Fateh Chand v Balkishan Das (1963)

Contract I · Liquidated Damages vs Penalty

Facts.

A buyer of property paid earnest money and part-price; the contract allowed the seller to forfeit these on the buyer’s default. On breach the seller sought to forfeit the whole sum.

Issue.

Under s.74, is a party entitled to the full stipulated/forfeited sum, or only to reasonable compensation?

Held.

The Supreme Court held that s.74 does away with the English penalty/liquidated-damages distinction: the court awards reasonable compensation not exceeding the named sum, and the seller could retain only a reasonable amount, not the whole forfeiture.

Why it matters.

It is the leading Indian authority on s.74 — the named sum is a ceiling, and the court awards reasonable compensation — governing all penalty/forfeiture problems.

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