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NATIONAL LAW INSTITUTE UNIVERSITY

BHOPAL

CONTRACT - I

CONTRACT OF INDEMNITY

Submitted to- Submitted by -


Ms. Neha Sharma
(Faculty in Law of Contracts) Venkatesh Sahu
Roll- 2018BA.LLB.18
Enrollment no. –1925
Second Trimester
TABLE OF CONTENTS

1. Certificate……………………………………………………….
2. Acknowledgement……………………………………………...
3. Introduction…………………………………………………….
4. Rights of Indemnity Holder…………………………………….
5. Rights of Indemnifier…………………………………………..
6. Specified time for notice……………………………………….
7. Difference between contract of Indemnity and Guarantee…….
8. Leading case laws………………………………………………
9. Conclusion……………………………………………………..
10.Bibliography……………………………………………………
CERTIFICATE

This is to certify that the Project titled ‘CONTRACT OF INDEMNITY’ has been
prepared and submitted by Venkatesh Sahu who is currently pursuing B.A. L.L.B (Hons.)
from The National Law Institute University, Bhopal in fulfilment of his Contract-I Course.
It has also been certified that this is an Original Research Project, and has not been
submitted to any other journal or publication.

Date:-

Signature of the Student:-

Signature of the Faculty:-


ACKNOWLEDGEMENT

On completion of this Project it is my esteemed privilege to acknowledge my profound


gratitude and indebtedness towards many people for their valuable suggestions and
constructive criticism. Their precious guidance and unrelenting support kept me on the
right track throughout the project. I gratefully acknowledge my deepest sense of gratitude
to: Prof. (Dr.) V. Vijayakumar, National Law Institute University, Bhopal for providing
me with the infrastructure and the means to make this project; Our Law of Contracts
teacher, Ms. Neha Sharma, who provided me this wonderful opportunity and guided me
throughout the project work. I would also like to thank my batch mates and seniors for
their constant help and guidance which helped me in completing this project.I am also
thankful to the library and computer staffs of the University for helping us find and select
books from the University library. Finally, I am thankful to my family members and
friends for the affection and encouragement with which doing this project became a
pleasure.

Venkatesh Sahu
INTRODUCTION

“A contract by which one party promises to save the other 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."1

Indemnity is a recompense for damages or loss and in legal language it may also refer to an
exemption from liability for damages. The concept of indemnity is based on a contractual agreement
made between two parties, in which one party agrees to pay for potential losses or damages caused by
the other party.

A typical example is an insurance contract, whereby one party (the insurer or the indemnifier) agrees to
compensate the other (the insured or the indemnified) for any damages or losses, in return
for premiums paid by the insured to the insurer.

This definition in the Indian contract act deals with only one type of indemnity which arises from the
promise made by the indemnifier to the indemnified for any loss which occurs to him by the conduct of
the promisor(indemnifier) himself or by the conduct of the third party but does not deal with the type
of cases where the damage is caused by the and incident such as accident or does not depend on the act
or conduct of the promisor or of that of any other party or by the liability incurred when an act is done
by the indemnified at the request of the indemnifier.

Tropical Insurance Co. Ltd. v. Zenith Life Insurance Co. Ltd., AIR 1941 Lah 68

Section 124 deals with one particular kind of indemnity which arise from a promise made by the
indemnifier to save the indemnified from the loss caused to him by the conduct of indemnifies
himself, as by the conduct of any other person or from loss caused by events or accidents which do
not or may not depend upon the conduct of the indemnifies or any other person, or by reason of
liability incurred by something done by the indemnified at the request of the indemnifier.2

1
Section 124 of the Indian Contract Act
2
https://www.manupatrafast.in/pers/Personalized.aspx
FUNDAMENTALS OF INDEMNITY

1. It is a promise made by a party to compensate for or security against damage, loss or injury
2. It comprises of all the contracts of insurance,guarantee. Its not a collateral but and independent
contract.
3. The indemnity clause must be clear and specific as to under which circumstances the liability to
pay damages will arise and if the contract of indemnity is invoked then what will be the
damages which can be payable.

ENFORCEMENT OF INDEMNITY

1. “A contract of indemnity can be enforced according to its terms.


2. Claim of Indemnity holder can include: damages, legal costs of adjudication, amount paid
under the terms of compromise.
3. The measure of damages is the extent to which the promisee has been indemnified.
4. Indemnifier should ideally be informed of the legal proceedings or should be joined as third
party.”3

3
http://www.legalservicesindia.com/article/379/Indemnity-in-a-contract.html
RIGHTS OF INDEMNITY HOLDER

(SECTION 125)

Section 125. Rights of indemnity-holder when sued.-“The promisee in a contract of indemnity, acting within
the scope of his authority, is entitled to recover from the promisor-

(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.

For example, if A contracts to indemnify B against the consequences of any proceedings which C may take
against B in respect of a particular transaction. If C does institute legal proceeding against B in that matter
and B pays damages to C, A will be liable to make good all the damages B had to pay in the case.

(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.

In the case of ADAMSON vs. JARVIS [1827] 4 BING 66, Adamson was entitled to recover the money he
had to pay to the true owner of the cattle as well as any expenses incurred by him to get a legal counsel.

(3) All seems 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.”4

The indemnity holder is also entitled to losses due to change of law not foreseen by the parties when they
entered into such contract of indemnity.

4
Section 125 of the Indian Contract act

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