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The Indian Contract Act, 1872: page 31

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     (n)A contracts to pay a sum of money to B on a day specified. A does not pay the money on that day, B, in consequence of
not receiving the money on that day, is unable to pay his debts, and is totally ruined. A is not liable to make good to B anything
except the principal sum he contracted to pay, together with interest up to the day of payment.
     (o)A contracts to deliver 50 maunds of saltpetre to B on the first of January, at a certain price. B afterwards, before the first
of January, contracts to sell the saltpetre to C at a price higher than the market price of the first of January. A breaks his promise.
    In estimating the compensation payable by A to B, the market price of the first of January, and not the profit which would
have arisen to B from the sale to C, is to be taken into account.
     (p)A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of B’s mode of conducting his
business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused
to B by the closing of the mill.
     (q)A contracts to sell and deliver to B, on the first of January, certain cloth which B intends to manufacture into caps of a
particular kind, for which there is no demand, except at that season. The cloth is not delivered till after the appointed time, and
too late to be used that year in making caps. B is entitled to receive from A, by way of compensation, the difference between the
contract price of the cloth and its market price at the time of delivery, but not the profits which he expected to obtain by making
caps, nor the expenses which he has been put to in making preparation for the manufacture.
      (r)A, a ship-owner, contracts with B to convey him from Calcutta to Sydney in A’s ship, sailing on the first of January, and
B pays to A, by way of deposit, one-half of his passage-money. The ship does not sail on the first of January, and B, after being
in consequence detained in Calcutta for some time and thereby put to some expense, proceeds to Sydney in another vessel, and,
in consequence, arriving too late in Sydney, loses a sum of money. A is liable to repay to B his deposit, with interest, and the
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expense to which he is put by his detention in Calcutta, and the excess, if any, of the passage-money paid for the second ship over
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that agreed upon for the first, but not the sum of money which B lost by arriving in Sydney too late.

     74. Compensation for breach of contract where penalty stipulated for.—1[When a contract has
                                                                          aC
been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the
contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled,
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whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who
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has broken the contract reasonable compensation not exceeding the amount so named or, as the case may
be, the penalty stipulated for.
   Explanation.—A stipulation for increased interest from the date of default may be a stipulation by
way of penalty.]
   Exception.—When any person enters into any bail-bond, recognizance or other instrument of the
same nature, or, under the provisions of any law, or under the orders of the 2[Central Government] or of
any 3[State Government], gives any bond for the performance of any public duty or act in which the
public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the
whole sum mentioned therein.
   Explanation.—A person who enters into a contract with Government does not necessarily thereby
undertake any public duty, or promise to do an act in which the public are interested.
                                                             Illustrations
     (a)A contracts with B to pay B Rs. 1,000, if he fails to pay B Rs. 500 on a given day. A fails to pay B Rs. 500 on that day. B
is entitled to recover from A such compensation, not exceeding Rs. 1,000, as the Court considers reasonable.
    (b)A contracts with B that, if Apractises as a surgeon within Calcutta, he will pay B Rs. 5,000. A practises as a surgeon in
Calcutta. B is entitled to such compensation; not exceeding Rs. 5,000, as the Court considers reasonable.
     (c)A gives a recognizance binding him in a penalty of Rs. 500 to appear in Court on a certain day. He forfeits his
recognizance. He is liable to pay the whole penalty.




1. Subs. by Act 6 of 1899, s. 4, for the first paragraph of s. 74.
2. Subs. by the A.O. 1937, for “Government of India”.
3. Subs. by the A.O. 1950, for “Provincial Government”.

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