Contract of Indemnity : The Indian Contract Act 1872

This article is written by Krishnaraj Choudhary, Student of Dr. Anushka Law College Udaipur. The author in this article has discussed the concept of Indemnity

Contract of Indemnity

          The term indemnity means a security against or extemption from legal liability for ons's person

 Defination:  According to Sction 124 of Indian Contract Act 1872 "A contarct by which one party promises to save the other from loss cause to him  by the conduct of the promisor himself, or by the conduct of any other person , is called a "Contract of Indemnity" 

Illustration: 

                    A contracts to indemnify B against the  consequences of any proceeding which C made against B in respect of a certain  sum of 200 $. This is a contract of indemnity. 

             The only illustration appended to the section says that if a person promises to save another from the consequences of a proceeding which may be command against him it is a contract of indemnity.

Essentials of Contract of Indemnity

The essential of contract of indemnity are:

1. There must be two parties, namely, promisor or indemnifier and the promisee or indemnified or indemnity holder.
2. A contract of indemnity is entered into, to protect the promisee from the loss. The loss may be caused due to the conduct of the promisor or any other person.
3. The contract of indemnity may be expressed and implied.
4. In indemnity contract, there is only one contract that is between the indemnifier and the indemnity holder.     
   

 

The Parties to Contract:  

• The person who gives the indemnity is called the "indemnifier" and
  

• the person for whose protection it is given is called the "indemnity-holder" or "indemnified".

Thus the scope of "indemnity" is by the very process of definition restricted to cases where there is a promise to indemnify against loss, caused: (a) by the promisor himself, or (b) by any other person. The definition excludes from its purview cases of loss arising from accidents like fire or perils of the sea. Loss must be caused by some human agency. Contracts of insurance against loss are covered by the chapter on Contingent Contracts. 

Secondly, situations like those in Adamson v Jarvis (1827) where cattle were sold under the instruction of a wrongful owner, are also outside the scope of this definition. Such cases and the case of a loss arising from an act done at the request of the promisor are covered by Section 223 of the Act which provides for indemnity between principal and agent."
 

The promise of indemnity, as envisaged by the section, may be express or implied. An illustration of implied indemnity is the decision of the Privy Council in Secy of State for India in Council v Bank of India Ltd.

 

Insurance indemnity
                                   Almost all insurances other than life and personal accident insurance are contracts of indemnity. The insurer's promise to indemnify is an absolute one. A suit can be filed immediately upon failure of performance, irrespective of actual loss. If the indemnity holder incurred liability and that liability was absolute, he would be entitled to call upon the indemnifier to save him from that liability by paying it off.

Position in Indian & English Law

• Indian Law - 

                           There is a promise to save another person from loss which may be caused by the conduct of the promisor himself or by conduct of any other person. It does not cover a promise to  compensate for loss not arising due to human agency.

• English Law - 

                                It includes a contract to save the promisee from a loss, wheather it be caused by human agency ar any other event like an accident and fire.

 

 Rights of indemnity-holder when sued. Sec. 125

             The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor- 

S. 125(1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;

S. 125(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 authorised him to bring or defend the suit;

S. 125(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  

1. The indemnifier will have the right to sue thired parties over the indemnified property.
2. Indemnifiers have the right to pay for for only those losses that are coverd in the indemnity contract.
3. the indemnifier has the right to recover money and possession from the indemnity- holder in certain cases as the contract may specify.

 

Written By :- KR Choudhary