Jean Renoir
Asked September 02, 2016

IT work not completed on time

  • 1 Answer

Hello , I ran a business in Spain, I have outsourced an IT project to a company in New Dehli which was to be delivered according to a scope of work and deadlines, Project ran late and was not delivered because of which I had to pay more money against new deadlines which still has not been respected, the project is now running 1 year late and the company is asking again for more money that I refused to pay and does not accept to hand over the work where it stands now. They are asking for the full balance to be paid whilst they have not finished the work and are blackmailing to copy the technology and sell it to other comapny to recoup their money and to create similar website, Can someone help

Answer 1

You have remedies both under the civil and criminal law of India assuming that the work was performed in India.

Since you have  stated that you have outsourced your IT project to an Indian Company, then the company should necessarily be registered under the Indian Companies Act 1956 (New Companies Act 2013).


Firstly, you should look up the particulars / registration of the company and its directors on the website under the tab MCA services. You can access the copy of the Memorandum of Association (MOA) or Articles of Association (AOA) and Annual return of the company by paying a nominal fee online. These documents may help you in filing your claims for breach of contract in civil law.

In case the company has represented itself to be a company registered under the companies Act 1956 or 2013 and your investigation reveals that it is not so registered, you can file a Police complaint detailing the chronological sequence of events of calls, mails, letters, faxes sent or received with the police station addressed to the Superintendent of Police – SP - praying for registration of a FIR (First Information Report) for offences of cheating u/s 420 of the Indian Penal Code 1860 on the company / entity and its directors. Please ensure that you give complete details of the name, address / email etc. of the fraud company registered office and its directors.

These criminal law remedies are in addition to your civil remedies under the Indian Contract Act 1872 as explained below. 



First send across a strong legal notice drafted by a lawyer detailing the sequence of events and asking for specific performance of the contract and in lieu of the same – ask for damages, interest, penalty and costs for breach of contract.

Thereafter file a civil suit for breach of contract and claim of damages u/s 73 and u/s 74 of the Indian Contract Act 1872

Section 73 of the Indian Contract Act 1872 lays down the provision relating to damages for breach of contract. It provides that the party, who breaches a contract, is liable to compensate the injured party for any loss or damage caused, due to the breach of contract.

For compensation to be payable, Two points would be taken into account by the courts in India.  

  • The damage should have arisen as a natural consequence of the breach, or
  •  It should have been something the parties could have reasonably expected to arise from a breach of the contract.

    In the first case, an objective test would be applied where as in the second case a subjective test would be applied.

    Under this section, the burden of proof lies on the injured party. Therefore you have to prove the fact that you / your Spanish company suffered damages as a consequence of the breach of contract by the Indian IT company.

    Please note that section 73 also states that no compensation shall be awarded by the courts in India for any remote or indirect loss sustained by the parties - in this case you / your company.

    Section 73 also provides that the same principles will apply for breach of a quasi-contractual obligation, i.e. in the event that an obligation resembling that created by contract has not been discharged, the injured party is entitled to receive compensation as if a contractual obligation has been breached.


    Improper recession of a contract may also result in compensation for loss of profit being awarded under Section 73 as was held by the Supreme Court in the case of Dwarka Das v State of Madhya Pradesh (Appeal (civil) 1209 of 1992).

    Thus, you can claim damages for breach of contract u/s 73 of the Indian Contract Act 1872 and you have a good chance of succeeding.


    Section 74 of the Indian Contract Act 1872: In case your contract has a clause for liquidated damages (pre-estimated damages payable on the breach of the contract), then you can claim the same u/s 74 of the Indian Contract Act.

    Section 74 of the Act deals with the situation where the parties to a contract agree that the contract itself will stipulate the penalty for the breach of the contract i.e. liquidated damages.

    Section 74 provides that damages, not exceeding the amount stipulated in the contract, must be given to the injured party on breach of the contract. It further provides that such damages must be given to the injured party irrespective of any actual loss or damage proved by them.

    The explanation to Section 74 distinguishes between a genuine pre-estimate of the damages and a penalty. A penalty is sum of money, which is stipulated in order to dissuade a person from breaching a contract.

    Please note that the Indian Courts would not award penalty (even if you have stated the same in your contract) but may provide you the pre-estimates amount agreed upon between the two of you (liquidated damages) on production of actual proof of damage suffered.

    Please do note that you cannot claim liquidated damages unless you can prove that you have sustained loss due to the default of the Indian IT company. Hence, please ensure that you have adequate proof of the damages suffered by you. Also, ensure and document the steps that you have taken adequate steps to minimize the losses in a prudent manner.

    Please note that where the Court is of the opinion that that the clause in your contract where Damages are stipulated- is actually a penalty, the Court may grant reasonable compensation not exceeding the amount mentioned in the contract on proof of damages.

    Section 74 deals with the measure of damages in two clauses of cases

  • where the contract names a sum to be paid in case of breach, and
  • where the contract contains any other stipulation by way of penalty.

    The jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable.

    You will not get any compensation if you have suffered no legal injury at all.

    This is because compensation for breach of contract is given by the courts to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach.

    However, our Supreme Court in a noted case (ONGC Ltd. v. Saw Pipes ltd.: CASE NO.: Appeal (civil)  7419    2001 of 518) has held that “In some contracts, it would be impossible for the Court to assess the compensation arising from breach and if compensation contemplated is not by way of penalty or unreasonable, Court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation.”.

    Thus, you should file for damages both u/s 73 and u/s 74 of the Indian Contract Act 1872.

    As far as threatening to sell your IT data and blackmail, please try to record the verbal conversation - and then arrange to file a Police complaint - with the copy of the CD recording. Also include this aspect that the Indian IT company has threatened to blackmail you in your legal notice and also specify what kind of data is in the possession of the Indian IT company and warn them that serious civil and criminal legal action will follow in case of wrongful transmission of the IT data by the Indian IT company to any third party not in the normal course of business.




    If indeed, the Indian IT company sells your data to your competitor or a third party without your concurrence, you can proceed for damages by filing a suit under the IT Act 2000. Section 43 and 43A (Compensation for failure to protect data) of the IT Act 2000 can come to your rescue.

    You may simultaneously drag the Indian IT company to the courts in Spain based on Spanish laws – in case the jurisdiction of the courts in Spain is made out based on the transactions undertaken by the Spanish company with the Indian IT company.Please note that all the above remedies – legal notice, suit, criminal complaint has to be in accordance with Indian laws only and these remedies have to be pursued within India.

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