A

PROJECT REPORT ON
“INDEMNITY BOND”

Submitted by: Rana Suraj Hemantkumar

Enroll No: 20210204
Subject: Principles of Contract Law

Under the guidance of

Ms. Loree Sonchhatra

Academic Associate
Ms. Tanwi Pareek

Chief Patron & Mentor

Dr. P. Lakshmi
Professor & Head, PGDM(Law)
PGP Chair

Academic Year
2021

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Contents

1.1 Indemnity Bond and It’s Definition. .............................................................................................. 3

1.2 Advantages of Indemnity Bond .................................................................................................... 4
1.3 Enforcement of indemnity bond ................................................................................................... 4
1.4 Essentials of Indemnity Bond ....................................................................................................... 5
1. Parties to a contract ............................................................................................................................5
2. Protection of loss ................................................................................................................................5
3. Express or Implied...............................................................................................................................5
4. Essentials of a valid contracts ..............................................................................................................5
5. Number of contracts ...........................................................................................................................5
6. Rights of Promisee/The Indemnified/ Indemnity Holder. .....................................................................5
1.5 Duties of indemnity holder .......................................................................................................... 6
1.6 Features of Indemnity Bond. ........................................................................................................ 6
1.7 Types of Indemnity Bond ............................................................................................................. 7
1.8 Example of Indemnity bond for guaranteed performance. ........................................................... 7
1.9 Format of an Indemnity Bond with an example: ........................................................................... 8
1.10 Frequently Asked Questions ..................................................................................................... 10
1.11 Conclusion ............................................................................................................................... 11

Table of Figures
Figure 1 Parties in an Indemnity Bond___________________________________________________ 4

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 Indemnity Bond

1.1 Indemnity Bond and It’s Definition.

• A contract in which one party promises to save the other party from loss caused by the promisor's
or the other party's contract is known as a "Contract of indemnity," according to Section 124 of
the Indian Contract Act'1872.
• When a promisor fails to execute according to the terms agreed upon, it acts as covering for the
indemnity holder's loss.
• The indemnity bond protects the party from potential losses resulting from the promisor's failure
to fulfil his or her commitments.
• The promisee in a contract of indemnity is having an authority to recover from the promisor all
damages which he/she may be forced to pay in respect to the matter of promise applies.
• It's also a type of insurance that covers a wide range of loss compensation.
• Indemnity bond agrees between an individuals and business, also applies to larger scale like
between business and government or between government of two or more countries.
• General Insurance Policy is the most popular type of indemnity bond.

There are two parties which includes in this contract.

Indemnifier (Promisor): The person who is promising to pay the compensation.

Indemnity Holder/Indemnified (Promisee): The person whose loss is compensated.

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 Figure 1 Parties in an Indemnity Bond

1.2 Advantages of Indemnity Bond

• Indemnity bond can cover any type of expected losses. The party which enters in the contract what
will be paid under what situation.
• Indemnity bonds are called as surety bonds also.
• The indemnity bond ensure that the promisee or obligee will receive the amount from the guarantor
if another party (promisor) fails to perform the terms of contract.
• The primary goal of indemnity bonds is to obtain financial compensation for any losses incurred
because of the bonded party's illegal behavior.
• The promisor enters an indemnity contract with the surety provider in order to obtain indemnity
bonds. It states that in the event of a bond claim, the principal will bear financial obligation rather
than the surety.

1.3 Enforcement of indemnity bond

The contract's terms must be breached for the Indemnity bond to be enforced. Liability arises because of
the violation of contract, and the defaulting party is responsible for compensating the other party.

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1.4 Essentials of Indemnity Bond

1. Parties to a contract
When entering an indemnity bond, there must be two parties: the promisor/ indemnifier and the promisee/
indemnified or indemnity holder.

2. Protection of loss
The promisee or indemnified or indemnity holder is protected from loss by the indemnity contract. The
loss may be caused by the promisor's or another person's conduct.

3. Express or Implied
The Contract of indemnity maybe express or implied.

Express indemnity: Indemnity bond made by words written or spoken.

Implied Indemnity: Inferred from the conduct of the parties or circumstances of a particular case.

For an Example: In a case A was an auctioneer who sold goods according to B's orders. It was later
discovered that B was not the true owner of the goods, and the true owner filed a lawsuit against A. Later
on, A sues B to reclaim the losses. The courts found that B is responsible for A's loss since it was clear
from his actions that he was working under his supervision and that they had an implied indemnity
contract.

4. Essentials of a valid contracts

Indemnity contract is a special kind of contract. Principles of the general law from Section 1 to 75 are
applicable to them. Therefore, it must include all the essentials of a valid contract.

5. Number of contracts
There is only one contract of indemnity between the promisor or indemnifier and promisee or indemnified
or indemnity holder.

6. Rights of Promisee/The Indemnified/ Indemnity Holder.

According to section 124 of the Indian Contract Act, 1872, the promisee, indemnified, or indemnity holder
has some rights against the promisor or indemnifier.

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 • Right to recover costs incurred in defending a suit [Section 125(2)]
An indemnity bond holder has the right to recover all damages from the indemnifier or promisor which
he may be forced to pay in any suit in respect of any matter to which the contract of indemnity bond
applies.

• Right to recover damages paid in a suit [Section 125(1)].

An indemnity holder has the right to recover all the cost which he may be forced to pay in such suit or
cases if the indemnity holder bringing it or defending the case.

• Right to recover sums paid under compromise [section 125(3)].

A promisee has right to recover all cost which he may paid under the terms of compromise of any such
suit from the indemnifier.

1.5 Duties of indemnity holder

• To carry out the indemnifier's instructions
• To behave in a sensible manner.
• To bring all critical information to the indemnifier's attention.

1.6 Features of Indemnity Bond.

It depends on good faith: An indemnity contract depends on good faith

Only pays for the actual loss: It only covers the actual loss, which could be caused by the promisor or
anyone else, and it only covers the loss caused by an event specified in the contract. The contract's
specified event must occur.

It must be Legal to consider: It is important to emphasize that the consideration or object of the indemnity
contract must be legal.

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1.7 Types of Indemnity Bond

• Supply agreements
• Licensing agreement
• Commercial contracts
• Loan agreement
• Legal contracts

1.8 Example of Indemnity bond for guaranteed performance.

Adani Institute of Infrastructure Management signed an indemnity bond with a contractor to commence
the project of EV charging station in the campus and benefit to the society as part a green revolution
initiative. An indemnity bond has been induced between the Institute and the contractor (RS Enterprise)
containing the terms and condition and need to be duly signed by them.

In this case,

Indemnifier (Promisor): The Contractor (RS enterprise)

Indemnity Holder/Indemnified (Promisee): Director, Adani Institute of Infrastructure Management.

The Contractor agrees to indemnify and keep the Institute indemnified to the amounting to Rs. 50,00,000/-
(Rupees Fifty Lakh Only) as the value of the Performance Guarantee against any loss or damage caused
to or suffered by the Institute because of any breach or breaches on the Contractor's part of any of the
Terms & Conditions contained in the said Agreement.

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1.9 Format of an Indemnity Bond with an example:

INDEMNITY BOND FOR GUARANTEED PERFORMANCE

This deed of Indemnity is made this 29th day of September 2021 between M/S RS Enterprise
(hereinafter Called "The Contractor" whichexpression shall unless repugnant to the context or meaning
Thereof include its successors and assigns) of the FIRST PART and Director, Adani Institute
Infrastructure Management, Ahmedabad, an Institute having its Registered Office at, Near Vaishnodevi
Circle, Shantigram, Gujarat 382421 (hereinafter called the "Institute" which expression shall unless
repugnant to the Context or meaning thereof include its successors and assigns) of the SECOND PART.

WHEREAS the Contractor has, interalia, agreed with the Institute to executethe Work " Undertaking
Skilled/ Unskilled/ Semi-Skilled and Miscellaneous jobs under Job Contract/ Outsourcing Mode for
completion of the Charging Station works related to “EV (Electric Vehicle) Charging Station
Installation Project’’ on the Terms & Conditions contained in the Empanelment Letter No:
054651Dated 20th September 2021 made between the Institute and the Contractor.

AND WHEREAS the Contractor has to furnish an Indemnity of Rs. 50.00,000/- (Rupees One Lakh
only) as PERFORMANCE GUARANTEE of the said Agreement.

It is now agreed by and between the Parties hereto as follows:

1. In accordance with the said Agreement, on the Contractor Furnishing this Indemnity, the Contractor
hereby undertakes to indemnify the Institute and keep the Institute indemnified from time to time to the
extent of Rs. 50,00,000/- (Rupees Fifty Lakh Only) being value of Performance Guarantee against
Any loss or damage caused to or suffered by the Institute by reason of any breach Or breaches on the
Contractor's part of any of the Terms & Conditions contained in The said Agreement and in the event
the Contractor shall make any default or Defaults in carrying out any of the works under the said
Agreement or Otherwise in observance or performance of any of the Terms & Conditions Relating
thereto in accordance with the true intent and meaning thereof, the Contractor shall forthwith on demand
and without demur pay to the Institute such Sum or sumsnot exceeding in total the said sum Rs.
50,00,000/- (Rupees Fifty Lakh only) as may be Claimed by the Institute as losses, damages, costs,

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charges or expensesby reason Of such default or defaults on the Contractor's part.

2. Notwithstanding anything to the contrary in these presents or in the said Agreement The Institute's
decision as to whether the Contractor has made any default or Defaults or the amount or amounts to
which the Institute is entitled by reason Thereof will be binding on the Contractor for the purpose of
this Indemnityand the Contractor shall not be entitled to ask the Institute to establish its claim orclaims
Under this Indemnity but will pay the same on demand without anyobjection Provided always the
mutual rights under the said Agreement shall not in any way Be prejudiced by reason of such demand
by the Institute and payment by the Contractor under this Indemnity and the claims under the said
Agreement (which Shall be settled in accordance with the said Agreement)without prejudice to the
Institute's rights to demand immediately under this Indemnity and the Contractor's Liability to pay the
same, but any amount so paid by the Contractor being taken Into consideration the settlement as per the
said Agreement.

3. This Indemnity shall continue and hold good until it is released by the Institute in Writing on the
Contractor's application after expiry of relative Guarantee periodof the said Agreement and after the
Contractor has discharged all his obligationsunder the said Agreement and submitted a “NO DEMAND
CERTIFICATE” from the Institute under the said Agreement. The Indemnity Bond shall be valid for
a Minimum period of CONTRACT PERIOD and renewable thereof (Claim Period).

4. The Institute will have the fullest liberty from time to time to enforce or forbear To enforce any of
the Terms & Conditions of the said Agreement and theContractor Shall not be released from his / their
liability under this Indemnity by the exercise Of the Institute's liberty with reference to the matters
aforesaid or by reason of any Time being given to the Contractor or any forbearance, act or omission
on the Institute's part or any indulgence by the Institute to the
Contractor or by any variations or modifications of the said Agreement or anyother act, matter, or
thing Whatsoever on the Institute's part.

5. This Indemnity and the powers and provisions herein contained are in addition to and not by way of
limitation or substitution for any other guarantee, indemnities Hereto before given to the Institute by
the Contractor and this indemnity does not Revoke or limit such indemnities or guarantee.

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 IN WITNESS WHEREOF the Parties hereto have executed these presents theday the year First
hereinabove written.

SIGNED BY _______________ SIGNED BY______________

(Director) (Contractor)
(AIIM) (Indemnifier)

In the presence of Witness(Indemnifier)

1. Signature of Witness __________________

2. Signature of Witness ________________

1.10 Frequently Asked Questions

What is Indemnity Insurance?

The insurance policy used to compensate the insured party for unplanned damage up to a particular
maximum is known as indemnity insurance. Normally, the insurance provider reimburses the insured party
for these losses. Indemnity insurance covers things like medical malpractice.

What is professional indemnity insurance?

PI insurance stands for professional indemnity insurance. It was created to safeguard business owners, self-
employed people, and freelancers if a client complains about poor service.

It is not typical for professionals to incur losses for their clients while doing their duties. Professional indemnity is
designed to pay professionals for their losses.

The data is analyzed by the insurance company while remaining confidential. As a result, professional indemnity
becomes more crucial because your process study for any activity is confidential and protected .

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What is medical indemnity insurance?

It is specifically referring to the medical profession. If the doctor's negligence is proven in a lawsuit, this
indemnity insurance would compensate the party that has suffered a loss because of the doctor's
negligence.

1.11 Conclusion
An indemnity bond assures that the party is protected against future damages because of the promisor’s
failure to fulfil his or her duties.

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