Beyond Compensation and a New Dawn for Section 74: Supreme Court and Agreed Sum for Breach of Contract

Section 74 of the Indian Contract Act was intended to discard the English penalty and liquidated damages distinction. Yet, the Indian courts had reintroduced it through the requirement of the genuine pre-estimate of loss test. Resultantly, agreed sums under section 74 were confined to providing compensation for loss. This article argues that the Supreme Court’s decision in BPL Ltd v Morgan Securities (2025) marks a decisive break from this orthodoxy. By endorsing Cavendish, the court has recognised that agreed sums payable upon breach in commercial contracts may protect legitimate performance interests beyond compensation for loss, and need not constitute a genuine pre-estimate of loss. The article demonstrates how Morgan Securities departs from Kailash Nath and its predecessors, rebuts concerns of windfall and unjust enrichment, and reconceptualises agreed sums as function of party autonomy and post-breach risk allocation.