1.

INTRODUCTION
“Indemnity” could even be a term used for providing compensation for damages or
loss. The concept of indemnity is predicated on a contractual relationship
enumerated under commercial agreement executed between two or more parties,
during which one party agrees to buy potential losses or damages suffered by the
other party. In common law, an indemnity is an obligation by a private
(indemnifier) to provide compensation for a selected loss suffered by another
person (indemnity holder).

2. MEANING
Literal Meaning of Indemnity means Insurance or Security or Protection. or to
compensate foe the loss
Principle: Indemnity is an obligation by an individual (indemnitor/indemnifier) to
supply compensation for a specific loss suffered by another person
(indemnitee/indemnity holder). Indemnities form the idea of the many insurance
contracts; for instance , a car owner may purchase different sorts of insurance as an
indemnity for various sorts of loss arising from operation of the car, like damage to
the car itself, or medical expenses following an accident

3. DEFINATION
Section 124 of The Indian Contract Act, 1872 defines “Contract of indemnity” as
“A contract by which one party promises many |to avoid wasting"> to save lots of
lots of the other from loss caused to him by the conduct of the promisor himself, or
by the conduct of the other person, is named a “contract of indemnity.”
4. PARTIES TO CONTRACT OF INDEMNITY
There are only two parties during a contract of indemnity, explained as under
• Indemnifier: The promisor, who promises to make good the loss caused to the
other party, is known as as Indemnifier.
• Indemnified: The one that is assured to be compensated for the loss caused (if
any) is named as indemnified or indemnity holder.
The mode of the contract of indemnity are often express or implied, i.e. if an
individual explicitly promises to save lots of the opposite from losses, the mode of
the contract are going to be express, whereas if the contract is signified from the
conditions of the case, then the mode of the contract are getting to be implied.

5. ESSENTIALS OF INDEMNITY
There must be two parties and, there should be an agreement between them wherein
the promisor promises many |to avoid wasting"> to save lots of lots of the promisee
from any quite loss. This is the foremost vital element within the contract of
indemnity. The loss occurring could also be thanks to the conduct of the promisor
or the other third party. The provisions of the Act restrict the loss to an extent
because it's restricted to a person's agency only and an act of God isn't covered
under the contract of indemnity. Marine Insurance, fire insurance, etc. also fall
under the category of the contract of indemnity.
 6. ENFORCEABILITY OF CONTRACT OF INDEMNITY
In India, no provision expressly states that when a contract of indemnity will
become enforceable. The judicial decisions also are conflicting with reference to
the difficulty of enforceability. The case of O.J. and Sons Ltd. v. Gopal
Purushottam is one among the earliest cases in India where the proper to be
indemnified before paying was recognized. But the trend and thus the Courts have
changed slightly . In the cases of Gajanand Moreshwar, Shiam Lal v. Abdul Salal,
and K. Bhattacharya v. Namo Kumar, the Court was of the opinion that the
indemnified party can compel the indemnifier to pay in order that he can meet a
liability without waiting to truly discharge the liability. The principle followed is
that the indemnified party shall never be called to pay. The obligation of the
indemnifier starts as soon the loss becomes absolute.

7. INDEMNITY AND AGENCY

Under Section 222 of the Indian Contracts Act, it's stated that the agent must be
indemnified for the activities which are administered lawfully on the behalf of the
principal. For instance, X, an agent, who is in Spain gets the instruction from Y, the
principal, who is in India to enter into a contract with Z and deliver certain goods to
Z. Subsequently, Y doesn't send any goods to X, and thus the contract is breached
because X couldn’t deliver them to Z. Z sues X for the breach. X informs the
principal about the suit and thus the principal authorizes the agent to defend the
suit. The agent incurred certain expenses to defend the suit. Y, because the
principal will need to indemnify the agent. Another example are often given to
define the principle. A, the principal asks B, the agent, to enter into a contract with
C and buy 100 sacks of rice. Later A refuses to require the delivery of the sacks. C
sues B for the damages and B had to compensate C. A is under an obligation to
indemnify B for the damages he suffered.
The case of Adamson v. Jarvis mentioned earlier can also be a classic example of
indemnity just just in case of workplace . The auctioneer sold the cattle under the
instruction of Jarvis. But Jarvis wasn't truth owner of the cattle. Adamson had to
pay the damages to the important owner. But as an agent who was working
lawfully on the instructions of the principal, he was entitled to be indemnified.

1. ILLUSTRATION ON INDEMNITY
X contracts to indemnify Y against the results of any proceedings which Z may take
against Y in respect of a selected sum of 300 rupees. this is often often often a contract of
indemnity. X contracts to indemnify Y against the results of any proceedings which Z may
take against Y in respect of a selected sum of 300 rupees. this is often often often a
contract of indemnity.”
Contractual indemnity is different from common law indemnity. Indemnity provisions
during a contract allocate the danger of a business transaction between  the two parties by
obligating one party to pay the compensation/damages to the other party under certain
circumstances.
Indemnification clauses are often closely tied to representations or warranties, which are
promises that certain things are a specific way.
There are two basic sorts of indemnity: express indemnity which is predicated on a
agreement , and implied indemnity which isn't in writing but which arises out of a
contractual relationship between parties.
2. sorts of INDEMNITY
Bare Indemnities – One party indemnifies other party for all liabilities or losses incurred
in regard to specified events or circumstances without beginning any specific limitations.
1. Reverse Indemnities – One party indemnifies other party against losses incurred as a
results of other party’s own acts, omissions or negligence.
2. Limited Indemnities – One party indemnifies another party against losses except those
incurred as a results of another party’s (indemnity holder’s) own acts omissions or
negligence.
3. Third Party Indemnities – One party indemnifies another party against liabilities to or
claims by third party (non contracting party).
4. Guaranteeing Indemnities – Party X indemnifies Party Y against losses incurred if Party
Z fails to honour the indebtedness (i.e. the first obligation) to Party Y (most often these
are including a guarantee),
3. RIGHTS OF INDEMNITY
After compensating the indemnity holder, indemnifier is entitled to all or any or any or
any or any the ways and means by which the indemnifier may have protected himself from
the loss. Relevant Case Laws Rights of the indemnity holder: Section 125, defines the
rights of an indemnity holder. These are as follows - The promisee (Indemnity holder)
during a contract of indemnity, acting within the scope of his authority, is entitled to urge
over the promisor (Indemnifier). These are:
1. Right of recovering Damages - all damages that he's compelled to pay during a suit in
respect of any interest which the promise of indemnity applies.
2. Right of recovering Costs -all costs that he's compelled to pay in any such suit if, in
bringing or defending it, he didn't contravene the orders of the promisor and has acted
because it'd are prudent for him to act within the absence of the contract of indemnity, or if
the promisor authorized him in bringing or defending the suit.
3. Right of recovering Sums -all sums which he may have paid under the terms of a
compromise in any such suite, if the compromise wasn't contrary to the orders of the
promisor and was one which could are prudent for the promisee to make within the
absence of the contract of indemnity, or if the promisor authorized him to compromise the
suit. sort of the important conditions which he got to follow here are viz; that as per this
section, the rights of the indemnity holder aren't absolute or unfettered. He must act within
the authority given to him by the promisor and must not contravene the orders of the
promisor. Further, he must act with normal intelligence, caution, and care with which he
would act if there aren't any contract of indemnity. Therefore, at the same time, if he has
followed all the conditions of the contract, he's entitled to the benefits . This was held
within the case of United full service bank vs Bank of India AIR 1981. during this case,
Supreme Court held that the courts shouldn't grant injunctions restraining the performance
of contractual obligations arising out of a letter of credit or bank guarantee if the terms of
the conditions are fulfilled. It held that such LoCs or bank guarantees impose on the
banker an absolute obligation to pay
4. RIGHTS OF INDEMNIFIER
• Once the indemnity holder is compensated for the loss caused, the indemnifier possesses
all the rights to all or any or any or any the methods and resources which may save the
indemnifier from loss.
The essence of the contract of indemnity is that the loss to the party, i.e. Indemnification
are often done as long because the loss is incurred to the other party, or if it's sure that the
loss will incur.
Examples
The samples of the contract of indemnity are given hereunder:
1. Suppose John sold a house to Paul on the instruction of Peter. Afterwards, it's disclosed
that Alex is that the registered owner of the house. Alex recovered the quantity from John
for selling his house. Now, John can recover the compensation from Peter.  this is
often often often an implied quite contract of indemnity.
2. Beta insurance firm entered into a contract with Alpha Ltd., to catch au courant loss
caused by accidental fire to the company’s stock of products up to Rs. 50,00,000 for a
premium of Rs. 1,00,000. this is often often often an express quite contract of indemnity.

5. CONTRACT OF INSURANCE OF INDEMNITY

By Contract of Insurance, we mean a accept which one person so as to save lots of
himself from the longer term contingencies pays a premium as consideration to a different .
And another person on receiving such premium promises to indemnify him from the loss
arising from such contingencies.
Whereas Contract of Indemnity means where one person enters into a contract with
another to save lots of him from losses which could arise thanks to the conduct of the person
himself or the other person.
Similarities between Contract of Insurance and Contract of Indemnity
• Both the contracts are contingent contracts i.e. both the contracts depend on the
happening and not happening of the longer term events.
• Both being special contracts, have applicability to general principles.
• Under both the contracts a promise is formed .
• Both the contracts contains consideration.
Differences between Contract of Insurance and Contract of Indemnity
• Contract of Indemnity features a wider scope since all the contracts of insurance are
contracts of indemnity except life assurance whereas the other way around isn't there.
• In case of Contract of Insurance, a premium sum is to be paid whereas same is
absent within the case of Contract of Indemnity.
• Contract of Insurance consists of the Element of Uberrimae Fides(Utmost Good
Faith) whereas an equivalent is missing in Contract of Indemnity.
 6. CASE LAW ON INDEMNITY
In the case of Gajanan Moreshwar vs Moreshwar Madan, AIR 1942, Bombay
supreme court observed that the contract of indemnity held little or no value if the indemnity
holder couldn't enforce his indemnity until he actually paid the loss. If a suit was filed against
him, he had to attend till the order (judgement) is passed before suing the indemnifier.
In the case of depository financial institution of Saurashtra vs Chitranjan Ranganath
Raja 1980, the bank did not properly lookout of the contents of a godown pledged thereto
against a loan and therefore the contents were lost. The court held that the surety wasn't
responsible for the quantity of the products lost.
Creditor’s duty isn't only to require care of the safety well but also to understand its
proper value. Also, before removing the safety , the surety must be told on the account of
natural justice in order that he can have the choice to require over the safety by paying off the
debt. within the case of Hiranyaprava vs Orissa State Financial Corp AIR 1995, it had been
held that if such a notice of disposing off of the safety isn't given, the surety can't be held
susceptible to indemnify for the shortfall.

7. RECOMMENDATIONS OF THE LAW COMMISSION OF INDIA

The Indian Law Commission prepared and published its Thirteenth Report in 1958,
under the chairmanship of Shri MC Setalvad, proposing changes to the varied provisions of
this act.

The most important of this commission's recommendations are:

• Modification of the privity doctrine to need a 3rd party to sue in such conditions in
respect of a contract made for his benefit.
• Change of consideration doctrine to form contracts enforceable inconsiderately , an
obligation to carry a bid open for an indefinite period of your time .
• The recognition of principle of promissory estoppels
• wagering contracts and contingent deals to be made unlawful
• To require fair restriction of the proper to hold on trade
• Include the principles concerning substantive modifications to papers.
• The concept of coercion within the Indian contract act isn't exhaustive.
It can't ask modern-day circumstances where violence are often caused in some ways .
The Indian Contract Act defines coercion as:
 the committing or threatening to commit, any act forbidden by the Indian legal code
or the unlawful detaining or threatening to detain, any property, to the unfairness of a person
whatever, with the intention of causing a person to enter into an agreement.

The report suggested the phrase forbidden by the Indian legal code should get
replaced with a wider expression of the offences forbidden by law in India be included within
the Section. The report suggested the subsequent phrase instead:
Coercion is that the committing or threatening to commit any act, when the
committing, or threatening to commit such act is punishable by any law for the nonce
effective , or the unlawful detaining, or threatening to detain, any property, to the unfairness
of a person whatever, with the intention to causing a person to enter into a contract.

8. ELEMENTS OF A CONTRACT OF INDEMNITY

Indemnity: the name and address of the person or corporation making the promise to
indemnify
• Indemnifier : the name and address of the person or corporation receiving the
indemnity
• Activity: the contract or agreement between the parties which may produce to future
losses or damages
• Limitations of Indemnity– identify any limitations on the indemnity, like only
personal injury or death, and any cap limits on the quantity of the indemnity
• Notice of Indemnity Claim – the Promisee must tell the Promisor about any claims within a
particular amount of days
• Duty to Defend – the Promisor can take hold of the defense of the claim, otherwise
the Promisee can pursue its own defense and seek reimbursement.
9. CONCLUSION
The indemnity clauses are often misinterpreted. Therefore one has got to take caution
while negotiating commercial agreement in order that specific commercial risks of the
concerned party gets protected and covered under Indemnity Clause.
Simply put, within the contract of indemnity one party must observe any damage or
loss suffered by the opposite party thanks to the conduct of the promisor or any third party.
Having an easy indemnity clause during a contract wouldn't always answer liability issues
because the law doesn't encourage those that attempt to shift their own liability onto other or
seek to avoid liability. the most reason behind this is often that the negligent party shouldn’t
be allowed to shift all the liability on another party.