ASSIGNMENT 29:

INDEMNITY BOND
NAME: MOHD OVES AHMAD
ROLL NO: 34
CLASS: BA LLB (H)/ SEM VIII REGULAR
SUBJECT: CLINICAL II
SUBMITTED TO: ADV RAJESH SHARDA
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INTRODUCTION

INDEMNITY BOND

Indemnity bond defines under section 124 of the Indian Contract Act. 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.

The purpose of Indemnity bond is to guarantee financial reimbursement in case of any harm
caused by illegal actions on the part of bonded party.

The bond represents a contract between:-

Principal is legally required to obtain a bond.

Obligee is the party that imposes the bonding.

Surety guarantees the financial compensation will be covered if the principal fails to abide by
the set agreement and the law. The indemnity bond can indemnify the obligee in case the
principal does not perform their obligations.

When getting indemnity bonds, the principal signs an indemnity agreement with the surety
provider. It states that the full financial responsibility in case of bond claims belongs to them
rather than the surety.

The typical indemnity bonds that a wide range of individuals and businesses have to obtain
are commercial bonds. They are also known as license and permit bonds, as they are a
common requirement when applying for a professional license. Local, city, state and federal
authorities may require license bonds before they allow an entity to operate within a regulated
business field.

What is the purpose of Indemnity Bond?

An indemnity bond is a bond that is intended to provide financial reimbursement to the

holder for any actual or claimed loss caused by the issuer’s conduct or another person’s
conduct. Indemnity bonds are a major subset of surety bonds.
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What are the types of Indemnity Bond?

 Commercial contracts
 Legal contracts
 Loan agreements
 Supply agreements
 Licensing agreements
 Leases

Understanding a Surety Bond

Most indemnity bonds are surety bonds, meaning that the money guaranteeing the pledged
action will take place is posted by a third party, called a surety company. This company is
essentially providing insurance that the company making the guarantee will perform what is
asked of it. If it fails to do so, the surety company will forfeit the amount of the bond and
seek to collect from the bond company.

Bail bonds, where a surety pledges money that can be forfeit if someone breaks the
conditions of his release from jail while awaiting trial, work in a similar way.

Defining a Bid Bond

Projects acquired through a bidding process require a company to review project

requirements, determine cost and figure a total bid price. Typically, the company with the
lowest bid price is awarded the contract. A bid bond is used to assure the project owner that
the bidder intends to follow through as outlined in its bid. The bond also assures that the
bidder will also provide any other bond purchases, such as obtaining a performance bond and
a payment bond.

They're usually defined and required in the document calling for bids on the contract, so
participants will know whether they're willing to post such a bond before they bid.

Performance and Payment

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Performance bonds are obtained as part of a contract between a project owner and a company
doing work for the project owner. A performance bond protects the owner financially if the
contractor fails to complete the project as outlined.

Payment bonds guarantee that the contractor will pay subcontractors, material suppliers and
laborers hired in association with a contract.

Permits and Licenses

Individuals who open businesses may be required by state or local law to obtain a permit or
license to operate. Each type of permit or license outlines provisions that a holder must
qualify for before obtaining the license, including any bonds that must be posted as a
condition of licensing.

Permit and license indemnity bonds assure the company's customers that the business meets
all requirements connected with the license or permit. For instance, a plumber or
electrician is usually required to complete training in that field before qualifying as a licensed
tradesman. The license bond is a means to qualify that training.

Miscellaneous Indemnity Bonds

Miscellaneous indemnity bonds are designed to cover items not found in or defined in a
general contract. A miscellaneous bond is usually very specific and might include protection
from lost securities; a guarantee to pay utility bills or to provide a certain service; or to
guarantee a specific benefit for employees, such as employer contributions for union benefits,
or workers' compensation for self-insured employees.

This bond might be required by law, or private parties might use it to facilitate a business
transaction.

n Indemnity Bond is a form of a surety that one provides while undertaking to indemnify and
to assure the other that in event of possible losses/ damages of nature as mentioned in the
bond and/ or due to the reasons provided in the bond, he shall be duly compensated.
In simple words, an Indemnity Bond is an undertaking provided by a party entering into a
contract promising to bear the losses in event of the breach of contract.
Thus, when a party liable to perform the obligations as per the contract refuses to oblige, the
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defaulting party has the right to recover the damages and losses incurred by the defaulting
party.

The most common example of an Indemnity Bond is the General Insurance policy. Here the
authority which issues the Insurance Policy undertakes to indemnify the party buying the
policy in the events as specified.

According to the law, Section 124 of the Indian Contract Act, 1872 states an agreement of
indemnity between two parties wherein one party promises to pay for the damages of another
party if caused by him or by another person.

Indemnity Bond – Cost

Most certificates of title bonds are issued immediately, but it depends on the required bond
amount. Bonds up to $5,000 are issued immediately and cost $100. Bonds up to $25,000 are
also issued immediately, but the cost is calculated at a rate of $20 per $1,000 of coverage.

The indemnity bond involves a contract between 3 individuals – principal, oblige and surety.

What is the Condition for the Enforcement of an Indemnity Bond?

The condition for the enforcement of the Indemnity bond is the infringement in the contract.
The liability arises upon the breach of contract and the defaulting party is then liable to
compensate the other party.

What is the Difference Between an Affidavit and an Indemnity Bond?

An affidavit is a statement-on-oath stating that all the statements made are true and correct to
the knowledge and no material information has been concealed. Whereas an Indemnity Bond
is an undertaking providing a surety that the party shall be compensated monetarily in event
of the breach of the contract.

What are Some Common types of Indemnity Bond used in General Corporate
Transactions?

Apart from a General Insurance Policy, an Indemnity Bond is also drawn between employer
and an employee, where an employee undertakes to serve the employer for a specific period
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of time and if he leaves the services before completion of the said term, then monetary
compensation has to be paid.

An Indemnity Bond is also drawn when a person loses a Share Certificate where it states that
the Share Certificate has genuinely got lost and the request for issuing of a new Share
Certificate be processed with the undertaking of the applicant to indemnity of all costs and
expenses with regard to the issue of new Share Certificate.

An Indemnity Bond is also provided to an Educational Institution/ Company when applying

for alteration in the basic details of an individual undertaking to indemnify any loss which
may arise as a consequence of the changes in the basic details of the applicant.

An Indemnity Bond may be executed between a government authority and independent

contractors.
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INDEMNITY BOND

This deed of Indemnity executed on 1st February 2019 at New Delhi by Goat on a Boat Co.
Ltd. having its registered office at New Delhi, through Mr. Mohd Faiz as the authorized
representative, hereinafter referred to as the ‘Indemnifier’, the expression which shall, unless
repugnant to the context or meaning thereof, include its administrators, successors,
representative and assignees in favour Health Farm Co. Ltd. having its registered office at
Lucknow, through Mr. Tolkien as the authorized representative, hereinafter referred to as the
‘Indemnified’, the expression which shall, unless repugnant to the context or meaning
thereof, include its administrators, successors, representative, and assignees.

WHEREAS the indemnified herein has awarded to the Indemnifier herein a Purchase Order
No. 42984 valued at Rs. 1,00,00,000 (Rupees one crore only) for the supply of goats on terms
and conditions as mutually agreed by the parties.

WHEREAS, a clause of the above mentioned Purchase Order provides for the guarantee (i.e.)
for the products supplied by the Indemnifier to the Indemnified, to be free from any defect
subject to faulty material or workmanship for a period of twelve (12) calendar months from
the date of commissioning of the Purchase Order.

The Indemnifier hereby irrevocably agrees to indemnify the indemnified in the event of any
defect subject to faulty material, workmanship or any defect which may arise in the delivered
due to the shortcomings of the Indemnifier for the said period of twelve (12) calendar months
from the date of commissioning of the Purchase Order. The indemnifier shall as may be
deemed necessary repair the defective products at the site, free of cost, within a reasonable
time specified by the indemnified or shall reimburse the pro-rata cost of the products to the
extent as per the Purchase Order, or shall deliver spares for the defective portion only free of
cost at site with respect of the Purchase Order.

PLACE: New Delhi

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DATE: 5th of February 2019

(Signature with Name and Designation)

(Company Seal)

WITNESS:

1. Mr. Mohd Oves

2. Ms. Munazir Hasan