ASSIGNMENT NO: 2 on Contract of indemnity

TOPIC: CONTRACT OF INDEMNITY

Submitted By
D. Venkat Krishna Reddy
Third year B.ALL.B

Submitted to
Prof. NUPUR KHANNA
Assistant professor of law
DECLARATION:

I hereby declare that the research assignment no 1 titled CONTRACT OF INDEMNITY

carried out

Under the guidance of M.S NUPUR KHANNA is a record of bona-fide research work

Undertaken by me in partial fulfilment for award 5 year B.ALL.B offered by Christ academy

Institute of law, Bengaluru. The said work is an authentic research and not submitted before

Any other university academic programs for the award of any degrees.

Venkat Krishna Reddy

Reg No: 45419231019

B.ALL.B 5TH SEM

DATE: 13.01.2022

PLACE: BANGLORE
ACKNOWLEDGEMENT 

First and foremost, praise and thanks in the God, the almighty, for his shower of

             Blessings throughout my assignment to complete it successfully.

             

I would like to express my deep and sincere gratitude to my experience 

MS NUPUR KHANNA, assistant prof., Christ Academy Institute of law Bangalore for

Giving me the opportunity to work on this assignment. 

                    I am very grateful for his help throughout the assignment.

          Although, this report has been prepared with utmost care and deep routed   

                      Interest.  Even then I accept respondent and imperfection.

                                                                                          D. VENKAT KRISHNA REDDY

                                                                                               B.ALL.B (B) 5thSEM 

                                                        
 CERTIFICATE

          This is to certify that the forgoing study by M.R Venkat Krishna Reddy student of

          Christ Academy institute of Law, Bangalore, in hereby approved as creditable

            Work on the topic “CONTRACT OF INDEMNITY”.

Place:  Bangalore        

Date:  13-01-2022                                                         

                                                                                  

                     MS. NUPUR KHANNA

ASSISTANT PROFESSOR OF LAW

TABLE OF CONTENTS:

 DECLARATION

 ACKNOWLEDGEMENT

 CERTIFICATE

 RESEARCH METHODOLOGY

 RESEARCH QUESTIONS

 INTRODUCTION

 MEANING & DEFINATION OF CONTRACT OF INDEMNITY

 OBJECTIVES OF CONTRACT OF INDEMNITY

 ESSENTIALS

 COMMENCEMENT OF LIABILITY OF INDEMNIFIER

 RIGHTS & DUTIES OF INDEMNITY HOLDER

 CONCLUSION

 BIBLOGRAPHY
RESEARCH METHODODLOGY:

This research is a doctrinal research with an illustration an explanatory approach the concept
has been substantiated with the relevant case laws and the researcher has made critical
analysis.

1. Library research
2. Primary and secondary sources (books, articles)

RESEARCH QUESTIONS:

1. Whether the contract of indemnity protects the promise against loses?

2. Whether essentials of contract of indemnity protects from loss?

3. Whether rights and duties of indemnity holder defined under contract act?

CONTRACT OF INDEMNITY

Contract of indemnity meaning 

Is a special kind of contract. The term ‘indemnity’ literally means “security or protection
against a loss” or compensation. According to section 124 of the Indian Contract  Act, 1872
“A contract by which one party promises to save the other from loss caused to him by the
conduct of the promissory himself, or by the conduct of any other person, is called a contract
of indemnity.”

Example

P contracts to indemnify Q against the consequences of any proceedings which R may take
against Q in respect of a certain sum of money.

Contract of indemnity defined

A contract by which one party promises to save the other from loss caused to him by the
contract of the promise himself, or by the conduct of any other person, is called a “contract of
indemnity.”

Example

A contracts to indemnify B against the consequences of any proceeding which C may take
against B in respect of a certain sum of 200 rupees. 

Objective of Contract of Indemnity

The objective of entering into a contract of indemnity is to protect the promise against
unanticipated losses.

Parties to the Contract of Indemnity 

A contract of indemnity has two parties

1. The promissory or indemnifier: He is the person who promises to bear the loss.
2. The promissory or the indemnified or indemnity holder.

The promissory or indemnifier: He is the person who promises to bear the loss.

The promise or the indemnified or indemnity holder: He is the person whose loss is covered
or who are compensated.

In the above stated example.

 P is the indemnifier or promissory as he promises to bear the loss of Q.

 Q is the promise or the indemnified or indemnity holder as his loss is covered by P.

Essentials of Contract of Indemnity 

1. Parties to a Contract
There must be two parties, namely, promissory or indemnifier and the promise or
indemnified or indemnity holder.

2. Protection of Loss
 A contract of indemnity is entered into for the purpose of protecting the promise from
the loss. The loss may be caused due to the conduct of the promissory or any other
person.

3. Express or Implied
The contract of indemnity may be express (i.e made by words spoken or written) or
implied (i.e inferred from the conduct of the parties or circumstance of the particular
case).

4. Essentials of a valid contract

A  contract of indemnity is a special kind of contract. The principles of the general
law of contract contained in Section 1 to 75 of the Indian contract Act, 1872 are
applicable to them. Therefore, it must possess all the essentials of a valid contract.

Number of Contracts 

In a contract of indemnity, there is only one contract of Indemnity, there is only one contract
that is between the Indemnifier and the Indemnified.

Rights of promise/ the Indemnified/ Indemnity holder

As per section 125 of the Indian contract Act, 1872 the following rights are available to the
promise/ the indemnified / indemnity holder against the promissory/ indemnifier, provided he
has acted within the scope of his authority.

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

An indemnity holder has the right to recover from the indemnifier all damages which
he may be compelled to pay in any suit in respect of any matter to which the contract
of indemnity applies.
 2. Right to recover costs incurred in defending a suit [Section 125(2)]
An indemnity holder has the right to recover from the indemnifier 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 promissory, and acted as it would have been prudent for
him to act in the absence of any contract of indemnity, or if the promissory authorized
him to bring or defend the suit.

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

An indemnity holder also has the right to recover from the indemnifier 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 promissory, and was one which it
would have been prudent for the promise to make in the absence of any contract of
indemnity, or if the promissory authorized him to compromise the suit.

Commencement of liability of Promissory/Indemnifier 

Indian contract Act,1872 does not provide the time of the commencement of the
indemnifier’s liability under the contract of indemnity. But different High Courts in India
have held the following rules in this regard:

 Indemnifier is not liable until the indemnified has suffered the loss.

 Indemnified can compel the indemnifier to make good his loss although he has not
discharged his liability.

In the leading case of Gajanan Moreshwar vs.Moreshwar Madan (1942), an

observation was made by the judge that “If the indemnified has incurred a liability
 and the liability is absolute, he is entitled to call upon the indemnifier to save him
from the liability and pay it off.”
Thus, contract of indemnity is a special contract in which one party to a contract (i.e
the indemnifier) promises to save the other (i.e the indemnified) from loss caused to
him by the conduct of the promissory himself, or by the conduct of any other person.
Section 124 and 125 of the Indian contract Act, 1872 are applicable to these types of
contracts.

 Indemnity as per Indian Contract Act, 1872

 Indemnity literally means,

1. Payment for damage, a guarantee against losses.

2. A bond protecting the insured against losses caused by others failing to fulfill their
obligation.
3. The granting of exemption from prosecution.
4. An option to buy or sell a specific quantity of stock at a stated price within a given
period of time.

It is entered into with the object of protecting the promises against anticipated loss. The
contingency upon which the whole contract of indemnity depends is the happening of loss.

According to Section 124 of Indian contract Act, 1872, a contract of indemnity means “ a
contract by which one party promises to save the other from loss caused to him by the
conduct of the promissory himself or by the conduct of any other person.” This provision
incorporates a contract where one party promises to save the other from loss which may be
caused, either

i. By the conduct of the promissory himself.

ii. By the conduct of any other person.

Rights of indemnity holder

In a suit against the indemnity holder, he may have been compelled to pay damages, and
incurred costs, etc.. in his own turn, he can bring an action against the promissory
(indemnifier) to recover damages and costs, etc.. paid by him, if the indemnifier has promised
an indemnity in such a case. The provision in this regard is contained in Section 125, which
reads as under:

124. Rights of indemnity holder

The promise in a contract of indemnity, acting within the scope of his authority, is entitled to
recover from the promissory:-

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;
2. All costs which he may be compelled to pay in any such suit, if in brining of defending it,
he did not contravene the order of the promissory, and acted as it would have been
prudent for him to act in the absence of any contract of indemnity, or if the promissory
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
e compromise was not contract to the orders of the promissory, and was one which it
would have been prudent for the promise to make in the absence of any contract of
indemnity, or if the promissory authorized him to compromise the suit.

The indemnity holder , acting within the scope of his authority, is entitled to recover the
following amounts:-

A person who enchases an indemnity bond which is in nature of a bank guarantee can retain
only that part of the amount of bond which represents the  damages or loss suffered by the
bond holder as a result of the contracting party’s breach. Anything more would be
undeserved windfall for one party and penalty of the other.

                                                 Rights and Duties of indemnifier

Rights of the indemnifier

The rights of the indemnity holder are the duties of indemnifier and the indemnity holder are
the rights of the indemnifier. There are not prescribed any specific rights of the indemnifier
either in Nepalese law or in Indian law. However, he is not liable for indemnity.

a. If indemnity holder act negligently.

 b. If indemnity holder is acting with the intention of causing any loss or damage.

c. If he is acting against the instructions of the other party.

Duties of indemnifier

     The duties of an indemnifier arise in the following circumstance:-

 There must be a loss in accordance with the contract to make the indemnifier liable.

 There must be an occurrence of the anticipated event. Without any occurrence of the
prescribed event, there is no indemnity by the indemnifier.

 Where the right of indemnity is used by the indemnity holder prudently and
instruction of the indemnifier is not contravened or when there is no breach of
contract.

 If the costs demanded by the indemnifier are not caused by negligence, haphazard
behavior.

Commencement of liability

When can indemnifier be made liable? Can he claim to be indemnified before he is

demnified?
There has been a controversy regarding the point, as to whether the indemnifier can be asked
to be indemnify before the Indemnify before the indemnity holder has actually suffered the
loss, or his liability arises only after the loss has been suffered by the indemnity holder.

CONCLUSION:

The concept of contract of indemnity is a special contract under the Indian contract act 1872,
the legislation is well drafted due to which Indian courts have time and again held that certain
documents do not come under the purview of the definition of indemnity contained in the act.

BIBLOGRAPHY:

1. Contract of indemnity

https://www.studocu.com/in/document/osmania-university/law-of-contract/contract-of-
indemnity/11874730

2. Contract of indemnity and guarantee

https://strictlylegal.in/contract-of-indemnity-and-guarantee/

3.https://www.scribd.com/doc/247089032/Features-and-Distinctiveness-between-
Indemnity-nd-Guarantee Features of indemnity