Under Section 73 of the Indian Contract Act, 1872, which

Solution

Section 73(1) states: "When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it." Section 73(2) provides: "Such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach." This codifies the rule in Hadley v. Baxendale (1854), which distinguishes between: (i) General damages – arising naturally from breach itself (recoverable); and (ii) Special damages – arising from unusual circumstances (recoverable only if known to both parties at formation). In Witham v. Mann (cases cited in Indian jurisprudence), courts consistently held that damages must be reasonably foreseeable as a natural consequence of breach; speculative or remote losses are excluded.