1. S.74 of the Indian Contract Act, 1872 concerns compensation for breach of contract where the amount to be paid in the case of such breach is named or the contract contains any other stipulation by way of penalty. That Section reads:

74. When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be. the penalty stipulated for".

Even if the parties to the contract stipulate for payment of a specific sum or forfeiture of a specific sum as penalty or compensation in the event of there being a breach of the contract the defaulting party is liable to pay as compensation only such sum as is found to be reasonable compensation. Such reasonable compensation cannot exceed the amount named in the contract or the penalty stipulated. If in an agreement of sale parties agree that any part of the considerati