Introduction
“A broken promise calls for a right remedy”
In the business sector, contracts serve as the cornerstone of all commercial partnerships. Each party’s rights, obligations, and dispute resolution processes are guaranteed by a contract. Nonetheless, violations are frequent and can take many forms, from unpaid bills to incorrectly terminated contracts to non-delivery of items. Such breaches can result in significant financial and reputational damages for businesses. Knowing your legal remedies under Indian law can help you protect your interests and take swift action.
Indian law offers a variety of remedies for contract violations. However, companies face more than simply “knowing the remedies”; they also need to comprehend how to put them into reality, which rules apply, and when action has to be taken.
Step-by-Step Remedies for Businesses
Step 1: Sending a Legal Notice
A legal notice is the initial formal step, which usually works well for resolving conflicts out of court. Sending a legal notice notifies the person the act that violated the law and requests restitution or compliance.
How to implement:
- Draft a legal notice or have one prepared by an advocate; a notice with strong wording frequently encourages the party that violated the agreement to pursue a settlement.
- Clearly describe the violation, the proposed remedy (compensation in cash or specific performance), and the deadline (15–30 days).
- Include supporting documentation, such invoices, contracts, and email exchanges.
Step 2: Attempt Pre-Institution Mediation (Mandatory in Commercial Cases)
Pre-litigation mediation isn’t just optional, it’s a legal requirement for commercial disputes valued over ₹3,00,000. The Commercial Courts Act, 2015 (Section 12A) mandates that unless urgent interim relief is sought, a suit cannot be filed without first attempting this mediation. The aim is clear: to resolve disputes quickly, cost-effectively, and amicably. Avoid litigation costs, mediation is quicker, cheaper, and confidential.
Pre-Litigation Mediation Saves time, the process has strict timelines (3 months + possible 2 months extension). It Limits your time risk, since the mediation period is excluded from the limitation clock, you won’t lose eligibility to file a suit. You can achieve enforceable outcomes i.e. a settlement through mediation is legally binding, much like a court or arbitration award.
How to implement:
- Start the procedure by submitting an application to the District or State Legal Services Authority in your jurisdiction, for Delhi it is -Delhi High Court Legal Services Committee (DHCLSC) or the District or State Legal Services Authority.
- Serve a notice to the other party via postal courier, WhatsApp, or email and file an affidavit verifying that the provided contact details are accurate and regularly used by the party.
- The procedure is deemed a “nonstarter” and you are free to pursue legal action if the opposing party does not reply or declines to engage.
- The matter is sent to an appointed mediator if both parties consent. After then, mediation occurs under the direction of a nodal officer, usually using Cisco Webex or another authorised virtual platform.
- The period is three months from the date of application, and it can be extended by two months only with both parties’ approval. Importantly, the Limitation Act of 1963 does not count this time period against the statute of limitations.
- In the event that a settlement is made, it is put in writing, certified, and signed by the mediator and both parties. This agreement holds the same weight as an arbitral award under Section 30(4) of the Arbitration & Conciliation Act, 1996.
Step 3: File a Suit for Damages (Monetary Compensation)
Sections 73–75 of the Indian Contract Act, 1872, provide for the recovery of damages in cases where losses have been caused by a breach. Courts determine the true loss incurred and make appropriate compensation awards.
Types of Damages:
- General damages: Actual monetary loss.
- Special damages are unforeseeable indirect losses that were anticipated at the time of the contract.
- Refund: The return of earnest or advance funds.
How to implement:
- Draft a plaint (the first written complaint you file in court) outlining the facts, the violation, and the remedies sought in accordance with Order 7 CPC. Include invoices, a declaration of truth, affidavits, and the DLSA non-settlement report.
- If the sum is less than ₹3,00,000, file a lawsuit in civil court; if it is more than ₹3,00,000, file in commercial court.
- Three years from the date of the violation is the statute of limitations (Article 55, Limitation Act, 1963).
- Use financial data, expert reports, or invoices to demonstrate real loss (special damages).
- Provide supporting documentation, including bank statements, invoices, contracts, and correspondence.
- If liquidated damages are specified in the contract, make a claim.
- Demonstrate efforts to mitigate loss (victims are required by law to minimise damage).
Step 4: Seek Specific Performance (When Money Is Not Enough)
In certain situations, such as in agreements pertaining to rare items, intellectual property rights, or real estate, damages are insufficient. Sections 10–14 of the Specific Relief Act of 1963 allow the injured party to request specific performance in various circumstances. In situations involving real land, the provision of special items, or long-term service contracts, specific relief is sometimes granted. The violating party may be ordered by the court to carry out the terms of the contract.
How to implement:
- File a suit for specific performance in the appropriate court.
- The violating party is ordered by the court to carry out their end of the bargain i.e. If money alone does not solve your problem, you may ask the court for ‘specific performance.’ This means the court can order the other party to actually do what they promised in the contract — for example, transferring land or delivering unique goods.”
- Prepare strong documentation demonstrating why monetary compensation is inadequate.
- According to Article 54 of the Limitation Act of 1963, three years from the date of rejection or performance.
Step 5: Apply for Injunctions (To Stop Further Harm)
Sections 36–42 of the Specific Relief Act of 1963 allows you to get an injunction if the violation entails ongoing injury, such as selling goods to rivals, breaching noncompete agreements, or revealing trade secrets. Courts can grant temporary injunctions or status quo orders (short-term orders to stop harm). After a full trial, they may issue a permanent injunction. Following a trial, a permanent injunction might be issued.
How to implement:
- To stop the other party from committing more breaches (such as selling products to third parties or abusing sensitive data), submit an interim application under Order 39 Rules 1 & 2 CPC. for example, either For instant remedy, apply for a provisional injunction (which is granted fast).
- During the final trial, ask for a permanent injunction to permanently end wrongdoing.
- Demonstrate urgency and irreparable harm (e.g., business secrets, loss of goodwill). You have to act urgently. In the event that an injunction is requested in bad faith, courts may impose costs and often require undertakings.
- Provide proof of violation of contracts as examples to back up your claims.
Step 6: Seek Rescission or Cancellation of Contract
You may request rescission (i.e. the contract will be cancelled, and both sides are released from their promises) under Sections 27–30 of the Specific Relief Act, 1963, if the contract is no longer sustainable. In situations like fraud, deception, error, coercion, or significant breach of contract, this nullifies the agreement and puts the parties back in their original positions.
Following a breach, it can occasionally be detrimental or fruitless to continue with the contract.
Under such circumstances, the law permits you to revoke the agreement and put both parties back in the same position as before the agreement was made. This cure is especially appropriate when the connection has fully broken down, or the breakdown is so fundamental that performance is no longer acceptable.
How to Implement:
- File a Suit for Rescission in the appropriate civil or commercial court.
- You must demonstrate in the plaint that the breach has rendered performance unfeasible, impossible, inequitable or undesirable.
- Present documentation attesting to your performance and the other party’s failure.
- Following a hearing with both parties, the court may issue an order terminating the agreement.
- Both parties revert to their pre-contractual status if rescission is allowed (e.g., refund of advance payment, return of property, or restoration of advantages obtained).
- A rescission claim must normally be brought within three years of the date the right to retract arises, according to the Limitation Act of 1963.
Step 7: Resort to Arbitration (If Contract Has Arbitration Clause)
Arbitration is a private dispute resolution mechanism under the Arbitration and Conciliation Act, 1996. These days, a lot of corporate contracts have an arbitration clause to prevent drawn-out legal disputes. The Arbitration and Conciliation Act of 1996 governs arbitration, a private conflict resolution procedure in which a neutral arbiter or tribunal renders a decision that is legally binding like a court order. This is particularly helpful in cases of sensitive corporate interests, cross-border commerce, or commercial breaches involving substantial sums of money when speed and secrecy are crucial.
How to implement:
- Examine the contract. Check to see if your contract has an arbitration provision (generally known as a “dispute resolution” or “arbitration” clause).
- Send the opposite party a formal written notice requesting arbitration in accordance with Section 21 of the Arbitration Act. The arbitration procedure is triggered by this.
- The court may appoint an arbitrator under Section 11 if the parties are unable to agree on one.
- Both parties must abide by the arbitrator’s ultimate decision. Under Section 36, it can be enforced in court much like a civil decree.
- File arbitration within time , According to the Limitation Act of 1963, you have three years from the date of the breach to initiate arbitration.
Conclusion
Although a breach of contract might cause business activities to be disrupted, Indian law offers a strong framework of remedies, ranging from specific performance and damages to injunctions and arbitration. Acting quickly, keeping thorough records, and selecting the solution that best suits your business goals are crucial.
Recovery can be greatly impacted by practical actions including filing lawsuits on time, trying mediation, and mailing a well-written legal notice. Due to strict limitation periods , businesses must not delay in taking action.
Businesses may choose the best course of action and steer clear of needless litigation by speaking with a commercial disputes advocate as soon as possible.
FAQs
Q1. What is considered a breach of contract under Indian law?
A breach occurs when one party fails to perform its obligations as agreed in the contract. This could include nonpayment, delayed performance, defective performance, or outright refusal. Under the Indian Contract Act, 1872 (Sections 73–75), the aggrieved party can claim compensation for losses caused.
Q2. Is sending a legal notice mandatory before filing a case for breach of contract?
While not always mandatory, sending a legal notice is highly advisable. It serves as the first formal step, gives the defaulting party an opportunity to comply, and strengthens your case in court if litigation follows.
Q3. What is Pre-Institution Mediation and when is it required?
For commercial disputes where the claim value is ₹3,00,000 or more, Pre-Institution Mediation (PIM) under the Commercial Courts Act, 2015 is mandatory before filing a case (unless urgent interim relief is sought). A mediator facilitates discussions, and if successful, the settlement has the effect of a binding decree of the court.
Q4. How much time do I have to file a suit for breach of contract?
The Limitation Act, 1963 prescribes a 3year limitation period from the date of breach (or from when you first became aware of the breach). Delay beyond this can make your claim timebarred.
Q5. Can I claim damages for mental harassment or inconvenience in business contracts?
Generally, business contracts allow only financial damages that were foreseeable at the time of making the contract. Claims for mental agony or inconvenience are not usually awarded unless explicitly covered under the agreement.
Q6. What types of damages can I claim in a breach of contract case?
You can claim:
General damages: Actual loss suffered.
Special damages: Foreseeable losses known at the time of contract.
Refund of advance/earnest money.
In rare cases, exemplary damages may be granted if there is fraud or malice.
Q7. When can I seek specific performance instead of damages?
You can seek specific performance (court order directing the party to perform its obligation) when monetary damages are inadequate — e.g., in contracts involving immovable property, unique goods, or intellectual property rights. This remedy is available under the Specific Relief Act, 1963.
Q8. What is the role of injunctions in breach of contract cases?
Injunctions prevent a party from continuing an action that causes harm (e.g., disclosing trade secrets, violating noncompete clauses). Courts can grant temporary injunctions for urgent protection and permanent injunctions after a full trial.
Q9. Can a contract be cancelled due to breach?
Yes. Under Sections 27–30 of the Specific Relief Act, 1963, you can seek rescission of the contract if the breach is fundamental. This restores both parties to their precontract position, allowing you to legally exit the agreement.
Q10. Is arbitration better than going to court for breach of contract?
If your contract has an arbitration clause, disputes are resolved through Arbitration and Conciliation Act, 1996. Arbitration is generally faster, confidential, and binding like a court decree. However, it may be costly for smaller disputes.
Q11. What happens if the breaching party ignores a court decree or arbitration award?
If the party does not comply, you can initiate execution proceedings in court to enforce the decree or award. The court may attach property, seize bank accounts, or even order arrest in certain cases of willful disobedience.
Q12. Can parties settle after filing a breach of contract case?
Yes. At any stage, parties can opt for court annexed mediation or private settlement. If successful, the court will record the settlement, and it will have the force of a binding decree.