How-To · Contracts · Last verified October 2026
How to Handle a Breach of Contract (2026)
When the other side breaks a contract, panic and anger rarely help; a clear sequence does. Indian law gives the injured party real remedies, compensation for the loss, enforcement of the bargain, or recovery of a sum fixed in the contract, but which one you can claim, where you claim it, and how long you have to act all depend on the contract and the facts. This guide walks through how to handle a breach of contract in India from the first assessment to the remedy and the forum, including what an arbitration clause changes and the time limit you cannot miss. It is general information, not legal advice; take advice on your own contract before acting. Last verified October 2026.
- Assess first: confirm a valid contract, the exact term breached, that you performed your side, and the loss caused.
- Notice then remedy: a legal notice often resolves it and builds your record; the remedies are damages, specific performance, injunction, rescission or substituted performance.
- Damages: Section 73 compensates the natural loss from the breach (you must mitigate); Section 74 gives reasonable compensation up to a sum named in the contract.
- Forum: a civil court by value and territory, or a commercial court under the Commercial Courts Act, 2015 for a commercial dispute at or above the specified value.
- Watch two traps: limitation is generally three years from the breach, and an arbitration clause sends the dispute to arbitration, not court.
01First, assess the breach
Before you threaten anything, be clear on four things, because every later step depends on them:
- Is there a valid contract? Offer, acceptance, consideration, capacity and a lawful object. A contract can be written or oral, though a written one is far easier to prove.
- What exactly was breached? Identify the specific term the other side failed to perform, and whether it goes to the root of the contract (a serious breach) or is a minor lapse.
- Did you perform your side? A party seeking a remedy usually needs to show it was ready and willing to perform its own obligations.
- What loss has it caused? Note the actual loss, and gather the documents that prove it. Loss is the currency of most contract remedies.
Also read the contract for clauses that change the picture: a termination clause, a liquidated-damages clause, a limitation-of-liability clause, a force majeure clause, and a dispute-resolution or arbitration clause. These often decide the outcome before any court is involved.
02Send a notice and try to resolve
In most cases the first formal step is a legal notice to the party in breach, setting out the contract, the breach, the loss, and what you demand, whether that is performance, payment or compensation, within a stated time. A clear notice often resolves the matter without litigation, and it also builds the record you will rely on if you do go to court. Our guide on sending a legal notice for breach of contract covers what the notice must contain.
Alongside the notice, consider whether the contract requires you to attempt negotiation, mediation or conciliation first, and whether a settlement is better than a fight. Many commercial contracts, and the commercial-court framework, encourage or require an attempt at resolution before a suit.
A precise legal notice does two jobs: it often settles the dispute, and if it does not, it becomes the backbone of your case.
03The remedies you can claim
Indian law gives the injured party a menu of remedies, and you can often claim more than one in the alternative:
- Damages (compensation) for the loss caused by the breach, under the Indian Contract Act, 1872. This is the most common remedy.
- Specific performance, an order that the other side actually perform the contract, under the Specific Relief Act, 1963. After the 2018 amendment, specific performance is a general remedy that a court enforces subject to limited grounds of refusal, rather than an exceptional discretion.
- Injunction to restrain a party from doing something in breach of the contract, also under the Specific Relief Act.
- Rescission, treating the contract as cancelled, and restitution of what was given under it.
- Substituted performance, where the 2018 amendment lets the injured party get the work done by a third party and recover the cost from the party in breach, subject to conditions.
Which remedy fits depends on what you actually want: money to cover your loss, or the contract performed. For a one-off sale of goods, damages usually suffice; for a unique asset such as a specific property, specific performance may matter more.
04Damages: Sections 73 and 74
Two sections of the Indian Contract Act, 1872 govern money compensation:
- Section 73 gives compensation for the loss or damage caused by the breach that naturally arose from it, or that the parties knew was likely when they made the contract. It does not cover remote or indirect loss, and the injured party is expected to take reasonable steps to mitigate its loss.
- Section 74 deals with a sum named in the contract as payable on breach, or a stipulated penalty. The court awards reasonable compensation not exceeding that named amount, whether or not actual loss is proved. So a liquidated-damages figure sets a ceiling and eases proof, but the court still assesses what is reasonable.
In practice this means you cannot simply claim any number you like. Under Section 73 you prove the loss that flowed from the breach; under Section 74 you point to the agreed sum and the court decides what is reasonable up to it. Keep the invoices, correspondence and records that evidence your loss, because the award turns on them.
05Where to bring the claim
If the notice and negotiation fail, the claim goes to a civil court, and which one depends on the value and nature of the dispute:
- Civil court of the appropriate level, decided by the pecuniary value of the claim and the territorial jurisdiction (usually where the defendant lives or works, or where the cause of action arose, or as the contract's jurisdiction clause provides).
- Commercial court, under the Commercial Courts Act, 2015, for a commercial dispute at or above the specified value, which follows a faster, stricter procedure and generally requires pre-institution mediation unless urgent interim relief is sought.
A suit for breach is usually a suit for recovery of money or for specific performance or an injunction, with court fees that depend on the relief and the amount claimed. Take advice on the right forum and relief for your facts, because filing in the wrong court costs time.
06Limitation and arbitration
Two things can quietly decide your case. First, limitation: a suit for compensation for breach of contract must generally be filed within three years from the date the contract was broken, under the Limitation Act, 1963. Miss it and the claim can be barred however strong it is, so diary the deadline the moment a breach occurs.
Second, an arbitration clause. If the contract says disputes go to arbitration, you usually cannot go straight to court; you invoke arbitration under the Arbitration and Conciliation Act, 1996, and the dispute is decided by an arbitral tribunal whose award is enforceable like a decree. Courts step in only for limited support, such as interim relief, appointment of an arbitrator, or a narrow challenge to the award. Check for an arbitration clause before you plan litigation, because it changes the entire route.
07Where Claw fits
Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.
Handling a breach, drafting the notice, choosing the remedy and running the suit, is work for you and your advocate, and Claw does not do it for you. Where Claw helps is in the research and the tracking. To see how courts have measured damages under Sections 73 and 74, when specific performance is granted or refused after the 2018 amendment, or how a liquidated-damages clause has been read, its Legal GPT researches across 30 crore+ judgments, with Supreme Court decisions from 1950 and High Court decisions from 1990, so counsel can cite the closest authority. Once a suit or arbitration is on foot, you can track it and any connected matter by party name across civil courts, commercial courts and other forums, 9,102 courts, benches and forums in all, so a hearing date or an order reaches you through alerts and monitoring. Before you contract or sue, a case search across Indian courts by the counterparty's name shows what else is on record against it. Results return in under 5 seconds, and Claw does not train its AI models on your documents. A clean result means nothing was found on the forums and date searched, under the names used, not that no matter exists. This is general information, not legal advice.
08Sources and further reading
- India Code (Indian Contract Act 1872, Specific Relief Act 1963, Limitation Act 1963): indiacode.nic.in
- eCourts (civil and commercial court case status): ecourts.gov.in
- Department of Justice (courts): doj.gov.in
- Claw: clawlaw.in
This guide is general information, not legal advice. Remedies, forum and limitation turn on the exact contract and facts, so confirm the position and take advice before acting.
09Frequently asked questions
What can I claim for a breach of contract in India?
You can claim compensation for your loss under Section 73 of the Indian Contract Act, 1872, or reasonable compensation up to a sum named in the contract under Section 74. You may also seek specific performance (an order to perform the contract) or an injunction under the Specific Relief Act, 1963, rescission of the contract, or substituted performance. Which fits depends on whether you want money or the contract performed.
What is the difference between Section 73 and Section 74 damages?
Section 73 gives compensation for the loss that naturally arose from the breach or that the parties foresaw, and you must prove that loss and take steps to mitigate it. Section 74 applies where the contract names a sum payable on breach or a penalty; the court awards reasonable compensation not exceeding that amount, whether or not actual loss is proved. So a named sum sets a ceiling and eases proof.
How long do I have to sue for breach of contract?
Generally three years from the date the contract was broken, under the Limitation Act, 1963. If you miss the limitation period the claim can be barred however strong it is, so note the deadline as soon as a breach occurs and act before it runs out.
Where do I file a breach of contract case?
In a civil court chosen by the value of the claim and the territorial jurisdiction (usually where the defendant is, where the cause of action arose, or as the contract's jurisdiction clause provides), or in a commercial court under the Commercial Courts Act, 2015 for a commercial dispute at or above the specified value, which follows a faster procedure and generally requires pre-institution mediation unless urgent relief is sought.
What if my contract has an arbitration clause?
Then you usually cannot go straight to court. You invoke arbitration under the Arbitration and Conciliation Act, 1996, and an arbitral tribunal decides the dispute, with an award enforceable like a court decree. Courts help only in limited ways, such as interim relief, appointing an arbitrator, or a narrow challenge to the award. Always check for an arbitration clause before planning litigation.