Liquidated damages cannot be recovered from other contracts before liability is adjudicated and compensation is assessed.

Unilateral recovery of liquidated damages from other contracts is impermissible before adjudication of liability. Sections 73 and 74 of the Indian Contract Act, 1872 require compensation for breach to be assessed as reasonable compensation for loss actually suffered or as a genuine pre-estimate of damages, but a damages claim does not become a present debt until a court or other competent adjudicatory forum determines liability and quantifies the loss. Although liquidated damages may reduce the need for strict proof of actual loss, they still require a judicial or quasi-judicial finding that loss or legal injury occurred and that the stipulated sum is enforceable. The impugned recovery communication was therefore unsustainable.

---

---

Issues: Whether the respondents could recover and adjust liquidated damages from the petitioner's other contracts before adjudication of liability by the competent adjudicatory forum.

Analysis: The contract provided a dispute redressal mechanism, but the present challenge was to the unilateral recovery of penalty and liquidated damages without prior adjudication. Under Sections 73 and 74 of the Indian Contract Act, 1872, compensation for breach is payable as reasonable compensation for loss actually suffered or for a genuine pre-estimate of damages, and a claim for damages does not become a present debt until liability is determined and damages are assessed by a court or other adjudicatory authority. Liquidated damages may dispense with strict proof of actual loss, but they do not authorize recovery in the absence of judicial or quasi-judicial determination that loss or legal injury has been suffered and that the stipulated sum is enforceable as reasonable compensation.

Conclusion: The respondents could not recover the alleged liquidated damages from other contracts without prior adjudication of liability, and the impugned communication was unsustainable.

---