Indemnity Under Indian Contract Act, 1872 (Part - I)

Posted November 4, 2010 by K in Contracts - Agency and Indemnity. Tagged: Indemnity, Indian
Contract Act II, Secretary oI State vs. Bank oI Bihar. 1 Comment
We have read about the law oI contract in the Indian Contract Act, 1872 Irom Sections 1 to 75.
Now we will deal with speciIic contracts namely, indemnity, guarantee, bailment and agency.
These contracts are contained within the Indian Contract Act, 1872 as well as other acts like
Indian Partnership Act, 1932 and the Sale oI Goods Act, 1930.

ANING AND DINITION O INDNITY

As a lawyer, you will come across one particular clause in many sale deeds where the seller is
held liable to the loss to the buyer by a third party under certain circumstances. Such a clause is a
term oI implied indemnity. Certain transactions or actions almost always include an indemnity
agreement.

An example oI an indemnity clause would read as Iollows: '%e subcontractor agrees to
indemnify and old armless te contractor against loss or treatened loss or expense by reason
of te liability or potential liability of te contractor for or arising out of any claims for
damages.`

The term indemnity` literally means security against loss. IndemniIication reIers to the act oI
being held not liable or being protected Irom costs by shiIting them to another party. II a person
is promised by another that he will be protected or compensated in case oI loss or damage, he is
said to be indemniIied.

A contract oI indemnity is an express promise to compensate Ior deIined loss or damage used to
ensure that a contracting party has an express remedy to correct deIects in goods or services
delivered under the contract.

Section 124 oI the Indian Contract Act, 1872|1| deIines a contract oI indemnity as the contract
wherein one party promises to save the other Irom loss caused to him by the conduct oI the
promisor himselI or by the conduct oI any other person. The person who promises to protect or
compensate is called the indemnifier. The person to whom the promise oI indemnity is given is
called the indemnity older.

Illustration: A contracts to indemniIy B against the consequences oI any proceedings which
C may take against B in respect oI a certain sum oI ` 200. A is the indemniIier and B is the
indemnity holder. When A pays B to cover damages that B had to pay C, and then A has
indemniIied B.

Illustration: A may agree to indemniIy B Ior any loss or damage that may occur is iI a tree
on B`s neighboring property blows over. II the tree then blows over and damages B`s Ience, A
will be liable Ior the cost oI Iixing the Ience.

Illustration: A asks B to enter into a transaction with C and promises to indemniIy B. B
transact with A and ends up incurring losses oI ` 1000. Now A has to take care oI the losses