Beneath the Indian contract act, 1872, section 73 and section 74 provide for liquidated and unliquidated damages respectively. Unliquidated damages are the damages offered by the courts on the basis and assessment of real loss or injury caused to the celebration suffering breach of settlement. While, liquidated damages are the damages which the parties to the contract may conform to, as fee of a sure amount on the breach of agreement. The relevant components of the sections are as follows:

Section 73: Compensation for loss or harm resulting from breach of contract: while a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the agreement, repayment for any loss or damage brought about to him thereby, which naturally arose in the ordinary direction of factors from such breach, or which the events knew, when they made the agreement, to be likely to end result from the breach of it. Such compensation is not to take delivery of for any far flung and indirect loss or damage sustained by means of reason of the breach.

Section 74: Repayment for breach of agreement wherein penalty is stipulated for: when a contract has been damaged, if a sum is known as inside the contract as the amount to be paid in case of such breach, or if the contract incorporates any other stipulation by manner of penalty, the celebration complaining the breach is entitled, whether or not or now not real damage or loss is proved too had been brought about thereby, to acquire from the party who has damaged the agreement reasonable reimbursement not exceeding the amount so named or, because the case can be, the penalty stipulated for.

In the case of Oil & Natural gas corporation ltd. vs. Saw pipes ltd, it was held that if the phrases of the settlement are clear and unambiguous stipulating the liquidated damages in case of the breach of the agreement, unless it's far held that such estimate of damages/compensation is unreasonable or is by way of way of penalty, birthday celebration who has devoted the breach is needed to pay such reimbursement. But, in some contracts, it might be not possible for the courtroom to assess the compensation springing up from breach and if the compensation pondered isn't by using way of penalty or unreasonable, courtroom can award the identical if it's far proper pre-estimate by the parties because the measure of reasonable repayment.

Since section 74 awards affordable compensation for damage or loss resulting from a breach of contract, damage or loss brought on is a sine qua non for the applicability of the section. However, as lengthy as it serves a compensatory feature, liquidated damages have to be allowed without the requirement to prove genuine losses. As a consequence, where a sum is known as in a contract as a liquidated quantity payable through manner of damages, the birthday party complaining of a breach can acquire as reasonable reimbursement such liquidated quantity most effective if it is an actual pre-estimate of damages constant through each events and found to be such through the court docket. In instances in which the amount fixed is within the nature of penalty, handiest affordable compensation may be awarded no longer exceeding the penalty so said. In each case, the liquidated amount or penalty is the upper limit past which the courtroom cannot grant affordable reimbursement.