Liquidated Damages Clause Does Not Permit Automatic Recovery Of Full Amount, Actual Loss Must Be Proven: Delhi High Court

Delhi HC mandates proof of actual loss for liquidated damages claims, curbing arbitrary recoveries without demonstrated harm. The Delhi High Court has reiterated that a party claiming liquidated damages under a contract must provide actual proof of loss suffered, even if the contract specifies a pre-determined amount. The court clarified that Section 74 of the Contract Act does not permit automatic recovery of the stipulated amount; rather, it sets an upper limit for reasonable compensation. This ruling aims to prevent arbitrary or excessive claims for damages and ensures that compensation is tied to the genuine harm caused by a breach of contract.