To Prove Or Not To: Enforcing A Claim For Liquidated Damages

Contractual Purpose and Statutory Basis for Liquidated Damages

Liquidated damages are priorly estimated sums of compensation which are decided by parties at the time of formation of a contract, to be enforced if a breach is caused. Caution presupposed to have been observed by the parties when such formula for estimation of damages are affixed in contractual clauses.

This is in furtherance of the understanding that losses suffered that may be intangible or otherwise hard to establish are tentatively reflected by liquidated damages – the purpose for such inclusion itself being to dispense with the requirement to show proof.¹ This understanding may also be gathered from reading of Section 74 of the Indian Contract Act, 1872, which uses the phrase "whether or not actual damage or loss is proved to have been caused"² to enforce a claim for liquidated damages. A 'genuine pre-estimate of losses'³ is understood to be indicated in such clauses, unless they are