INDIA Law and Practice Contributed by: Vijayendra Pratap Singh, Asif Ahmed, Bhanu Jindal and Jitesh Lakra, AZB & Partners
• prior written approval must be obtained from an officer not below the rank of Superintendent of Police, who must record prima facie satisfaction that the exception applies. 7. Special Rules and Laws 7.1 Rules for Claiming Punitive or Exemplary Damages In Indian law, punitive or exemplary damages may only be granted in certain cases, such as tortious claims, IPR matters or where the relevant statute so allows such damages to be imposed. Such damages are often awarded in cases where the party in breach of an agreement has behaved in an outrageous, rep - rehensible or objectionable manner. In contractual dis - putes, damages are primarily governed by Sections 73 and 74 of the Contract Act, which generally do not permit punitive or exemplary damages. Section 73 of the Contract Act provides for compen - sation for breach of contract which results in actual damage in the nature of unliquidated damages. Sec - tion 73 of the Contract Act itself provides that a par - ty can claim compensation for any loss or damage caused to them which “naturally arose in the usual course of things”. Compensation cannot be given for any remote and indirect loss or damage sustained by reason of the breach. The aim is to allow for a party to be placed, as far as money can allow, in as good a situation as though the contract had been per - formed and a duty has been cast on the plaintiff to take all reasonable steps to mitigate the loss suffered by them. These principles do not allow the courts to grant exemplary or punitive damages in fraud claims. Section 74 of the Contract Act provides that, if a sum is named in the contract as the amount to be paid in the case of such a breach, or “if the contract contains any other stipulation by way of penalty”, the party complaining of the breach is entitled (whether or not actual damage or loss is proved to have been caused thereby) to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or, as the case may be, the penalty stipulated.
However, Indian courts have consistently limited this to reasonable compensation where the stipulated sum represents “genuine pre-estimate of damages” agreed by the parties. Courts have clarified that the phrase “whether or not actual damage or loss is proved to have been caused thereby” does not dispense with proof where such loss can be proved. Only where damage or loss is difficult or impossible to prove may the liquidated amount named in the contract be awarded without proof of actual loss. Amounts stipu - lated in terrorem cannot be granted under Indian law. This principle therefore limits the scope of exemplary or punitive damages under the Contract Act. These principles may not strictly apply in cases involving fraud, as fraud unravels all, and any con - tract obtained by fraud would make it voidable. In such cases, Section 65 of the Contract Act applies, which provides that any person who has received any advantage under such an agreement or contract is bound to restore it, or to make compensation to the affected party, thereby placing the innocent party in the position they would have occupied had the con - tract not been entered into. This principle has been further diluted by Indian courts to the effect that the primary aim of awarding compensation is restitution rather than punishment. Therefore, where compensa - tion can be determined based on principles of com - puting damages under the Contract Act, there may not be any need to award compensation by restitution. It may be noted that provisions relating to disgorge - ment of unlawful gains typically obtained through wrongful means (which is inclusive of fraud) have been incorporated under the SEBI Act and Section 212 (14A) of the Companies Act. As stated in 3.3 Shareholders’ Claims Against Fraudulent Directors , the Companies Act already allows for seeking freezing of assets and disgorgement of property, as disgorge - ment is a civil action in the nature of an equitable relief, and not a penal action. Therefore, the SFIO would also be bound by the same principle for disgorgement. Similar principles have also been accepted by the Securities Appellate Tribunal for directing disgorge - ment under the SEBI Act. It was noted that a repay - ment of ill-gotten gains imposed on wrongdoers is a monetary equitable remedy designed to prevent a
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