Indian Contract Act,1872
Act No : 9
Section : Compensation for breach of contract where penalty stipulated for
74. Compensation for breach of contract where penalty stipulated for.-1*[When a contract has been broken, if a sum is named in thecontract as the amount to be paid in case of such breach, or if thecontract contains any other stipulation by way of penalty, the party--------------------------------------------------------------------- 1 Subs. by Act 6 of 1899, s. 4, for the first para. of s. 74.---------------------------------------------------------------------48.complaining of the breach is entitled, whether or not actual damage orloss is proved to have been caused thereby, to receive from the partywho has broken the contract reasonable compensation not exceeding theamount so named or, as the case may be, the penalty stipulated for. Explanation.-A stipulation for increased interest from the dateof default may be a stipulation by way of penalty.]Exception.-When any person enters into any bail-bond, recogni- zanceor other instrument of the same nature, or, under the provisions ofany law, or under the orders of the 1*[Central Government] or of anyState Government, gives any bond for the performance of any publicduty or act in which the public are interested, he shall be liable,upon breach of the condition of any such instrument, to pay the wholesum mentioned therein. Explanation.-A person who enters into a contract with Governmentdoes not necessarily thereby undertake any public duty, or promise todo 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 BRs. 500 on a given day. A fails to pay B Rs. 500 on that day. B isentitled to (recover from A such compensation, not exceeding Rs.1,000, as the Court considers reasonable. (b)A contracts with B that, if A practises as a surgeon withinCalcutta, he will pay B Rs. 5,000. A practises as a surgeon inCalcutta. 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 toappear in Court on a certain day. He forfeits his recognizance. Heis liable to pay the whole penalty.2*(d)A gives B a bond for the repayment of Rs. 1,000 with interest at12 per cent. at the end of six months, with a stipulation that, incase of default, interest shall be payable at the rate of 75 per cent.from the date of default. This is a stipulation by way of penalty,and B is only entitled to recover from A such compensation as theCourt considers reasonable.]2*[(e) A, who owes money to B a money-lender, undertakes to repay himby delivering to him 10 maunds of grain on a certain date, andstipulates that, in the event of his not delivering the stipulatedamount by the stipulated date, he shall be liable to deliver 20maunds. This is a stipulation by way of penalty, and B is onlyentitled to reasonable compensation in case of breach.]2*[(f) A undertakes to repay B a loan of Rs. 1,000 by five equalmonthly instalments, with a stipulation that" in default of payment ofany instalment, the whole shall become due. This stipulation is notby way of penalty, and the contract may be enforced according to itsterms.]2*[(g) A borrows Rs. 100 from B and gives him a bond for Rs. 200payable by five yearly instalments of Rs. 40, with a stipulationthat, in default of payment--------------------------------------------------------------------- 1 Subs. by the A.O. 1937 for "G. of I.". 2 Ins. by Act 6 of 1899, s. 4(2).---------------------------------------------------------------------49of any instalment, the whole shall become due. This is a stipulationby way of penalty.]
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