Contract of Indemnity defined – A contract of indemnity is one
whereby one party promises to save the other from any loss incurred/suffered to
him due to the promisor, or due to some other person.
The person who promises to save the other from such a loss is called the
indemnifier and the person to whom such a promise is made is called the
For example, B has given his books to C for certain period. A promises to pay B
Rs. 5,000 if C did not return the books he had borrowed from B or if C loses
them. There is a contract of indemnity between A and B.
In the case, P.N.V.S.V. Prasad v. Union of India
, an indemnity bond which
permits an employee to leave the employment earlier than the minimum agreed
period only at the cost of the forfeiture of his bond money is valid provided
both the period of restriction and the bond money are reasonable. Only that part
of bond money can be retained which is necessary to indemnify the employer for
All insurances are contract of indemnity other than life insurance and personal
accident insurance. Why life insurance is not a contract of indemnity? The
reason is that the life of a person cannot be valued.
This section talks about the right of an indemnity holder in case
of a legal suit. The indemnity holder (also called the promisee) can recover
from the indemnifier (the promisor):
- All the damages that are applicable with respect to the contract of
- All the costs to be paid for bringing any suit or for the purpose of
defending in that suit.
- All the sums that the promisor might have paid under the terms of any
compromise of a suit.
Section 125 says that you must be damnified before you can claim to be
indemnified. It means that the indemnity holder, will be compensated by the
indemnifier only when the indemnity holder suffers any loss or has worked as per
instructions of the indemnifier, or has incurred any costs during suit
proceedings, or has paid any amount of compromise.
In the case, Mohit Kumar Saha v. New India Assurance Co Ltd,
a truck was under
an indemnity insurance amounting to Rs. 2,00,000. The truck was stolen and there
was no place for recovery of the stolen truck. It was held that the proper
amount of indemnity was fixed at Rs. 1,87,492 along with an interest of 185 for
the delay period. Later, it was held that settlement at a lower amount of claim
was arbitrary and unfair U/A 14 of the Constitution.
- (1995) 1 An WR 126, minimum period of compulsory service three years, three
months’ remuneration to be recovered if the employee left earlier.
- AIR 1997 Cal 179
Award Winning Article Is Written By: Ms.Sandhya Prabhakaran - BBA LL.B. (H), 1st year, Amity Law School, Noida
Authentication No: AP111813150107-28-0421