Section 23 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 23 says that a contract fit for specific performance may still be specifically enforced even though a sum is named in it to be paid on breach and the party in default is willing to pay it. The test is whether the sum was named only to secure performance and not to give the party in default an option of paying money instead. If performance is enforced, the named sum is not also decreed.
This article follows the consolidated text of the Act consulted (amendments shown up to Act 18 of 2018). Later amendments should be checked before you rely on any provision.
A contract "otherwise proper to be specifically enforced" may be enforced even if it names a sum payable on breach, and the party in default is willing to pay that sum, if the court is satisfied the sum was named only to secure performance and not to give the defaulter an option to pay money instead. The court looks at the terms of the contract and other attending circumstances. When it orders performance, it does not also decree the named sum.
Why the section exists
Many contracts say that if one side breaches, it will pay a stated amount. A defaulting party may then argue: "I am willing to pay the amount, so there is no need to perform." Section 23 deals with that argument. Its heading is "Liquidation of damages not a bar to specific performance". It shows that a damages clause does not, by itself, turn a contract into one that can be discharged by paying money.
For a business drafting supply, construction or property contracts, this section decides whether the clause on damages is read as the price of walking away or as a back-up that keeps the obligation alive. If you are drafting or reviewing such a clause, you can talk to us about agreement drafting.
Section 23(1): the rule and the test
"A contract, otherwise proper to be specifically enforced, may be so enforced, though a sum be named in it as the amount to be paid in case of its breach and the party in default is willing to pay the same, if the court, having regard to the terms of the contract and other attending circumstances, is satisfied that the sum was named only for the purpose of securing performance of the contract and not for the purpose of giving to the party in default an option of paying money in lieu of specific performance."
Break it into parts.
- "otherwise proper to be specifically enforced": the contract must already be one that can be specifically enforced. Section 23 does not widen the kinds of contract covered; the limits in sections 14 and 16 remain. See our post on section 14 and the article on section 16.
- "though a sum be named in it as the amount to be paid in case of its breach": the contract names a sum payable on breach.
- "the party in default is willing to pay the same": the defaulter offers the money.
- The court must be "satisfied": after "having regard to the terms of the contract and other attending circumstances".
- The finding: the sum "was named only for the purpose of securing performance" and "not for the purpose of giving to the party in default an option of paying money in lieu of specific performance".
So the question is one of purpose. Was the sum a security for performance, or was it the agreed price of non-performance? If it was a security, the contract can be enforced in specie. The section does not say what happens if the court is not satisfied; the text is silent on that.
An invented example: Orbit Interiors agrees to deliver and install a made-to-order staircase for Gupta Villas by a fixed date. The contract says that if Orbit fails, it will pay Rs 1,00,000. Orbit then says it is ready to pay Rs 1,00,000 and will not install. If the court finds the sum was named only to secure performance and not to give Orbit an option to pay instead, the contract can still be specifically enforced. The figure is invented.
Section 23(2): no double recovery of the named sum
"When enforcing specific performance under this section, the court shall not also decree payment of the sum so named in the contract." The plaintiff gets performance, and the court "shall not also decree" the named sum. The sub-section prevents the plaintiff from receiving both performance and the liquidated sum for the same breach.
That does not shut out other relief. Compensation is dealt with in section 21, and section 23(2) speaks only of the named sum. The Contract Act deals with stipulated sums in its own provisions; for that Act, see our post on liquidated damages and penalty under section 74 of the Indian Contract Act, 1872. That section number belongs to the Contract Act.
| Sub-section | Rule | Key words |
|---|---|---|
| 23(1) | Named sum does not bar specific performance | Contract otherwise proper to be enforced; sum named only to secure performance; no option to pay money in lieu |
| 23(2) | No decree of the named sum when performance is enforced | "shall not also decree payment of the sum so named" |
Drafting lessons
The section turns on what the clause was for. Words in the contract and the surrounding circumstances are what the court looks at. A clause that says the sum is "in addition to the obligation to perform" and describes itself as security reads differently from one that says "either party may terminate by paying". If you want the other side to remain bound to perform, say so, and avoid wording that makes the money payment look like a choice. If you want to give an exit for a price, state it clearly. Our article on section 21 covers compensation guided by the Contract Act.
The text of section 23 prints no limitation period. For the period within which to sue on a contract, see the Limitation Act article on specific performance and compensation for breach of contract.
Who this affects
Sellers and buyers of property, suppliers and customers, contractors and employers, and landlords and tenants all use liquidated damages clauses. The section affects those who want performance and those who want to resist it. If a damages clause is in your contract, read it against section 23 before you rely on it as an exit, and before you resist performance on the ground that you can pay.
For the section before this one, see section 22 on possession, partition and refund of earnest money, and for the one after, sections 24-25.
Need help with a damages clause in your contract?
A clause naming a sum for breach can protect you or leave you without the performance you expected. We can review or draft the clause for you so that it says what you mean.
Key takeaways
- A sum named in a contract for breach does not by itself bar specific performance.
- The court must be satisfied that the sum was named only to secure performance and not to give the defaulter an option to pay money instead.
- The court looks at the terms of the contract and other attending circumstances.
- The contract must otherwise be proper to be specifically enforced.
- When performance is enforced, the court shall not also decree the named sum.
Read next
- Section 21 of the Specific Relief Act, 1963: compensation in a suit for specific performance
- Section 22 of the Specific Relief Act, 1963: possession, partition and refund of earnest money
- Sections 24-25 of the Specific Relief Act, 1963: bar of later suit for compensation, and awards and wills
Disclaimer: Based on a consolidated text of the Specific Relief Act, 1963 showing amendments up to the Specific Relief (Amendment) Act, 2018 (in force from 1 October 2018), as consulted on 2 October 2026. Later amendments, notifications under the Act and the law of limitation should be checked. This article is general information, not legal advice; check the official text before acting.