Section 74 of ICA : Section 74: Compensation For Breach Of Contract Where Penalty Stipulated For

Explanation using Example

Imagine that Raj signs a contract with a wedding photography company for his wedding. The contract states that if the company fails to show up on the wedding day, they must pay Raj a penalty of Rs. 50,000. Unfortunately, the photography company has an emergency and doesn't make it to the event. Raj sues for the penalty, but he managed to get a replacement photographer for Rs. 15,000.

In court, under Section 74 of the Indian Contract Act, 1872, the judge decides that the photography company should pay Raj reasonable compensation. Even though the contract states a penalty of Rs. 50,000, the judge considers the actual loss Raj suffered and orders the company to pay him Rs. 15,000, the cost he incurred for hiring the replacement photographer.