Breach of Contract in India: Types, Remedies & Legal Action

A contract means nothing if it can't be enforced. When the other party fails to deliver, misses deadlines, or outright refuses to perform, you need to know your legal options. This guide covers every type of breach recognized under Indian law and the remedies available to you.

What Constitutes Breach of Contract?

Under the Indian Contract Act 1872, a breach occurs when a party fails to perform their obligations as specified in the contract, without a lawful excuse. The breach can be total (refusing to perform entirely) or partial (performing defectively or incompletely).

Types of Breach

Remedies for Breach of Contract

1. Damages (Sections 73-75)

• Ordinary/General Damages (Section 73): Compensation for loss naturally arising from the breach. Must be foreseeable at the time of contracting.
• Special Damages: Compensation for unusual losses that were communicated to the breaching party at the time of contracting.
• Liquidated Damages (Section 74): Pre-agreed amount in the contract as "reasonable compensation." Courts can reduce it if considered excessive.
• Nominal Damages: Token amount when breach is proved but no actual loss occurred.

Important: Indian law (Section 74) does not distinguish between liquidated damages and penalties as strictly as English law. The court awards "reasonable compensation" not exceeding the stated amount, regardless of the label.

2. Specific Performance (Specific Relief Act 1963)

The court orders the breaching party to actually perform their contractual obligation. Available when:

• Monetary damages are inadequate
• The subject matter is unique (land, rare goods, specific property)
• The contract terms are certain and enforceable

After the 2018 amendment to the Specific Relief Act, specific performance is now the norm rather than the exception for contracts. Courts must grant it unless there are specific grounds to refuse.

3. Injunction

Court order preventing a party from doing something that would breach the contract. Two types:

• Temporary injunction: During the pendency of the suit
• Permanent injunction: Final order after the suit is decided

4. Quantum Meruit

"As much as earned." When a contract is terminated due to breach, the party who has partially performed can claim reasonable compensation for the work already done. Example: A contractor who completes 60% of construction before the owner breaches.

5. Rescission (Section 39)

The innocent party can treat the contract as terminated and refuse further performance. This releases both parties from future obligations but doesn't affect claims for breach that occurred before rescission.

Limitation Period

Under the Limitation Act 1963, you must file a suit for breach of contract within 3 years from the date of breach. Missing this deadline means your claim is time-barred, regardless of its merits.

Protecting Yourself: Contract Drafting Tips

1. Include liquidated damages clause: Pre-agree on breach compensation to avoid lengthy damage calculations
2. Define "material breach" clearly: List specific events that constitute material breach
3. Add cure period: Give the breaching party 15-30 days to fix the breach before you can terminate
4. Include force majeure: Protect against breaches caused by events beyond control
5. Specify dispute resolution: Arbitration is faster and cheaper than litigation

Key Takeaways

• ✅ Breach can be actual, anticipatory, material, or minor
• ✅ Damages are the most common remedy, specific performance is now the default
• ✅ Section 74 gives courts discretion on liquidated damages
• ✅ File suit within 3 years of breach or lose your right
• ✅ Draft contracts with clear breach definitions, cure periods, and remedies

Frequently Asked Questions

What is considered a breach of contract in India?

A breach occurs when a party fails to perform their obligations under the contract without lawful excuse. Breaches can be actual (failure to perform when due) or anticipatory (one party indicates they will not perform before the deadline). Both types give the aggrieved party the right to seek remedies.

What remedies are available for breach of contract in India?

The Indian Contract Act provides three main remedies: damages (monetary compensation under Sections 73-75), specific performance (court orders the breaching party to perform, under the Specific Relief Act 1963), and injunction (court restrains a party from doing something). The remedy depends on the nature of the breach.

Can you claim compensation for mental distress in breach of contract?

Generally no. Indian courts follow the rule in Hadley v Baxendale that damages must be foreseeable and directly arising from the breach. Mental distress damages are typically not awarded in commercial contracts. However, in consumer disputes and employment matters, courts have occasionally awarded compensation for mental harassment.

What is the limitation period for breach of contract in India?

Under the Limitation Act 1963, the limitation period for breach of contract is 3 years from the date the breach occurs. For contracts under seal (registered documents), it is 12 years. Missing the limitation period means the claim becomes time-barred and cannot be pursued in court.

Related reads: Arbitration vs Litigation India · Contract Termination Rights · Contract Compliance Checklist