Date: 4 November, 2020
by Anmol Kaur Sidhu, UILS, Panjab University
Section 124 of the Indian Contract Act, 1872 states that —A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity”.
A contract of indemnity is basically a setup where one party promises the other party to make good its losses. These losses can be either due to the party’s own conduct or anybody else. To Indemnify in simple words means making good the losses e.g. A promise to deliver certain goods to B for Rs. 2,000 every month. C comes in and promises to indemnify B’s losses if A fails to deliver the goods. This is how B and C will enter into contractual obligations of indemnity. The most common everyday example of this type of contract is the contract of Insurance.
PARTIES UNDER CONTRACT OF INDEMNITY
There are usually two parties in these contracts. The person who promises to indemnify the for a loss is called indemnifier whereas the person whose losses the indemnifier promises to make good is called Indemnified.
This contract can be either express or implied. The nature of circumstances may also create indemnity obligations impliedly. For example, A does an act at the request of B. If B suffers some losses and A offers to compensate him, they implicitly create an indemnity contract.
RIGHTS OF AN INDEMNITY HOLDER
Section 125 of the Indian Contract Act, 1872 talks about the rights of indemnity-holder when sued. The parties can determine their own terms and conditions while entering into a contract of Indemnity. But these are some basic rights that are available to the indemnity holder:
⮚ The Indemnifier will have to pay damages which the indemnity holder will claim in a suit.
⮚ The indemnity holder can even compel the indemnifier to pay the costs he incurs in litigating the suit.
⮚ If the parties agree to legally compromise the suit, the indemnifier has to pay the compromise amount.