Contract of Indemnity
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Law of Contracts

Contract of Indemnity

Contract of indemnity is provided under section 124 of Indian Contract Act, 1872. A contract of indemnity is an agreement in which one of the parties promises to save the other party from the loss caused to him by the conduct of the promisor himself or by the lead of someone else is defined as a "Contract of Indemnity."

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contract of indemnity
Contract of Indemnity

Whereas, the literal meaning of indemnity is "security against loss." In the contract of indemnity, there are two parties one is the indemnifier i.e. the person who promises to compensate the other party and the indemnity-holder i.e. the person who is protected by the indemnified against the loss to him.

Contract of Indemnity

What is a contract of indemnity? A contract of indemnity is a good loss or to compensate for the losses. The object of the contract of indemnity is to protect the promise from unanticipated losses, parties enter into the contract indemnity.

The literal meaning of the contracts of indemnity is a promise to save a person without any loss from the consequences of an act.

Section 124 of the Indian Contract Act, 1872

As per section 124 of the Indian Contract Act, 1872, the contract of indemnity is "A contract by which one party promises to save the other party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity."

Example: X contract to indemnify Y against the consequences of any proceedings which Z may take against Y in respect of a certain sum of 5000/- rupees. This is an example of a contract of indemnity.

Actually, in a contract of indemnity, there are two contracting parties are involved, these two parties are the indemnifier and indemnity holder.

Indemnifier

In the contracts of indemnity, the indemnifier is the person who provides security or protects the other person against the loss or compensates for the loss caused by the damages received.

Indemnity Holder / Indemnified

In the contracts of indemnity, the Indemnity holder is the person who is being protected or compensated against the loss caused by the damages received.

Example of Contract of Indemnity

X made a contract with Y, where X agreed to indemnify Y against the consequences of any proceedings which Z may take against Y in respect of some amount of Rs. 2,00,000/-. This is an example of a contract of indemnity.

Rights of Indemnity Holder

The right of indemnity holder is secured under section 125 of Indian Contract Act, 1872. When the contracting parties form the contract of indemnity, they can determine their own terms and conditions to the contract of indemnity. And, if the indemnifier breaches any terms and conditions then the rights of the indemnity holders are secured under section 125. Let's see the rights of indemnity holder and indemnifier;

Here, are some rights of indemnity holder when sued against the indemnifier:

  1. all the damages which indemnifier may be compelled to pay in any suit in respect of any matter to which the indemnity holder to indemnify applies;
  2. all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit;
  3. all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.

Rights of Indemnifier

The rights of indemnifier are nowhere provided under the Indian Contract Act, 1872. The said act mentioned the indemnity privileges under this act but actually, the said act has excluded the indemnifier rights.

In the case of Jaswant Singh v. the State, it was concluded by the court that the reimbursement advantages are like those of a contract of guarantee under Section 141 of the contract act, where the person who indemnifies gains the advantage of all protections held by the loan boss against the vital borrower, regardless of whether the foremost account holder was worried about them.

Conclusion

In a contract of indemnity, the one contracting party is made responsible for the loss or harm caused by the other party as a result of the promisor’s or other party’s actions.

Referred Books:

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