A Relative Analysis of Damages and Compensation

I. Damages and compensation: a comparative study

We are beginning with the meaning of two topics that we will be discussing in this project. Damages mean compensation in terms of money for the injured party's loss; here, the burden of proof is on the victim to prove his loss.²

"Damages" is frequently interchanged with "damage." These two terms, however, are vastly different. While "damages" refers to the amount of compensation paid or sought, "damage" refers to the hurt or loss for which payment is sought or awarded. 'Harm' might be monetary or non-monetary (reputational damage, bodily or mental pain or suffering). Whereas 'damages' refers to financial compensation.³

Compensation has two meanings; one is the salary, fees or wages given to an individual in exchange for her/his services. Whereas the other meaning is the amount received to “make one whole”, or somewhat better after a loss or any kind of injury, primarily paid by any insurance company either of the party causing the damage.⁴

To receive compensatory damages, the claimant must establish that a loss occurred and was caused by the defendant. In front of the jury or judge, the claimant must also quantify the amount of loss.

We will be studying these two concepts under the spectrum of Contracts and not Torts. So to understand these concepts, let's first understand what a contract is; The term contract is defined under Section 2(b) of the Indian Contract Act, 1872, which says, “An agreement enforceable by law is a contract.” ⁵

In the upcoming chapters of this research, we will be learning more about Damages and Compensation, the parties entitled to it and also some cases where these are implied.

(A) Research Questions

1. What are Damages?

2. What is Compensation?

3. Who are parties to damages and compensation?

4. How are Damages justified and beneficial?

5. How is compensation justified and beneficial?

(B) Objectives

1. To study a brief about damages and compensation.

2. To understand how different cases have different sorts of justice.

3. To study the criteria for damages and compensation.

4. To have an overview of damages and compensation as a method of justice.

5. To study the impact of damages and compensation on civilians’ mentality and on society as a whole.

6. To study that can either way of monetary punishments controls the crimes which are to be committed.

(C) Method

The study outline necessitates in itself the interpretive study of Damages and Compensation, prepared in both analytical and descriptive methods. The discussion has been reported using comprehensive research and analysis utilising articles, research papers, e-journals, and books on the referring topic. Due credit has been given to the same throughout the project. Various statistics have also been used, and the sources for the same have been cited. As instructed by the Faculty of Contracts, the project's structure has been adhered to, and the same has eased give the project a fine close off.

(D) Review of Literature

• Silicon Valle, M., Bangalore, Y., Mumbai, S., Ne, B., Delhi, W., Ne, M., & York, W. (2017). Law of Damages in India https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Law_of_Damages_in_India.PDF; This article journal sets a baseline for the research. It tells us about the damages and its components. It also tells us about the types of damages, people entitled to get damages and the rules existing in India and neighbouring countries. This source has been used and cited while preparing the contents of this research project.
• Types of Compensation in a Personal Injury Case. (n.d.). Www.alllaw.com https://www.alllaw.com/articles/nolo/personal-injury/types-of-compensation.html; This project offers an overview of compensation as a concept of giving justice to an aggrieved party. It also mentions the types of compensation provided to the victims. Basically sets a baseline for studying the concept of compensation.
• Difference Between Compensation And Damages - Litigation, Mediation & Arbitration - India. (n.d.). Www.mondaq.com. Retrieved November 8, 2021, from https://www.mondaq.com/india/civil-law/927222/difference-between-compensation-and-damages; This article journal tells us that the damages and compensation can also be given in cases where the aggrieved party is suffering mentally.⁶ For awarding the damages and compensation, the Court may also see the mental suffering occurring due to a tortious act. By doing so, the Court is expanding its scope of justice.
• Eminent Domain. Compensation. Benefit. Damages. (1915). Virginia Law Review, 2(4), 305–307. https://doi.org/10.2307/1063682; This article journal tells us that the procedure for calculating damages in the exercise of the right of eminent domain differs depending on how each state interprets its constitution's compensation clauses. This article throws light on the technicalities by citing various examples where damages were awarded and where damages were denied.
• Schmit, J. T., Pritchett, S. T., & Fields, P. (1988). Punitive Damages: Punishment or Further Compensation? The Journal of Risk and Insurance, 55(3), 453–466. https://doi.org/10.2307/253254; The goal of this study is to present facts about how courts award punitive damages. The validity of the Punishment-Deterrence Theory and Compensation Theory, two of the four crucial punitive damages theories, was determined to be measurable for testing. The quantity of punitive damages is related to measures of financial punishment, compensation, punitive damages insurability, degree of malice, and kind of liability claimed using regression analysis.
• Brous, P. (2002). Estimating Damages Associated with Stock Option Compensation in Wrongful Termination Lawsuits. Journal of Forensic Economics, 15(3), 269–283. http://www.jstor.org/stable/42755914; This article journal is specific about the damages that the Court should give to the wrongfully terminated person. With the help of case studies, this project throws light on a particular angle to explain to readers how damages are awarded in a specific field. Articles like these present an opportunity to learn specific cases, which is helpful in understanding and developing a viewpoint.

II. Understanding damages and parties entitled to it

Damages are a type of compensation awarded as a sequence of a breach, loss, or injury.⁷ Damages may seek protection from "expectation interest," "dependence interest," or "restitution interest," according to Fuller and Perdue. 'Damage' might be monetary or non-monetary (reputational damage, bodily or mental pain or suffering), while 'damages' corresponds to financial compensation. In general, damages can be distinguished from compensation. Compensation is a broad term that refers to payments made to a person in consequence of a loss or harm incurred due to events such as the acquisition of property by another party, statutory infractions, or termination of employment, all of which requires the aggrieved party to be compensated; Damages, on the other hand, result from actionable wrongdoings. Damages have gained a lot of traction, notably in economic transactions and as retaliation for violations of people's rights. The types of damages awarded vary greatly across different regions, such as in cases involving indemnity contracts.

The type of damages employed or sought is determined by the goal for which damages are being sought. As a result, damages can be classified into one or more of the following categories: ⁸

1. General and special damages

2. Nominal damages

3. Substantial damages

4. Speculative damages

5. Aggravated and exemplary damages

6. Liquidated and unliquidated damages

Parties entitled to damages:

“Damages is given to a person when there is a breach of contract.⁹ Damages may also be sought in the event of a contract breach that is anticipated. When a party refuses to perform or has disabled himself from performing the commitment in its entirety, it is said to have committed an anticipatory breach. In this case, the other party has the option of continuing the contract or terminating it.” ¹⁰

III. Cases of damages

• Union of India v. Raman Iron Foundry AIR 1974 SC 1265; “...even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore, makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages”.¹¹
• Seth Thawardas Pherumal v. Union of India [1955] 2 SCR 48; “If the government stipulated, and the contractor agreed, that the government would not be liable for any loss or occasioned by any remote consequence, then it is an express provision of the contract, and the contractor must be bound by it if he chooses to contract in absolute terms.”
• Kailash Nath Associates v Delhi Development Authority (2015) 4 SCC 136; “In determining whether Article 14 applies, the Court noted that the article aims to eliminate any kind of administrative arbitrariness and guarantee equal, reasonable, and fair treatment. As a result, the clause will apply to DDA, and writs under Articles 226 and 227 will be permitted. Concerning the applicability of Section 74 of the Act of 1872, the Court stated that it would apply in circumstances of forfeiture of earnest money. There has been no breach on the part of the appellant, and the fact that DDA gained a huge profit out of the deal is irrelevant. When neither party to the contract suffers damages, the law does not allow for a windfall in the event of a breach.”

IV. Understanding compensation and parties entitled to it

Speaking of Compensation, the Indian Contract Act of 1872, through its section 63, says: “When a contract is broken, the party who suffers as a result of the breach is entitled to compensation from the party who caused the breach for any loss or damage he suffered as a result of the breach, which naturally arose in the ordinary course of things from the breach, or which the parties knew would be likely to result from the breach when they made the contract.

Such compensation is not to be granted for any loss or damage suffered due to the breach in the distant or indirect sense.

Compensation for failure to discharge obligation resembling those created by contract: When a debt resembling those produced by agreement has been incurred and has not been discharged, any person injured by the failure to release it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.”

“Because Section 74 provides appropriate compensation for damage or loss caused by a breach of contract, the Section's applicability is predicated on the occurrence of such damage or loss. On the other hand, Liquidated damages should be authorised without the need to prove actual losses as long as they subserve a compensatory role.

Thus, where a sum is designated in a contract as a liquidated amount due as damages, the party complaining of a violation can only obtain such liquidated amount as reasonable compensation provided it is a real pre-estimate of damages determined by both parties and confirmed by the Court.” ¹²

V. Cases of compensation

• Narendrasingh Motilal Johary vs Karamchand Premchand (P.) Ltd. on October 4, 1968; “By Section 74, reasonable compensation not exceeding the penalty prescribed for a breach of a stipulation by way of penalty is the measure of damages in the case of a penalty breach. The Court has jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of the case, subject to the limit of the penalty stipulated. The Court's jurisdiction to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; however, compensation must be reasonable, and this imposes on the Court the duty to award compensation according to established principles. The provision clearly states that the aggrieved party is entitled to compensation from the party who has breached the contract, regardless of whether real harm or loss has been proven as a result of the violation. It did not justify the award of compensation when no legal injury had resulted as a result of the breach, because compensation for breach of contract can be awarded to make good loss or damage that naturally arose in the normal course of things, or that the parties knew would be likely to result from the breach when they made the contract.”
• M/S. Sopra India Pvt. Ltd vs Mr. Akhil Singhal on December 5, 2012; The judge observed- Compensation for contract breaches if a penalty is specified. When a contract is broken, and a sum is specified in the contract as the amount to be paid in the event of such breach, or if the contract contains any other penalty stipulation, the party complaining of the breach is entitled to receive reasonable compensation from the party who broke the contract, whether or not actual damage or loss is proven, not to exceed the amount so named or, as the case may be, the penalty stipulated. As a result, it is well established that where a contract's sum stipulated in terrorum is construed as a penalty, the party complaining of the breach is entitled to get appropriate compensation from the party who has breached the contract, not to exceed the penalty amount.”

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VI. Reference

• Difference Between Compensation And Damages - Litigation, Mediation & Arbitration - India. (n.d.). Mondaq https://www.mondaq. com/india/civil-law/927222/difference-between-compensation-and-damages
• India Code: Section Details. (n.d.). Indiacode, https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428§ionId=38677§ionno=73&orderno=74
• The Public Utility Contract Exception in Indian Law: Awarding Damages without Proof of Actual Loss. (2021, August 23). South Asia@LSE. https://blogs.lse.ac.uk/southasia/2021/08/23/the-public-utility-contract-exception-in-indian-law-awarding-damages-without-proof-of-actual-loss/
• Billimoria, C. of P. B.-P. (2019, November 4). In a nutshell: claiming damages in India. Lexology. https://www.lexology.com/l ibrary/detail.aspx?g=0bb7b913-d711-4647-a815-bf171ae7c87f
• The Law Reviews - The Global Damages Review. (n.d.). Thelawreviews Retrieved Nov 9, 2021, https://thelawreviews.co. uk/title/the-global-damages-review/india
• Understanding “Damages” and “Compensation” under Contract Law. (2020, May 24). LawLex https://lawlex.org/lex-pedia/ understanding-damages-and-compensation-under-contract-law/20619
• Sehgal, R. (2021, May 19). A Detailed Analysis of Provisions Related to Compensation for Loss or Damage Caused by Breach of Contract under the Indian Contract Law - Law Times Journal Loss and Damage Caused by Breach of Contract. Law Times-Journal. https://lawtimesjournal.in/a-detailed-analysis-of-provisions-related-to-compensation-for-loss-or-damage-caused-by-breach-of-contract-under-the-indian-contract-law/
• Principles of grant of damages under Section 73 and 74 of the Indian Contract Act, 1872 – The Chambers of Law, New Delhi. (n.d.). Nov 9, 2021, https://www.tclindia.in/principles-of-grant-of-damages-under-section-73-and-74-of-the-indian-contract-act-1872/

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