Section 74 provides that where a sum is named in the contract as the amount to be paid in case of breach, or where there is any stipulation by way of penalty, the party in breach is liable to pay
AReasonable compensation NOT EXCEEDING the named sum or penalty (irrespective of whether actual damage is proved)
BThree times the actual damage proved
CNominal damages only
DThe named sum as is
Answer & Solution
Correct answer: A. Reasonable compensation NOT EXCEEDING the named sum or penalty (irrespective of whether actual damage is proved)
Section 74 abolishes the English distinction between liquidated damages and penalty. The court awards reasonable compensation up to the named sum, regardless of whether actual loss is proved. Fateh Chand v Balkishan Das (1963) and Kailash Nath Associates (2015) clarify the approach.
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