ALIGARH MUSLIM UNIVERSITY

SESSION 2022-2023

SESSIONAL WORK

LAW OF CONTRACT II

TOPIC: CONTRACT OF INDEMINITY AND ITS POSITION IN

INDIA AND ENGLAND

SUBMITTED TO: PROF. JAVAID TALIB SB.

SUBMITTED BY: MOHAMMAD FAISAL

21LLM03

GJ6009

LLM-4th SEMESTER
 FACULTY OF LAW
CONTENTS

 INTRODUCTION

 LEGAL STATUS

 HISTORICAL BACKGROUND OF CONTRACT OF

INDEMNITY UNDER INDIAN LAW

 INDIAN LAW OF CONTRACT OF INDEMNITY

 COMMENCEMENT OF LIABILITY AND THE DIFFERENCE

BETWEEN INDEMNITY AND DAMAGES

 ENGLISH LAW OF CONTRACT OF INDEMNITY

 LAW COMMISSION OF INDIA, 13TH REPORT

 CONCLUSION AND ANALYSIS

 BIBLIOGRAPHY
INTRODUCTION

The term indemnity derives from the Latin word “indemnis,” which denotes ‘to be unharmed
or to have no losses or damages. Since it includes loss resulting from a third party's action in
addition to the party with a direct contractual obligation, the term “indemnity” has a broader
connotation. On the other hand, damages, have a limited coverage and are strictly restricted
to the parties to the contract. The fundamental tenet of indemnity is to put an individual back
in the position or circumstances in which they were before the accrual of the liability.
Additionally, regarding monetary damages, an indemnity grant may be greater than the actual
adversity and may not accurately reflect the genuine adversity.

Typically, under the claim of indemnity, one party (the indemnifier) undertakes to safeguard
another party (the indemnity holder) from any loss, expense, cost, damage, or other legal
ramifications brought on the indemnity holder on account of the indemnifier's actions or
inactions or those of any third party. The overall objective of an indemnification in a contract
is to transfer obligation, in full or in part, from one party to another. While negotiating
business contracts, extensive discussion and attention are paid to indemnity clause. A loosely
drafted indemnity clause may have serious repercussions and really put a spoke in the wheel
and can adversely affect the interest of the party. However, the fundamental question is
whether there is any justification for seeking indemnification rather than pursuing the legally
permissible option of suing for statutory damages under the Indian Contract Act of 1872.1

Indemnity is an act to compensate and protect against loss. In other words, it means a promise
to another party for the payment of money if the other person loses his money or damages his
things. When one party suffers because of the other party because of losing money or things,
then the other party makes a promise that he will compensate him if he loses his money or
things in the near future, then that promise to pay for the damaged goods or money is called
indemnity.

1
https://lawessential.com/miscellaneous/f/contract-of-indemnity-comparison-of-indian-laws-and-english-law?
blogcategory=Miscellaneous
LEGAL STATUS

A “contract of indemnity” is defined in Section 124 of the Contract Act as “A contract by

which 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, is called a “contract of indemnity”.

An indemnity holder's rights are enshrined under Section 125 of the Contract Act. The
indemnity holder shall be entitled to the following damages from the indemnifier according
to the foregoing provision:

(a) all damages that he could be required to pay in a lawsuit for any matter covered by the
pledge to indemnify;

(b) any costs he would be required to pay in any such lawsuit if, in filing or defending it, he
complied with the promisor's instructions and acted prudently under normal circumstances
absent any indemnification arrangement or if the promisor gave him permission to bring or
defend the lawsuit;

(c) all amounts that he may have paid under any compromise of any such suit provided that
the compromise complied with the promisor's instructions and was one that the promisee
would have made if there had been no contract of indemnity or that the promisor authorised
the compromise.

INDEMNITY PROTECTION

Indemnification clause is a provision in an agreement under which one party (or both/all
parties) commits to compensate the other (or each other) for any harm, liability, or loss
arising out of the agreement. Generally, a party undertakes to indemnify the other in cases
wherein the former is at fault. This clause could also be used to absolve a party from any
responsibility for damage or other liability arising from the commercial transaction under the
agreement.

Typically, an indemnity clause acts as an inter-party insurance, shifting risk and liability
between the parties. It does so be creating the obligation that one party (the indemnitor) will
pay for losses the other party (the Indemnitee) becomes liable for, either for any losses related
to the agreement, or for losses from certain types of claims.

Contractually, a separate obligation, but also quiet commonly included in the indemnification
clause is defence where the indemnitor will not only pay for the losses of the indemnitee but
will defend (by hiring a lawyer to defend) the indemnitee against the claim in court.

HISTORICAL BACKGROUND OF CONTRACT OF

INDEMNITY UNDER INDIAN LAW
The birth of the contract of indemnity was taken place in India in the case of Osman Jamal &
Sons Ltd v. Gopal Purshotam2. The following are the facts of the case:
Facts
In this case, the plaintiff company made a contract in July 1925, and a contract agreement
was made inter alia that the plaintiff company should work as a commission agent for the
defendant firm for buying and selling of hessian and gunnies. It was also agreed that the
plaintiff firm would be indemnified for all the losses in these transactions. On 2nd December
1925, some hessian cloth was purchased by the plaintiff firm from Maliram Ramjets but the
defendant firm could not take delivery of hessian cloth for not paying the price of hessian
cloth in time. As a result, the reselling of goods was made by the seller at a very low price,
less than the contract price. So, the balance money was claimed from the plaintiff company.
Now the plaintiff company demanded this money from the defendant firm under the contract
of indemnity. But the refusal was made by the defendant firm for payment of money and a
claim was made that because of the plaintiff the payment could not be made by the defendant
firm.
Held
The decision was made by the court that it was the liability of the defendant to make the
payment to the plaintiff as the promise was made by the defendant to pay for the lost price.

INDIAN LAW OF CONTRACT OF INDEMNITY

Section 124 of the Indian Contract Act, 1872 states that 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 promisor himself or by the conduct of any other person”. We can also say that
indemnity is a type of written legal agreement between one party and another party. When the
2
AIR 1929 Cal 208.
promise is made by one party to the other party to pay to the other party some money if the
other party suffers the loss because of the behaviour of another person or promisor.
The contract of indemnity involves two parties
i. Indemnifier
ii. Indemnified or indemnity holder

Indemnifier:
The man who makes a promise to pay the money in case of loss is called the indemnifier.
Indemnity Holder:
The party with whom the promise is made in case he loses his money is called an indemnity
holder. In other words, a person or party who is protected against loss is called an indemnity
holder.
For example, A borrowed Rs. 1000 from B, but A refused to return the money to B.
However, C promised to indemnify A for any consequences or legal action which B can take
against A for not paying him money which he borrowed from him. When A is ordered to pay
the amount to B, then B can recover the amount from C. So, C is the indemnifier and A is the
indemnity holder.
The situations in the English case law of Adamson v. Jarvis3 where the wrongful owner sold
the cattle don’t come under the definition of indemnity according to Indian law. Such cases of
loss are covered under section 223 of the Act where there is indemnity between the principal
and the agent.
The meaning of the contract of Indemnity as given in section 124 of the Indian Contract Act,
is not explained in a detailed manner. By this definition, the scope of indemnity is limited to
the cases where the promise is made by the third party to compensate the loss caused by the
i. promisor himself or
ii. ii. Any other person.
iii.
This definition of contract of indemnity excludes the following namely:

1. implied promise to indemnify

2. cases of loss arising from accidents and events not dependent on the conduct of
human beings like accidental fire, perils of the seas, etc.

3
(1827) 4 Bing 66: 29 R R 503.
Thus, the expression ‘Contract of Indemnity’ in Section 124 of the ‘Indian Contract Act’ has
been used in a much narrow sense, whereas the general law about the contract of indemnity is
much wider. According to the general laws, the losses arising from accidents and fires are
also covered by the contract of indemnity.
In its report, the Law Commission of India has recommended the amendment of Section 124.
According to its recommendation, “the definition of contract of indemnity be expanded to
include cases of loss caused by events which may or may not depend upon the conduct of any
person. It should also provide clearly that the promise may also be implied”4.
Rights of the Indemnity Holder
An action can be taken against the indemnifier by the indemnity holder if he is compelled to
pay damages. He can also recover these damages if the promise of indemnity has been made
by the indemnifier. This provision has been made in Section 125 of the Indian Contract Act,
18725.
The rights of the indemnity holder when sued:
Under the contract of indemnity. The indemnity holder has the right to recover from the
indemnifier all the damages in the form of money that he was forced to pay in every contract
of indemnity. He has the right to claim all the money that he had paid in every contract of
indemnity. He has also the right to take his money back which the indemnifier took from him
while making a compromise in respect of the contract of indemnity. But the condition is that
while compromising the suit, he must behave like a wise person.
Rights of Indemnifier
In the Indian Contract Act, 1872 there is no provision about indemnifier’s rights. Indemnifier
has the same rights as the surety. A surety is a person who guarantees something. A surety is
entitled to the benefit of the creditor's security against the principal debtor. The following
judicial observations in Simpson v. Thomson6 are worth to note in this regard:
“It is a well-known principle of law that where one person has agreed to indemnify another,
he has the right to use all the ways by which the person indemnified has protected himself or
reimbursed himself for the loss”.
The following are the illustrations to explain and elaborate the definition of an indemnity
contract as stated by the Section 124 of the Indian Contract Act,1872.

4
Law commission of India, 1958. 13th Report on the Indian Contract Act, 1872.
5
The Indian Contract Act,1872, Section 125, No. 9, Acts of The Parliament, 1872 (India)
6
2 AC 279
A decides to go shopping in a supermarket chain called Foodhall When A enters the premise,
B, a security guard, asks A to leave the bag at the bag counter and collect the badge given at
the counter. B informs A that he will only be able to collect his belongings if he returns the
badge which proves that the bag and its contents belongs to A. A agrees and proceeds as
directed and after receiving the badge he commences his shopping. After 2 hours, A goes to
collect his bag, but on searching his pockets he realizes that he has misplaced the badge. B
refuses to give back his bag unless A signs a contract of indemnity where he promises to
indemnify Foodhall of any damages the establishment incurs, if the owner of the bag, if not
A, claims the said bag. A agrees and signs the contract.

Mr. Hanma is a businessman who owns Hanma Bakery. Itadori, asks Hanma to collaborate
and make cakes with a certain type of flour in the market called Arara and if he suffers losses
because of changing his flour, Itadori will indemnify Hanma for all the loses he has suffered
from due to changing his flour.

In the first illustration, A will be the promisor/indemnifier and The Establishment called
Foodhall will be the promisee or the indemnified. If someone else actually showed up asking
for the same bag and was proved to be the true owner. A would be liable for the damages
incurred by Foodhall which resulted from A taking away the bag without giving his badge.

In the second example, Itadori will be liable as the promise was to indemnify Mr. Hanma
from any losses. This can even mean the flour giving food poisoning to the customers and the
customers who consumed the cake sued Mr. Hanma or an employee suffering from burns as
the flour exploded in the oven which resulted in the said employee harming himself/herself.

Under the Indian law, section 124 does not cover the insurance contracts and they are treated
as contingent contracts as defined in section 31 of the Indian Contract Act,1872 which
defines contingency contracts as, A contingent contract is a contract to do or not to do
something, if some event, collateral to such contract, does or does not happen. A contingent
contract is a contract to do or not to do something, if some event, collateral to such contract,
does or does not happen.7
Every sort of contract needs to have the elements required as per the Indian Contract Act,
1872. Thus, the following are the elements of an Indemnity Contract
7
The Indian Contract Act,1872, Section 31, No. 9, Acts of The Parliament, 1872 (India)
In this contract, it is mandatory for two parties to be a part of the contract as one is going to
indemnify the other.
The contract is a promise made by the indemnifier to the indemnified that he will take the
burden of compensating the loss. Such a promise must have a lawful object as per the
sections 1 to Section 75. A person cannot be held liable for the damages if something against
the law is in play.
Basically, the elements of this contract should corroborate with all the requirements of a valid
contract as stated in Section 1 to Section 75 of the Indian contract act. 8For example, a minor
or a person with an unsound mind cannot be a party to the contract and if the consent has
been obtained by coercion, fraud, etc then the contract of indemnity is not valid.
Contracts are either expressed, which means that they need to in the form of a document or
there needs to be some kind of proof which shows the existence of the contract, then there are
implied contracts which are not recorded but the essence of those contracts can be seen in the
way a person behaves. In Section 124, the scope of implied contracts has not been specified.
However, In the case of Secretary of State v The Bank of India, Justice Wright gave the
judgement where the brief overview of the facts is:
A (not the true owner) of promissory note by the Government of India endorsed it to a bank.
Unaware, The Bank, applied, without any malice and was given the renewed promissory note
from the PDO. B (true owner) sued the SS. The SS sued the bank on the basis of implied
indemnity.
Lordships are of opinion that the appeal should succeed, that the judgments of the Courts
below should be set aside, and that it should be adjudged that the appellant recover from the
respondents the proper amount under his claim and should also have the costs of this appeal
and his costs in the Courts below. If the parties can agree what is the proper amount, it can be
inserted in the Order in Council; if they cannot agree, the case must be remitted to the High
Court at Bombay to assess the amount.9

Thus, they decided it is not mandatory for an express clause or contract to be present and
indemnity as a contract can be implied, moreover it is very important for the circumstances of
case to be of such a nature to give rise to implied nature if indemnity.

8
The Indian Contract Act,1872, No. 9, Acts of The Parliament, 1872 (India
9
The Secretary of State vs The Bank Of India Limited, (1938) 40 BOMLR 868
According to Section 124, the words Himself or any other person 10 just cover the actions of
people in general or anything that arises out of them. It is very much possible for the
promisee to levy losses because of something besides the literal meaning of person to be the
cause of the damage. A person who has been indemnified by the agency he bought his house
from will not be able to sue them or legally comply them to indemnify him the damages he
has incurred because of a land slide, flood, or just to elaborate, A thunder bolt hitting a
certain fuse and burning away his house.

The Rights of the of the indemnified/promisee are mentioned in the section 125 of the Indian
Contract act. The sub sections of this act specify what the promisee can recover from the
promisor.

Sec 125 (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.11 This is based on the principle that a judgement obtained
after bona fide contest against the party indemnified in respect of the matter to which a
contract of indemnity applies is conclusive against the indemnifier although the latter was no
party to it because the claim against which indemnification has been promised has been
conclusively established against the party indemnified. 12In other words, when a third party
sets out a case against the indemnified, it is the entrenched obligation to pay the last emerges
for the indemnifier at the primary spot.

The damages would be the final product of the complete liability that he/she had to carry. An
indemnity-holder has the privilege to recuperate from the indemnifier all harms which he
might be constrained to offer in any suit in respect of any issue canvassed in the agreement of
the indemnity contract. It is important to note that the measure of damages would heavily rely
upon the limit to which a party has been indemnified, if it is unreasonable or higher than the
amount, the indemnifier may refuse as well In Gokuldas v. Gulab Rao13 the Court held that
the promisor cannot claim that as a result of not being a party to the dispute between the
promisee and the third party, he/she can shed the responsibility of indemnifying the promise.

10
The Indian Contract Act,1872, Section 124, No. 9, Acts of The Parliament, 1872 (India).
11
The Indian Contract Act,1872, Section 125, No. 9, Acts of The Parliament, 1872 (India)
12
R Yashod Vardhan & Chitra Narayan, The Indian Contract & Specific Relief Acts 1269-70 (15h Ed. 2017)
13
AIR 1926 Nag 108
Damages are the end result of the total liability of the indemnity holder. Damages= Cost+
Sums

Sec. 125(2):
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 promisor, and acted as it would have been prudent for
him to act in the absence of any contract of indemnity, or if the promisor authorized him to
bring or defend the suit.[28] In a case, where A lied to B about the ownership of certain
goods and impersonated the owner, asked B to sell the goods to C. After the sale, D. the real
owner sued B and after he had to pay the cost, B sued A to invoke this section and the
judgement was held in his favour.14

Sec 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 promisor, and was one which it would have
been prudent for the promisee to make in the absence of any contract of indemnity, or if the
promisor authorized him to compromise the suit. The Indemnified/promisee, who is under a
contractual agreement of indemnity, is entitled to recuperate all sums which he/she might
have paid under the conditions of any compromise of any such suit, if, 1)The
indemnifier/promisor authorised him to compromise the suit, or, 2) The compromise was not
contrary to the orders of the promiser and the promise has acted in such a manner that would
be considered as acted in a prudent manner if the current contract of indemnity didn’t exist.
In a case, The High Court of Calcutta has stated that the indemnifier must pay the full amount
of the value of the vehicle lost to theft as given by the surveyor. Any settlement at lesser
value is arbitrary and unfair and violates article 14 of the constitution.15

COMMENCEMENT OF LIABILITY AND THE DIFFERENCE

BETWEEN INDEMNITY AND DAMAGES
According to the Indian law of indemnity, suffering loss is elementary for a promisee to
activate a contract of indemnity. On some levels, this beats the entire point of the risk shifting
aspect of the indemnity contract. The following is an illustration to explain the same.

14
Adamson v Jarvis, 4 Bing 66
15
Mohit Kumar Saha vs New India Assurance Co, AIR 1997
AJ and JT are the two parties in a contract of indemnity where, AJ is the promisee and JT is
the promisor where, JT has agreed to indemnify AJ for all the losses he will sustain in AJs
legal suit against AD. Now, AJ needs to sustain losses before he can claim the indemnity
promised by JT, If AJ does not have any money to begin with, He would not have adequate
amount to pay for the losses he sustains as well. Moreover, even if he wins/loses the case he
needs to be patient enough for the court to come to a conclusion which could take months or
even years. Thus, It beats the point of being indemnified by JT.
The above is elaborated in the case of Gajanan Moreshwar Parelkar vs Moreshawar
Madan Mantri.16The following is the brief analysis of the case.
For simplicity, the plaintiff will be referred to as G and the defendant will be referred to as R
Facts
G and a certain relevant government authority made a deal with each in which, G got the
possession of a certain land in Bombay for a period that extended to almost a millennium. G
is not the possessor of the land
R asked G to transfer all the titles stating the title of the contract between G and the
government Authority.
Hereafter, R, started the work of confecting a property on the said land.
R asked G to mortgage the said land to a dealer who supplied the materials used for the
property’s work and the amount was more than five thousand rupees with interest. G
complied and fulfilled his obligation.
R was even responsible to pay another sum of the same amount with same interest and asked
G to mortgage another bit of the land to the dealer. G obliged.
Later on, R contracted with G and this was an expressed contract in which he proposed that G
should transfer the property to the name of R and on doing so, R will contract with the dealer
and form another contract of mortgage, liberating G of any liabilities attached to G with
respect to the said property. G agreed
R failed to perform his obligation when G asked him to indemnify him. G issued a writ
against R for the same in the Bombay High Court.
Here, the main issue at hand was about the liability of R is making good the loss of G before
G even suffered from any loss.
The argument made by the counsel representing R was that the law as mentioned in the
Section 124 to 125 of the Indian Contract Act, 1872, clearly states that the risk does not shift
from the promisee to the promiser unless and until the promisee has suffered from the
16
Gajanan Moreshwar Parelkar vs Moreshwar Madan Mantri, (1942) 44 BOMLR 703.
liabilities arised. The counsel pointed out to the judgement passed by Calcutta High Court in
the case of Shankhar Nimbaji v. Laxman Supdu,17 in which it was held that:

The contract being one of indemnity the plaintiffs' claim against defendant No.2 must be held
to be premature. It is clear from Section s 124 and 125 of the Indian Contract Act and Article
83 of the Indian Limitation Act that under a contract of indemnity the cause of action arises
when the damage which the indemnity is intended to cover is suffered, and a suit brought
before the actual loss had accrued must be thrown out as premature. The plaintiffs cannot sue
the appellant.18 The bench, to be brief, stated that, No Loss= No compensation from the
promisor due the prematurity of the Contract.

Justice Chagla in the present case held that:

The order that I will make will, therefore, be that the defendant be ordered to procure from
the mortgagee a release of the plaintiff from all liability under the deed of mortgage and
further charge. I give him three months' time to do so. In default of his doing so, the
defendant to pay into Court the amount required to pay off the whole amount due to the
mortgagee under the mortgage and further charge and that the amount so brought into Court
to be utilised for the purpose of paying off the said mortgage and further charge.19

The court said that, Indemnity under the Indian Law, is not only the part of the sections
where it is defined and where the rights of the promisee are mentioned. The court needs to
adjudicate as a holistic approach to the law of indemnity rather the inflexible and stringent
interpretation of Section 124 and 125 of the Indian Contract Act and further stated that, The
Indian Contract Act is both amending as well as consolidating Act and is not exhaustive of
the law of contract to be applied by the courts in India.20

Often, Indemnity is misunderstood as damages. However, under the Indian law, these two
terms are separate with respect to the rights one enjoys. 21 Indemnity does not get activated
because of the violation of the contract as compared to damages that cannot exist alone and
only have meaning when the violation occurs. In the case of Purangir v. Bhawanigir 22, it was
17
AIR 1926 Nag 108
18
Shankar Nimbaji Shintre vs Laxman Supdu Shelke, (1940) 42 BOMLR 175
19
Gajanan Moreshwar Parelkar V. Moreshwar Madan Mantri, 1942 SCC OnLine Bom 29
20
Gajanan Moreshwar Parelkar V. Moreshwar Madan Mantri, 1942 SCC OnLine Bom 29
21
Gajanan Moreshwar Parelkar V. Moreshwar Madan Mantri, 1942 SCC OnLine Bom 29
22
AIR 1928 Mad 43
held that A minor girl working in a company by the consent of her mother, failing which the
mother and daughter would compensate the company for the loss suffered by it, in lieu the
money was for the damages for breach and not indemnity. Thus, it was not a contract of
indemnity.23

The following is a table stating the difference between right to indemnity and right to claim
damages.

Indemnity Damages
Section 73 of the Indian Contract Act, defines
damages as When a contract has been broken,
the party who suffers by such breach is
entitled to receive, from the party who has
Section 124 of the Indian Contract Act defines
broken the contract, compensation for any loss
Indemnity as, A contract of indemnity is a
or damage caused to him thereby, which
contract by which one party promises to save
naturally arose in the usual course of things
the other from the loss caused to him by the
from such breach, or which the parties knew,
conduct of the promisor himself or by the
when they made the contract, to be likely to
conduct of any other person.24
result from the breach of it. Even though
damages are not defined exclusively in the
ICA, the meaning can be interpreted from the
above.
In indemnity, the promisee is indemnified ofA party can only claim damages from the
all the losses and costs he suffers from from persons who violates the contracts which in
the party he is contracted to as well as others. turn makes the former suffer from losses.
Breach- Not elementary Breach- Necessary
The main principle behind indemnity is to putwhereas in case of monetary damages, award
a person back into the place he was before themay be awarded more than the actual loss
loss occurred. Hence when a person isoccurred or less than the actual loss occurred.
indemnified, he will never make a profit or a
loss out of it, he will be restored to his original

23
Ankita Toppo & Sanchita Tiwari, Contract of Indemnity Case Laws, 6(5) International Journal of Scientific
Engineering and Research 30, 31 (2018)
24
Krishnaswani Iyer v. Thathia Raghavian chetty, AIR 1928 Mad 43
position.25

ENGLISH LAW OF CONTRACT OF INDEMNITY

The English Law of Indemnity is different from the Indian Law of Indemnity. The English
Law defines indemnity in a much-detailed manner. According to English Law, a contract of
indemnity means to save the person from harm and the results of the act. It means a promise
to save another person from loss occurring from any case e.g., fire, accident, etc. The loss
doesn’t need to be caused by human beings. Contracts of fire insurance and marine insurance
come under the contract of indemnity. But life insurance is not a contract of indemnity.

Example of indemnity of English Law:

In Adamson v. Jarvis26, the defendant instructed the plaintiff (the auctioneer) to sell certain
cattle which did not belong to the defendant but belonged to some other person who made the
auctioneer liable and the auctioneer sued the defendant for indemnity for the loss he suffered.
The plaintiff acted on the request of the defendant. What he did was wrong. So, he would be
indemnified by the defendant. Thus, indemnity means a promise to save another person from
harm. The promise may be implied or expressed.

Thus, for example, in Dugdale v. Lovering27. The plaintiffs had certain trucks. But defendants
claimed these trucks and one K.P. Co. also claimed these trucks. Delivery of trucks was
demanded by the defendants and the indemnity bond was also demanded by them but no
reply was received by them. So, the trucks were delivered to the defendants. The plaintiffs
were sued by K.P. Co. because they had converted their property. So, plaintiffs were given
the right to take indemnity from the defendants on an implied promise. It was clarified by
them that they had no intention to deliver except on indemnity.

Similarly, in the case of Sheffield Corpn v. Barclay28, a transfer of stock was registered on the
banker’s request and the corporation had got the legal right to recover indemnity from the
banker when it was discovered that the transfer of stock was forged.
25
S.S. Rana & Co. Advocates, India: Indemnity Vs Damages, Mondaq (Jan.16 2020)
https://www.mondaq.com/india/contracts-and-commercial-law/664102/indemnity-vs-damages
26
(1827) 4 Bing 66: 29 R R 503.
27
(1875) LR 10 CP 196: 44 LJ CP 157: 32 LT 155.
28
1905 AC 392
So, the meaning of indemnity according to English law is a promise to compensate the loss
arising from any cause like fire, accident, etc. Life insurance is not a contract of indemnity.
But every contract of insurance is a contract of indemnity, according to English Law.

LAW COMMISSION OF INDIA, 13TH REPORT

Ever since the enactment of the Indian Contract,1872 the jurisprudence has changed and there
is a shift in the expertise and problems of the lawyers as ones asset was only considered to be
land before and the solution to every hurdle was approached with the same mindset. Justice
was not elementary for the advocates, but since the last 100 years, the mindset has changed
and with the changing times the jurisprudence too shall change.

The main aim of this report was to trace the Indian Contract Act since its origins and along
with it the improvisations and other aim was the revision of the Act along with the Contract
of Indemnity.

The Law Commission is of the view that the Indian Law of Indemnity as defined in Section
124 of the Indian Contract Act is not adequate as it does not define the multiple aspects of
indemnity and the same was viewed over Section 125 of The Act, where the Indian Law
again, lacks in addressing the rights of the proimsee. The courts, quite often have to rely on
the common law of India which in this respect, is identical with the law of England.29

The Commission is of the view that, indemnity as explained in the English law as a promise
to save the promisee from loss caused by events or accidents which do not or may not depend
on the conduct of any person, or from liability arising from something done by the promisee
at the request of the promisor. A right to Indemnity may be created by express contract or by
implied contract.30 Which basically widens the scope of implied contracts in indemnity where
the conduct of a person on the demand of another harms a 3rd person, the one who demands
shall indemnify the one who complies.

The commission later cites the case of Sheffield Corporation v. Barclay in which Lord Davey
states the following, .Where a person invested with a statutory or common law duty of a
ministerial character, is called upon to exercise that duty on the request, direction or demand
29
Secretary of State v. The Bank of India, AIR 1938 P.C 191 (192)
30
Law Commission of India 13th report, at 49
of another, (it does not seem to me to matter which word you use), and without any default on
his part acts in a manner which is apparently legal but is, in fact illegal and a breach of the
duty, and thereby incurs liability to third parties, there is implied by law a contract by the
person making the request to keep indemnified the person having the duty against any
liability which may result from such exercise of the supposed duty. And it makes no
difference that the person making the request is not aware of the invalidity in his title to make
the request, or could not with reasonable diligence, have discovered it.31

The Commission is of the view that the contracts with such characteristics need to be called
quasi-contractual and then referred to the statement made by a certain jurist which said, The
redress was given not only upon express promise of indemnity by the debtor, but also upon
implied obligation which would nowadays be classified as quasi contractual. 32 This gave rise
to the commission in suggesting the addition of a Section- 72(A) under The ICA, 1872.

The commission further states that Section 125 of The Act is incomplete as the rights of a
promisee as mentioned in this Section are not inclusive of the many rights, the promisee
possesses. The view that the promisee can exercise his right to indemnity and be relieved of
all the liabilities by the promisor even bore he has suffered any actual loss has been supported
by a few courts and judicature whereas some have opposed the same. However, the Law
Commission supports the said view. The courts that supported the view have followed the
English Law of Indemnity and the Commission with the intention of further explaining the
concept has cited the following.

In equity, the rules of which now prevail in all Courts, even in the absence of such a special
agreement, the person entitled to the indemnity may enforce his right as soon as his liability
to the third party has arisen, and, therefore, he may obtain relief before he has actually
suffered loss. He may, therefore, in an appropriate case, obtain an order compelling the
promisor to set aside a fund out of which the liability may be met or to pay the amount due
directly to the third party, even, when the promisor is under no liability to the third party, as
is the case in contracts of mere indemnity, to the promisee himself. Nor is the party
indemnified precluded from obtaining relief by the fact that his liability to the third party
cannot be effectively enforced against him.33
31
Sheffiel Corporation v. Barclay, (1905) A.C 399
32
Winfield, Law of Quasi-Contracts,116-117 (London: Sweet & Maxwell, 1952)
33
16 Quintin Hogg Hailsham of Saint Marylebone, Halsbury: Laws of England 15 (London Butterworth [u.a.]
6th edi. 2005)
The Additions Suggested by The Law Commission

The Commission is of the view that the definition as stated in Section 124 of The Indian
Contract, act must be improvised and altered in such a way that includes the other sort of
indemnity where the even damages caused by natural phenomenon, accidents, etc and
includes implied indemnity as a concept.

The following is the suggested addition to Section 124

A Contract by which one party promises, expressly or impliedly, to save the other from loss
caused to him by the conduct of the promisor himself, or by the conduct of any other person
or by any event not depending on such conduct, is called a Contract of Indemnity.34

As stated above, addition of completely new section called Section 72 A

Sec 72A. When Contract of Indemnity may be implied. When an act is done by one person at
the request of another, and the act, not being in itself manifestly tortious to the knowledge of
the person doing it, turns out to be injurious to the rights of a third party, then, in the absence
of express agreement to the contrary, the person doing it is entitled to be indemnified by the
person at whose request it is done35

With the View of the Law Commission on the rights stated in Section 125 of The Act, the
following is suggested:

Sec 125A Rights of Indemnity-holder.

The promisee in a Contract of Indemnity acting within the scope of his authority may, where
a liability has arisen against him in favour of a third party, obtain against the promisor, in an
appropriate case, a decree compelling the promisor to set apart a fund out of which the
promise may meet such liability or directing the promisor to discharge such liability himself.

The promisee may institute a suit under this section even where no such suit as is referred to
in section 125 has been instituted, and irrespective of whether any actual loss has been

34
Law Commission of India 13th report, at 84
35
Law Commission of India 13th report, at 83
sustained by the promise or not. Explanation - The promisee is not precluded from obtaining
relief under this section merely on the ground that the promisee‟s liability to the third party
cannot be effectively enforced against him.36

CONCLUSION AND ANALYSIS

Indemnity under Indemnity is well developed although it lacks in some aspects where the
legislature stated in the Indian Contract Act, 1872 has many gaps with respect to the
indemnity’s characteristics.

Section 124 of the Indian Contract Act, 1872, which defines what indemnity means under the
Indian law only focuses on one sort of indemnity and fails to direct what the judicature
should focus on in cases where the other types of indemnities such as the ones arising from
the conduct of phenomenon such as thunder giving rise to a fire or earthquakes etc and fails
to include the implied form of indemnity which the High Court later clarified in its decision
in the case of Secretary of State vs. The Bank of India.

The above is the reason why insurance contracts are not included under contract of
indemnities. In the English law however, the definition and the legislature include all sorts of
indemnities and implied indemnities as well. However, In the English law, Life insurances
are not treated as indemnities.

The Indian Law of indemnity while defining and allotting the rights to the promisee lacks in
such a way that it beats the entire point of indemnity as one cannot claim the indemnity till
one has not suffered from any loss stated in the contract. This is a major dilemma for the
courts and state of helplessness for the promisee who cannot possibly pay for the losses in
his/her own capacity. This has been rooted from the English Law which is again the same
when it comes to rights of the promisee and follows the maxim stating damnification before
indemnification. However, it was later cleared by the equity courts in England and even in
the Indian Law, but not as a change in the statute but only, in the form of a case law of
Gajanan Moreshwar Parelkar vs. Moreshawar Madan Mantri.

The Law Commission of India has recognised both the above-mentioned problems in its 13th
report and elaborated the same before suggesting an amendment to the Indian Contract Act,

36
Law Commission of India 13th report, at 84
1872. The Commission Suggests that In the Section 124 which defines indemnity should
consist the words that states both the expressed and implied nature of Indemnity as well as
state the indemnity that arises out of the conduct of things other than third persons.

The Law commission even suggests the addition of a completely new Section 72(A) which
puts indemnity under quasi-contracts. Finally, it suggests the amendment of Section 125 to
include the necessary language as to state the liability of the promisor which not only arises
when the promisee suffers from loss. Even Though the Indian law and English law are
different than each other but they are similar in some aspects. Although, not enough to call
them the two sides of a same coin. Both have gaps in their statutes about the true nature of
indemnity. However, the along with the jurisprudence and the hearings in the courts, these
gaps are being filled according to the needs.

The reports such as the Law Commission Report are important for contributing in the
development of the concepts of law and the improvisation of the current ones.

The Indian Courts should enforce the English Law and its provisions but not so much as to be
completely influenced by the same.

BIBLIOGRAPHY

 The Indian Contract Act, 1872

 Law Times Journal

 http://www.legalservicesindia.com/article/379/Indemnity-in-a-
contract.html

 Atul Chandra Patra, HISTORICAL BACKGROUND OF THE INDIAN

CONTRACT ACT, 1872, 4(3) Journal of the Indian Law Institute 373,
373 (1962).

 Sakshi Agarwal, Contract of Indemnity in India & UK, Law Times

Journal (Aug.10 2018) http://lawtimesjournal.in/contract-of-indeminity/

 Avtar Singh, Law of Contract and Specific Relief, (Eastern Book

Company, Lucknow, 9th edn. 2005)

 R Yashod Vardhan & Chitra Narayan, The Indian Contract & Specific
Relief Acts 1269-70 (15h Ed. 2017)