The term ‘indemnity’ literally means security against loss.

Indemnification refers to the act

of being held not liable or being protected from costs by shifting them to another party. If a
person is promised by another that he will be protected or compensated in case of loss or
damage, he is said to be indemnified.

A contract of indemnity is an express promise to compensate for defined loss or damage

used to ensure that a contracting party has an express remedy to correct defects in goods or
services delivered under the contract.

 Section 124 of the Indian Contract Act, 1872 defines a contract of indemnity as the contract
wherein 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. The person who promises to
protect or compensate is called the indemnifier. The person to whom the promise of
indemnity is given is called the indemnity holder.

Illustration 

A contract to indemnify B against the consequences of any proceedings which C may take
against B in respect of a certain sum of Rs. 200. A is the indemnifier and B is the indemnity
holder. When A pays B to cover damages that B had to pay C, and then A has indemnified B.

Indemnity clauses are very common in agreements between tenants and landlords. Tenants
agree to indemnify the landlord from costs or damages associated with being harmed on
the property while the landlord takes the responsibility to anything that could be potentially
dangerous. Thus, a landlord stands indemnified from damages if a tenant tripped and fell
down the stairs. But if the stairs were in disrepair, and the landlord had been told to get the
same fixed time and again, a mere indemnity clause will not prevent the tenant from suing
for damages if such disrepair caused the accident. 

The objective of an indemnity clause is to get some work done; indemnity is a mere
motivational tool. For example, an agent works for his principal and in case of any loss
accruing to the principal, the agent will not be liable.

Conclusion

The definition of contract of indemnity is not exhaustive. The section sets out a case of an
express contract of indemnity but there are implied contracts too. After all, Section 9 of the
Indian Contract Act, 1872 talks about implied promises.  More obviously, the ICA 1872 deals
with cases of implied indemnity under Sections 69, 145 and 222. But implied indemnity was
recognised for sure by the Privy Council in the case of SECRETARY OF STATE v. THE BANK OF
INDIA LD AIR [1938] PC 191. Sections 10 and 13 of the Indian Partnership Act, 1932 also deal
with principles of indemnity.