The Indian Contract Act, 1872 does not define the term ‘’ damages.’’ However, commonly, it means an award of money to be paid to a non-defaulting party by a defaulting party as compensation for injury or loss caused as a result of the defaulting party’s breach of the terms and conditions of the contract. In the case of Common Cause v. Union of India [1999 (6) SCC 667], the Apex Court extracted the definition of the term “damages”, as propounded by Mc Gregor at para 127 which is as follows:

“Damages are the monetary compensation, attainable by success in action, for a wrong which is either a breach of contract or tort, the compensation being in the form of a lump sum which is awarded unconditionally.”

The Indian Contract Act, 1872 under section 73 provides compensation for damage or loss caused by the breach of contract. When a contract has been broken, the party that suffers from such violation is entitled to receive compensation for any damage or loss resulting from such infringement. Such compensation shall not be given for any indirect and remote damage or loss sustained as a consequence of the breach.

The word damage or loss means:

1. Harm to persons through, disabilities, physical injury, loss of enjoyment, inconvenience or disappointment, loss of comfort, injured feelings, mental distress, vexation, loss of reputation.
2. Harm to the property through destruction or damage of property.

There are three primary essentials of damages, as pointed out by the Apex Court in Organo Chemical Industries v. Union of India which are the following as under:

1. detriment to one by the wrongdoing of another;
2. reparation awarded to the injured through legal remedies, and
3. its quantum being determined by the dual components of pecuniary compensation for the loss suffered and often, not always, a punitive addition as a deterrent-cum-denunciation by the law.

Types Of Damages

There are various types of damages which are the following as under:

1. General Damages/Direct Damages: General damages are those damages which arose naturally during the usual course of the events. In regard to proof, it refers to those losses, normally but not exclusively non-pecuniary, which in financial terms are incapable of precise quantification.
2. Special Damages/Indirect Damages: Special damages refer to those that do not arise from the breach of the defendant and can only be recuperated if they were in the reasonable consideration of the parties at the time they made the contract. These are those losses that must be particularly pleaded and proven. These damages refer to those losses that can be calculated through finances.
   
3. Nominal Damages: If the defendant is found responsible for breach of contract, the plaintiff is qualified to nominal damages even if no actual damage is proven. These damages are awarded if there is a violation of a legal right and if it does not give the rise to any actual damages, it gives the right to judgment because of the violation.
4. Substantial Damages: In cases where an offense is established, various authorities may claim substantial damages even if it is not only difficult but also impossible to compute the damages with accuracy or certainty. In all these cases, however, the extent of the breach has been established. There was a complete failure to execute the contract on one side. However, where the breach is incomplete and the extent of the failure is established, only nominal damage is awarded. The plaintiff who can not prove that after the breach he would have had the contract performed, he is in a worse monetary position, normally, to recover only nominal damages for breach of contract.
5. Aggravated Damages: These damages are those that compensate a sufferer for injured sensation or mental distress in conditions where the injury was caused or intensified by the manner in which the defendant committed the wrong. These damages are of compensatory nature.
6. Exemplary Damages: These damages are meant to give the punishment to the defendant as an example and they are punitive and not meant to compensate the defendant for loss, but rather to penalize the defendant. These damages are of punitive nature.
7. Liquidated and Unliquidated Damages: Damages are said to be liquidated once consented and settled by the parties. It is the sum assigned by the parties by contract as payable on the default of one of them, section 74 is applicable to such damages. In all other cases, the court assesses or quantifies the loss or damages; such damages are unliquidated. The parties may only set a sum as liquidated damages for specific types of a breach, then the party undergoing another type breach may sue for unliquidated damages following from such breach.

Remoteness of Damages

The term remoteness of damages means the legal test used to establish which kind of loss caused by contract breach can be reimbursed by awarding damages. In determining whether the claimed damages are too remote, the test is whether the damage is such that it must have been considered by the parties as a possible result of the breach. If it is, then it can not be contemplated too remote. The damage shall be evaluated on the basis of the probable and natural consequences of the breach. Actual knowledge must be demonstrated that mere carelessness is not knowledge. The remoteness of damage is a matter of fact, and the only advice that the law can provide is to lay down general principles.