The rights if indemnity holder are dependent on the terms of the contract of indemnity as a general rule.

Section-125 of ICA 1872 comes into play when the indemnity holder is sued that is under speific
situation. 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 promiser-

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;

1. Damages

The indemnity holder has the right to claim damages which he was compelled to pay in a lawsuit
proceeding. The indemnifier then becomes liable to pay those damages which were agreed upon bona
fide. Moreover, all the damages paid by the indemnity-holder to any third person or the indemnifier
himself can be recovered by the indemnifier

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 pay damages to C, A will be liable to make good all the damages B had to pay in the case

In Parker vs. Lewis[3], the court held that “…if a person has agreed to indemnify another against a
particular claim or a particular demand, and an action is brought on that demand, [indemnified] may
then give notice to the [indemnifier] to come in and defend the action, and if he does not come in, and
refuses to come in, [indemnified] may then compromise at once on the best terms he can, and then
bring an action on the contract of indemnity. On the other hand, if [indemnifier] does not choose to
trust the [indemnified] with the defence to the action, he may, if he pleases, go on and defend it, and
then, if the verdict is obtained against him, and judgment signed upon it…at law that judgment, in the
case of express contract of indemnity is conclusive”.

Section-125 (2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it,
he didnot contravene the orders of the promiser, and acted as it would have been prudent for him to
act in the absence of any contact of indemnity, or if the promiser authorised him to bring ot defend the
suit.

2. Costs

The indemnified has the right to claim costs incurred while defending a law suit, given that he/she acts
in a prudent manner, and not against the order of the promisor, or with the authority of the promisor.
In adamson Vs Jarvis 1827 the plaintiff, an auctioneer, sold certain cattle on the intrusction of the
defendent. It was subsequently learnt that the life stocks didnot belong to the defendent, but to
another person, who made the auctioneer liable and the auctioneer in his turn sued the defendant for
indemnity for the loss he had the suffered by acting on the defendant's directions. The court lay down
that the plaintiff having acted on the request of the defendant was entitled to assume that, if what he
did, was found to be wrongful, he would be indemnified by the defendant.

In Alla Venkataramanna vs. Palacherela Manqamma[7], the court stated that the indemnifier is liable to
indemnify the promisee for losses incurred while defending lawsuits by third parties, in spite of not
being a party to the contract.

In Pepin vs. Chunder Seekur Mookerjee[8], it was held that costs reasonably incurred (by indemnified) in
resisting or reducing or ascertaining the claim may be recovered (from the indemnifier).[9]

3. Sums

Section 125(3) 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 promiser; and was one which it would have been
prudent for the promisee to make in the absence of the any contract of indemnity or if the promiser
authorised him to compromise the suit.

Amount paid in case of compromise of the suit can also be recovered, without contravening the orders
of indemnifier. For this arrangement, the indemnifier must act in good faith and his/her aim must not be
to deceive the indemnifier. The bargain must also be reasonable and not immoral. In other words,
anything more would be undeserved windfall for one party and penalty of the other.[10] For instance, in
Anwar Khan vs. Gulam Kasam[11], the court stated, “The measure of damages would depend upon the
extent to which the person has been indemnified, if more than the amount, the indemnifier may refuse
as well.”[12] Likewise, in Gopal Singh v. Bhawani Prasad[13], the court maintained that only those costs
can be recovered that are supposed to be incurred by a reasonable person.[14]