Legal Notice: Breach of Contract

What counts as a breach worth a formal notice

Not every disappointment is a breach. A breach is a failure to perform an obligation the contract actually imposes — a delivery date missed, a payment not made, a specification not met, a service not rendered, or an express refusal to perform at all.

Section 39 of the Indian Contract Act deals with the last of these: where a party refuses to perform or disables itself from performing entirely, the other party may put an end to the contract, unless it has signalled acquiescence in its continuance. That distinction — between a defective performance and a repudiation — shapes what you can demand, so identify which one you are dealing with before you draft.

• Non-delivery or delayed delivery of goods against a stated date.
• Non-payment or short payment against agreed terms.
• Services not performed, or performed materially below the agreed specification.
• Breach of an exclusivity, confidentiality or non-solicitation obligation.
• A unilateral change to agreed terms, or a refusal to proceed at all.
• Failure to deliver a licence, approval, deliverable or milestone the contract required.

Read the dispute resolution clause before you draft anything

This is the step most self-drafted breach notices skip, and it is the one that most often wastes months. If the contract contains an arbitration clause, disputes go to arbitration, and a party that files a suit instead can be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 — after everyone has spent time and money.

Where arbitration applies, the correct opening move is usually a notice invoking arbitration under Section 21 of the Act, which is what starts the arbitral proceedings. That notice has its own content requirements — it must identify the dispute and call on the other side to concur in the appointment of an arbitrator.

1. 1Find the dispute resolution clause and read it in full, including any escalation steps it requires first.
2. 2Note whether it requires negotiation or mediation before arbitration, and how long each step lasts.
3. 3Note the seat and venue of arbitration, the governing law, and how the arbitrator is to be appointed.
4. 4If arbitration applies, draft a notice invoking arbitration under Section 21 rather than one threatening a civil suit.
5. 5If there is an exclusive jurisdiction clause instead, note which court it names — filing elsewhere invites a jurisdictional objection.
6. 6If the contract is silent, the ordinary civil courts have jurisdiction, subject to pecuniary and territorial rules.

What you can claim: damages, specific performance, or both

Section 73 of the Indian Contract Act entitles the injured party to compensation for loss or damage caused by the breach which naturally arose in the usual course of things, or which the parties knew when they contracted was likely to result. Remote and indirect loss is not recoverable, and there is a duty to mitigate — you cannot let the loss run and then claim all of it.

Where the contract itself fixes a sum payable on breach, Section 74 applies: the injured party is entitled to reasonable compensation not exceeding the stipulated amount, whether or not actual loss is proved. A liquidated damages clause is therefore a ceiling, not a guaranteed payout.

Specific performance — an order that the contract actually be performed — became the general rule rather than a discretionary exception after the 2018 amendment to the Specific Relief Act, 1963, subject to the exceptions in Section 14. That matters most where damages would not put you in the position performance would have.

Quantifying the loss so the figure survives scrutiny

A breach notice that claims a round number without a basis invites the reply that the figure is invented. Build the number from documents, and show the arithmetic.

1. 1Amounts you paid and did not receive value for — advances, milestone payments, deposits.
2. 2The cost of substitute performance: what you paid someone else to do the same work, evidenced by the replacement invoice.
3. 3Direct additional costs caused by the breach: storage, demurrage, expedited freight, idle labour.
4. 4Loss the parties knew at contracting was likely — a penalty you incurred downstream, where the other side knew about the downstream commitment.
5. 5Interest on money wrongly retained, from the date it fell due.
6. 6The steps you took to mitigate, and what they cost.
7. 7The total, with each component separately identified and tied to an annexure.

Structure of the breach of contract notice

1. 1Heading: LEGAL NOTICE FOR BREACH OF CONTRACT, with the contract reference and date.
2. 2Parties: your full name or the exact registered name of your company, and the other party's exact registered name and registered office.
3. 3The contract: its date, subject matter, and the specific clauses relied on, quoted where short.
4. 4Your performance: what you did, when, and the fact that you performed your side.
5. 5The breach: exactly which obligation was not performed, when, and how — with dates.
6. 6Correspondence: each occasion you raised it and what was said in reply.
7. 7The loss: itemised and quantified, with each head tied to a document.
8. 8The demand: specific performance by a stated date, or payment of the quantified sum, or both, within 15 days.
9. 9Reservation: that the claim is without prejudice to any other rights, including any right to terminate.
10. 10The consequence: the forum you will approach — arbitration under the clause, or a civil or commercial suit — at the other party's cost and risk.
11. 11Annexures: the contract, the correspondence, invoices, proof of your performance, and evidence of loss and mitigation.

How long you have

A suit for compensation for breach of contract must generally be brought within three years, running from the date the contract was broken — or, where the breach is a continuing one, from when it ceases. That is a shorter runway than most people assume, particularly where a relationship limps on for a year or two before anyone accepts it has failed.

Worked examples