Section 73 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 73 is the main provision on damages for breach of contract. Its first paragraph gives the party who suffers by a breach a right to compensation for loss that naturally arose in the usual course of things, or that the parties knew, when they made the contract, to be likely to result from the breach. It also says that compensation is not given for remote and indirect loss. This article covers the first paragraph; the second paragraph and the Explanation are in the next article in the series. If you have suffered loss from a breach, our legal dispute resolution team can help you assess and present the claim.
When a contract has been broken, the party who suffers is entitled to receive compensation for any loss or damage caused to him that naturally arose in the usual course of things from the breach, or that the parties knew, when they made the contract, to be likely to result from the breach. Compensation is not to be given for any remote and indirect loss or damage. The Act's illustrations (a) to (r) show how this applies; this article takes the most instructive ones.
The first paragraph, limb by limb
"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."
Break it into parts:
- A contract has been broken. The starting point is a breach.
- The party who suffers is entitled to compensation from the party who broke the contract.
- Loss or damage "caused to him thereby". There must be a causal link to the breach.
- Two kinds of loss are covered:
- loss that "naturally arose in the usual course of things from such breach"; or
- loss "which the parties knew, when they made the contract, to be likely to result from the breach of it".
The second kind depends on knowledge at the time the contract was made. The text uses "the parties knew", which refers to both.
The second sentence: remote and indirect loss
"Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach."
The Act does not define "remote" or "indirect". The illustrations are the guide.
The Act's illustrations: a selection
Section 73 has eighteen illustrations, lettered (a) to (r). The table below restates the most instructive ones, with the outcome as the Act states it.
| Illustration | Facts (plain words) | What the Act says is recoverable |
|---|---|---|
| (a) | A contracts to sell 50 maunds of saltpetre to B at a price payable on delivery. A breaks his promise. | The sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of like quality when it ought to have been delivered. |
| (i) | A delivers a machine to B, a common carrier, to be conveyed without delay to A's mill, telling B that the mill has stopped for want of the machine. B unreasonably delays, and A loses a profitable contract with the Government. | The average amount of profit which the mill would have made during the delay, but not the loss from losing the Government contract. |
| (j) | A contracts to supply 1,000 tons of iron to B at Rs. 100 a ton; A contracts with C to buy 1,000 tons at Rs. 80 a ton, telling C that it is to perform the contract with B. C fails, A cannot get other iron and B rescinds. | C must pay A Rs. 20,000, being the profit A would have made on the contract with B. |
| (k) | A contracts to make and deliver machinery to B by a fixed day. A is late; B must buy another at a higher price and is prevented from performing a contract with a third person, which had not been communicated to A, and must pay compensation for that breach. | The difference between the contract price and the sum B paid for the other machine, but not the sum B paid to the third person. |
| (n) | A contracts to pay B a sum on a specified day. A does not pay, and B, in consequence, is unable to pay his debts and is totally ruined. | Nothing except the principal sum together with interest up to the day of payment. |
| (p) | A contracts to sell and deliver 500 bales of cotton to B on a fixed day, knowing nothing of B's business. A breaks his promise, and B has no cotton and must close his mill. | A is not responsible for the loss caused by the closing of the mill. |
| (q) | A contracts to sell cloth to B, who intends to make caps of a kind for which there is demand only in one season. The cloth is delivered too late. | The difference between the contract price and the market price at the time of delivery, but not B's expected profits from the caps nor the expenses of preparing to manufacture. |
Reading the illustrations together, a pattern appears that is entirely the Act's own: where the loss was known to the other party at the time of contracting (illustration (j), and (l) on a builder told of the letting), it is included; where it was not communicated (illustrations (k), (p), (q)), or the illustration expressly leaves it out (illustrations (i), (n)), it is not allowed. We state no rule beyond what the section and its illustrations say.
A modern example (ours)
Greenfield Foods agrees to sell Harsh Hotels 1,000 kg of basmati rice at Rs. 100 a kg, delivery on 1 June. Greenfield does not deliver. On 1 June, the market price for such rice is Rs. 110 a kg and Harsh Hotels buys elsewhere. On the pattern of the Act's illustration (a), the difference between the contract price and the market price on the day delivery was due, Rs. 10,000 on these round numbers, is the kind of loss that naturally arises. Harsh Hotels also says that it lost a wedding booking worth Rs. 5 lakh because the rice was late. Unless Greenfield knew of that booking when the contract was made, the Act's illustrations (k) and (p) suggest that such a consequence is not recoverable.
What can the parties change?
Section 73 does not say "unless a contrary intention appears". The parties may, however, state in the contract the loss they have in mind: for example, a delivery clause that records "the buyer has committed to supply a third party on 5 June". That statement bears on what "the parties knew, when they made the contract". Where the parties fix a sum for breach in advance, section 74 applies; see section 74.
Practical points
- Tell the other side what rides on the contract before signing, and write it into the contract if it matters.
- Keep evidence of market prices on the relevant dates, since many of the Act's illustrations turn on market price.
- Link every item of loss to the breach. The section requires loss "caused to him thereby".
- Send notice of breach promptly; see also section 39.
Need help valuing a breach claim?
Putting a figure on a breach needs the contract, the dates of performance and proof of what was and was not known when the deal was made. Our legal dispute resolution team can help you separate the loss that the Act allows from the loss it does not. Bring the contract, the correspondence and your calculation.
Key takeaways
- The party who suffers by a breach is entitled to compensation for loss caused by it (s.73, first paragraph).
- Two heads: loss that naturally arose in the usual course of things, and loss the parties knew, when they made the contract, to be likely to result.
- No compensation for remote and indirect loss or damage.
- The Act's illustrations show recovery of price differences and known profits, and exclusion of unknown third-party liabilities and ruin from non-payment.
- The Explanation and the second paragraph are in the next article.
Read next
- Section 73 (second paragraph and Explanation): obligations resembling contract and duty to mitigate loss
- Section 74: liquidated damages and penalty stipulated in contract
- Section 72: money paid by mistake or under coercion and refund
Disclaimer: Based on the text of the Indian Contract Act, 1872 as consulted on 1 October 2026. Many questions under this Act turn on case law and on the wording of the particular contract, which this article does not cover. It is general information, not legal advice; check the official text and take advice before acting.