Fateh Chand v Balkishan Dass

Facts

• Fateh Chand agreed to sell/lease property to Balkishan Dass; Balkishan Dass paid an advance and agreed a further sum would stand forfeited as damages if he failed to complete the transaction within the stipulated time
• Balkishan Dass failed to pay the balance consideration within time
• Fateh Chand sought to forfeit the amount paid, treating it as agreed damages under the contract, without separately proving the actual loss suffered

Issue

1. Whether a party can forfeit or recover a contractually stipulated sum as damages under Section 74 without proving actual loss, and whether the English penalty/liquidated damages distinction applies in India.

Held

• Section 74 ICA applies to all stipulations for payment on breach, whether termed "penalty" or "liquidated damages"; the English law distinction between the two is not relevant in India
• The party complaining of breach is entitled to receive reasonable compensation not exceeding the amount named in the contract
• The court must assess reasonable compensation; a party cannot automatically retain the full stipulated sum merely because the contract labels it as agreed damages
• Where it is possible to prove actual loss, the claimant must do so; the stipulated sum operates as an upper limit, not an automatic entitlement

Ratio Decidendi

Section 74 of the Indian Contract Act is a complete code governing damages for breach where the contract names a sum payable on breach. Courts award reasonable compensation, capped at the stipulated amount. Forfeiture clauses are subject to the same scrutiny as liquidated damages clauses; unproven or unconscionable forfeiture will not be enforced in full.