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IAI Actuarial Core Principles · Business Management · Implied terms, exclusion of liability, contractual remedies and damages

A contract between Vihaan Pensions Ltd and a software supplier stipulates that on breach the defaulting party will pay ₹5 lakh as a genuine pre-estimate of loss. The supplier breaches, and Vihaan's actual loss is ₹2 lakh. Under the Indian approach to stipulated sums, what is Vihaan's likely entitlement?

Vihaan is entitled to reasonable compensation capped at the stipulated ₹5 lakh, and it must generally show loss resulted from the breach. Indian law does not automatically award the full sum nor allow it on top of actual loss, and such clauses are not void.

  1. AExactly ₹5 lakh in every case, since the court never reduces agreed sums
  2. BNothing, because stipulated sums are always void
  3. CReasonable compensation not exceeding ₹5 lakh, and Vihaan must generally show it suffered a loss from the breachCorrect
  4. D₹7 lakh, being the stipulated sum plus actual loss
  5. Only the actual loss in specific performance, never money

Explanation

Under Indian law the court awards reasonable compensation not exceeding the stipulated amount, whether it is called liquidated damages or a penalty. The claimant generally must show that loss was caused by the breach. Awarding the full sum automatically or adding it to actual loss is wrong, and such clauses are not always void.

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