Liquidated Damages

A predetermined, genuine pre-estimate of loss agreed upon by the contracting parties at the time of signing, payable as compensation in the event of a specific contractual breach (such as delivery delay).

Legal Enforceability Under Indian Law

Governed by Section 74 of the Indian Contract Act, 1872. Under landmark Supreme Court rulings (Fateh Chand vs. Balkishan Dass and Kailash Nath Associates), the court will award reasonable compensation not exceeding the named amount, and will not enforce arbitrary penalties without demonstrable loss.

Standard Sample Clause Language

In the event the Vendor fails to achieve Milestone Completion on or before the Scheduled Delivery Date, the Vendor shall pay to the Purchaser, as liquidated damages and not as a penalty, a sum equal to 0.5% of the Milestone Fee for each calendar day of delay, subject to an aggregate maximum of 10% of the total Contract Value.

Common Drafting Pitfalls to Avoid

✕Stipulating an exorbitant daily percentage that courts will strike down as an unenforceable penalty.
✕Failing to stipulate that payment of liquidated damages does not waive the right to terminate.

Frequently Asked Questions

Does the claimant need to prove actual loss to recover liquidated damages in India?

The Supreme Court has held that where loss cannot easily be quantified, genuine pre-estimated liquidated damages are awarded. Where actual loss can be proved, compensation is limited to the actual loss up to the liquidated damages ceiling.

Related Commercial & Legal Terms

Indemnity Clause →

An indemnity clause is a contractual commitment where one party (the indemnifying party) promises to compensate and hold harmless the other party (the indemnified party) for specified losses, legal claims, damages, or liabilities arising out of a breach or specific event.

Limitation of Liability (LoL) →

A contractual risk-allocation provision that caps the maximum financial damages one party can recover from the other in the event of a breach, and excludes indirect, punitive, or consequential damages.

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