Begin with the loss caused by the breach
Section 73 of the Indian Contract Act, 1872 allows compensation for loss or damage caused by a breach that ordinarily arises from it or that the parties knew at contract formation was likely to result. It excludes remote or indirect loss. In quantifying loss, take account of reasonable opportunities to mitigate the effects of non-performance. An avoidable amount can reduce recoverable damages. Record the available alternatives, how quickly they could be put in place and why the steps taken were reasonable at the time. For a failed service contract, a comparable replacement may support the claim, but compare the actual additional cost with what the business would have paid if the agreement had been performed.
Read the applicable text: Indian Contract Act, 1872: sections 73–74.
Build a documented counterfactual
Identify the affected service, dates and unperformed scope. Match substitute costs to the same scope, then isolate discretionary upgrades, unrelated work, saved contract charges and avoided variable costs. Identify resources redeployed and retain contemporaneous alternative quotations. Explain why a cheaper option was unsuitable rather than assuming the lowest quote is always a reasonable substitute.
Prove causation and what the parties knew
Keep the signed scope, dependencies and communications at contract formation. A time-critical use known to both parties may raise a different question from a new opportunity disclosed only after breach. Use actual operating records and contribution where appropriate; gross lost sales do not by themselves establish loss. In Kanchan Udyog Ltd v United Spirits Ltd, the Supreme Court examined evidence of causation, the reliability of projected profits and steps that could reasonably have reduced the loss. Base the estimate on evidence specific to the affected business. Track overlapping restoration or credits and do not count the same cost in both a replacement claim and a downtime schedule.
Keep other routes separate
If the contract names a sum payable on breach or contains a penalty stipulation, section 74 requires a separate analysis of reasonable compensation within that contractual ceiling. The named sum is not automatically payable. Review contractual caps, exclusions, payment rights and the proper dispute procedure independently. The figures below are evidence workings, not awards. Document the legal conclusion and the factual estimate separately.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Comparable replacement
The unpaid price of the affected original service was ₹8 lakh. A comparable substitute costs ₹10.50 lakh. The incremental price is ₹2.50 lakh before any other supported adjustments.
Illustrative example 2: Exclude an upgrade
A substitute invoice is ₹14 lakh including an optional ₹3 lakh upgrade. Comparable replacement is ₹11 lakh. Against ₹9 lakh avoided original cost, the incremental amount is ₹2 lakh.
Illustrative example 3: Only part failed
A ₹20 lakh contract includes an unperformed tranche priced at ₹6 lakh. Equivalent cover costs ₹8 lakh. Compare those tranches: the incremental cost is ₹2 lakh.
Illustrative example 4: Lost contribution, not sales
A documented interruption affects ₹12 lakh expected sales but avoids ₹7 lakh variable costs. The starting contribution impact is ₹5 lakh; the claimant must still establish causation, support the amount and show that the loss is not too remote.
Illustrative example 5: Redeployment saving
An evidenced disruption working is ₹4 lakh before a ₹1.20 lakh saving from redeployment linked to the same event. On these facts the net working is ₹2.80 lakh.
Illustrative example 6: Remove overlap
A ₹6 lakh emergency invoice is fully included in a ₹10 lakh loss schedule. A second team proposes adding the same ₹6 lakh again. The reconciled amount remains ₹10 lakh, not ₹16 lakh.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the obligation | Signed agreement and affected scope. |
| 2 | Date the breach | Notices and service logs. |
| 3 | Build the baseline | Price and performance expected absent breach. |
| 4 | Identify replacement choices | Comparable quotes and timing. |
| 5 | Exclude improvements | Separate discretionary upgrades and unrelated items. |
| 6 | Record avoided cost | Unpaid price, variable costs and redeployment. |
| 7 | Trace causation | Link each claimed item to the breach. |
| 8 | Check foreseeability | Contract-formation communications and dependencies. |
| 9 | Remove overlaps | Cross-check credits, claims and duplicated invoices. |
| 10 | Approve the schedule | Legal basis, assumptions and documentary support. |
Sixteen practitioner FAQs
1. Is the full substitute invoice automatically recoverable?
No. Compare like scope and account for relevant savings.
2. What if the replacement is an upgrade?
Separate the upgrade cost before estimating the comparable difference.
3. Can avoided original charges be ignored?
No. Include them in the factual comparison where relevant.
4. Does the cheapest quote always set the loss?
Check whether it offered a reasonable and timely substitute.
5. How do I show the loss was caused by breach?
Match operational evidence to the obligation and event timeline.
6. Is lost turnover the same as lost profit?
No. Test associated costs, evidence and legal recoverability.
7. What is the remoteness control?
Check ordinary consequences or what parties knew when contracting.
8. Does knowledge acquired after breach establish foreseeability at formation?
It does not establish what was known at formation.
9. Can a disruption day be counted twice?
No. Reconcile overlapping periods and cost categories.
10. Are all preventive expenses automatically recoverable?
No. Establish necessity, link and legal basis on the facts.
11. What if the contract states a fixed sum?
Analyse section 74 and the contractual terms separately.
12. Can credit notes reduce the same claim?
Identify their relationship and reconcile any overlap.
13. Is an internal hourly rate proof of an actual loss?
Support the affected resource and basis for measurement.
14. Does paying for cover waive the claim?
Review the contract and communications rather than assuming waiver.
15. Should disputed items be removed from the file?
Keep them separately identified with their evidentiary limits.
16. What makes the final schedule usable?
Each item has a baseline, actual amount, mitigation adjustment and source.