The Indian Contract Act, 1872 governs breach of contract in India through Sections 37, 39, 73, 74, and 75. Breach occurs when a party fails to perform, repudiates the contract before the due date (anticipatory breach), or makes performance impossible. The innocent party may sue for damages, rescind the contract, or seek specific performance. Section 73 covers compensatory damages, while Section 74 provides for liquidated damages and penalty clauses, capping recovery at the stipulated sum.

Breach of contract under the Indian Contract Act, 1872 operates across two temporal categories: actual breach (failure to perform when performance is due) and anticipatory breach (repudiation before the performance date). The doctrine of anticipatory breach, rooted in Section 39, allows the aggrieved party to treat the contract as rescinded immediately without waiting for the performance date, or to affirm the contract and wait — but if the latter, any supervening frustration extinguishes the right to sue.

Damages are governed by Sections 73–75. Section 73 codifies the rule in Hadley v. Baxendale: only damages that naturally flow from the breach, or were within the reasonable contemplation of the parties at the time of contracting, are recoverable. Section 74 deals with stipulated damages — where a sum is named in the contract as payable on breach, the court awards reasonable compensation not exceeding that sum, regardless of whether actual damage is proved. This is the Indian departure from the common law distinction between liquidated damages and penalties — Indian courts do not enforce a pure penalty but cap recovery at the stipulated figure.

Section 75 entitles a person who rightfully rescinds a contract to compensation for the non-performance. The examiner frequently tests the distinction between Sections 73 and 74, the effect of affirming after anticipatory breach, and what 'reasonable compensation' means under Section 74.