas, Liquidated Damages are the
damages which the parties to the contract may agree to, as payment
of a certain amount on the breach of contract.
The relevant parts of the sections are as follows:
Section 73: Compensation for loss or damage caused
by breach of contract: When a contract has been
broken, the party who suffers by such breach is entitled to
receive, from the party who has broken the contract, compensation
for any loss or damage caused to him thereby, which naturally arose
in the usual course of things from such breach, or which the
parties knew, when they made the contract, to be likely to result
from the breach of it. Such compensation is not to be given for
