When a contract is broken, the innocent party may seek compensation for legally recoverable loss and, in an appropriate case, specific performance, rescission-related compensation, restitution, an injunction, or another remedy provided by the contract or a special statute. Compensation is intended to address loss caused by the breach, not to provide an arbitrary profit or punish the defaulting party.
Governing law
Section 37 of the Contract Act, 1872 requires parties to perform, or offer to perform, their contractual promises unless performance is dispensed with or excused under the Act or another law.
Section 73 governs compensation for loss or damage caused by breach. Section 74 governs contracts that name a sum payable upon breach or contain another stipulation by way of penalty. Section 75 permits a party who rightfully rescinds a contract to claim compensation for damage sustained through non-fulfilment.
Sections 12 and 19 of the Specific Relief Act, 1877 address specific performance and compensation sought in addition to or instead of specific performance. Section 21 identifies contracts that cannot be specifically enforced, including cases where monetary compensation is adequate.
What constitutes a breach?
A breach occurs where a party fails to perform a contractual obligation when due, performs defectively, refuses performance, disables itself from performing, or violates a contractual restriction.
The seriousness of the breach matters. Some breaches justify termination or rescission, while others give only a right to compensation or correction. The contract’s classification of conditions, warranties, milestones, cure periods, and termination events is important but not always conclusive.
Examples include failure to deliver goods, late completion of construction, non-payment, delivery of materially defective products, disclosure of confidential information, abandonment of work, or wrongful termination.
Compensation under section 73
Section 73 allows compensation for loss or damage that naturally arose in the usual course of things from the breach, or that the parties knew, when making the contract, was likely to result from the breach. It excludes remote and indirect loss.
The basic objective is compensatory. The claimant should, so far as money can properly do so, be placed in the position that performance would have produced. This does not mean every claimed amount is recoverable.
In The Project Director, P.L. v A. Latiff Company Ltd, reported at 14 ALR (AD) 45 and also cited as 2014 BLD (AD) 34 in an international award record, the Appellate Division is reported to have rejected an arbitral damages calculation that produced an award exceeding Tk 7 crore from a contract valued below Tk 1 crore, because the calculation ignored the compensatory principle underlying section 73.
In Sonali Bank v M/S Karnaphuli Works Ltd, reported at 2 BLT (AD) 78, section 73 was reported to exclude remote and indirect loss. In Al-Sayer Navigation Co v Delta International Traders Ltd, reported at 2 BLD (AD) 69, the Court is reported to have considered foreseeability, delay, loss of market, and the circumstances known to the carrier.
Direct loss, foreseeable loss, and lost profit
Direct loss may include the difference between the contract price and the reasonable replacement cost, repair expenses, wasted expenditure, unpaid contractual sums, or loss in value caused by defective performance.
Lost profit is not automatically recoverable. It must be shown with sufficient evidence and must fall within the statutory rules on natural or contemplated loss. Speculative business projections, unsupported future ventures, reputational assertions, and losses caused by independent events may be rejected as remote or unproved.
A claimant should produce accounts, market quotations, substitute contracts, invoices, expert assessments, stock records, and contemporaneous communications demonstrating the amount and causal connection.
Duty to act reasonably after breach
Section 73 directs that, in estimating loss, account must be taken of the means available for remedying the inconvenience caused by non-performance.
This is commonly reflected in the obligation to take reasonable steps to reduce avoidable loss. A buyer whose supplier defaults should ordinarily consider obtaining replacement goods at a reasonable market price. A party cannot allow preventable losses to accumulate and automatically transfer all of them to the defendant.
The claimant is not required to take unreasonable, dangerous, unlawful, or commercially irrational steps. What was reasonable depends on the information and alternatives available at the time.
Specific performance
Specific performance is a court order requiring a party to perform the contract itself. Under section 12 of the Specific Relief Act, it is discretionary and available in the statutory circumstances. Section 21 excludes specific performance where monetary compensation is an adequate remedy and for several other categories of contract.
Specific performance is more likely to be relevant where the subject matter is unique and monetary compensation is inadequate. A claimant seeking specific performance of an immovable-property sale must comply with section 21A, including the requirements concerning a written and registered agreement and deposit of balance consideration.
Section 19 allows compensation to be claimed in addition to or instead of specific performance, subject to pleading and proof.
Rescission, restitution, and recovery of benefits
Section 75 permits compensation where a party rightfully rescinds the contract. Section 65 requires restoration or compensation for an advantage received where an agreement is discovered to be void or a contract becomes void.
These provisions should not be confused. Damages respond to breach. Restitution focuses on returning an unjustly retained contractual benefit after the legal basis for retention has failed. Different pleadings and evidence may be required.
Contractual termination and notices
Review the termination clause before ending performance. The contract may require notice, a cure period, certification, specified delivery method, approval, or escalation. A wrongful termination may itself constitute breach.
A legal notice should identify the contract, obligation, breach, relevant dates, losses, cure demanded, and intended relief. A notice is not a substitute for compliance with a mandatory contractual mechanism.
Procedure and documents
Preserve the signed contract, amendments, specifications, correspondence, invoices, payment records, delivery documents, inspection reports, photographs, expert reports, replacement quotations, termination notices, and proof of loss.
Prepare a chronological calculation linking each amount claimed to the breach. Separate unpaid contractual debt, direct damages, consequential damages, contractual interest, stipulated damages, restitution, and litigation costs.
Ordinary contractual damages claims generally belong before a competent civil court. In Md Mahbubur Rahman v Bangladesh, 10 SCOB [2018] HCD 104, the High Court Division stated that the remedy for breach of the contractual terms in that case lay in a properly constituted civil suit for damages under section 73, rather than constitutional writ jurisdiction.
Where a valid arbitration clause applies, the claim may have to be pursued through arbitration.
Limitation
Article 115 of the First Schedule to the Limitation Act, 1908 generally provides three years for compensation for breach of an express or implied contract that is not in writing and registered and is not specially provided for. Article 116 provides six years for compensation for breach of a contract in writing and registered. The starting point and applicable article depend on the nature of the instrument, breach, and relief.
Specific performance, rescission, debt recovery, guarantees, continuing breaches, and specialised statutory claims may be governed by different provisions. Prompt legal review is essential.
Common mistakes
Common mistakes include claiming gross revenue instead of net loss, failing to prove causation, ignoring contractual notice requirements, terminating too early, allowing avoidable losses to increase, claiming remote losses, overlooking limitation, and combining inconsistent remedies without proper pleading.
Another error is assuming that the total amount stated in a penalty clause will automatically be awarded. Section 74 permits only reasonable compensation within the contractual ceiling.
For related Ain.bd guidance, see Penalty and Liquidated Damages: What Is the Legal Difference?, Force Majeure Clauses: What Happens When Performance Becomes Impossible?, and What Makes a Contract Legally Valid in Bangladesh?
Law updated as of 13 July 2026.
Primary-source references
The Contract Act, 1872, sections 37 and 73 to 75; the Specific Relief Act, 1877, sections 12, 19, 21 and 21A; the Limitation Act, 1908, First Schedule, articles 115 and 116; the Code of Civil Procedure, 1908, section 9; The Project Director, P.L. v A. Latiff Company Ltd, 14 ALR (AD) 45; Sonali Bank v M/S Karnaphuli Works Ltd, 2 BLT (AD) 78; Al-Sayer Navigation Co v Delta International Traders Ltd, 2 BLD (AD) 69; and Md Mahbubur Rahman v Bangladesh, 10 SCOB [2018] HCD 104.
Disclaimer
This article provides general legal information and is not legal advice. Available remedies depend on the contract, nature of breach, evidence, limitation period, and any applicable special statute or arbitration clause. Consult a licensed advocate in Bangladesh for advice on a particular dispute.