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Contract of Indemnity: The narrower Indian law vis-a-vis the wider English law

Definition of the Contract of Indemnity as found in the English Law can be understood from the landmark case of Adamson v Jarvis [i]

The plaintiff in this case was an auctioneer. On the instructions of the defendant, he sold certain cattle which he thought belonged to the defendant, but which turned out to belong to some other person. That person sued the auctioneer who in turn sued the defendant to indemnify for the loss he had suffered. The court laid down that the plaintiff having acted on the request of the defendant was entitled to assume that if what he did turned out to be wrongful in any manner then he would get indemnified by the defendant.

In simple words, the word "indemnity" in English Law refers to a promise to save a person harmless from the consequences of an act, whereby the promise may be both express as well as implied. We see, in the case of Dugdale v Lovering[ii] that the English courts have accepted the idea of implied indemnity.

The English definition of the term "indemnity" offers a wide enough context which shall include the promise to make good the losses arising from any cause whatsoever. This would include loss caused by fire or even by accident along with all contracts of insurance other than a life insurance. However, in this context, the definition of indemnity given under the Indian Laws, vis a vis Indian Contract Act 1872, talks of a much narrower definition. Section 124 says that a contract of indemnity is one where a party promises to save the other from loss caused to him by the conduct of the promisor himself or by any other person.

For example, if there is a person A who contracts to indemnify a person B against the consequences of any proceedings which another person say C may take against him, them this would be referred to as a contract of indemnity. For this purpose, A would be called as the indemnifier and B as the indemnity holder or indemnified.

Hence, we see that the scope of indemnity here is restricted to two particular instances i.e., when the loss is caused either by the promisor/indemnifier himself or when it is caused by another person. The definition keeps outside its purview cases of loss arising out of accident like fire, or perils of the sea. This definition exclusively says that for that loss to be indemnified, it must have been caused by a human agency. In this sense, we see that the Indian definition of the term indemnity is much narrower than its English counterpart.

When we talk about liability of the indemnifier in cases of contract of indemnity, one question arises i.e., when does the person actually become liable to pay. Or, in simple terms, when is the indemnity holder entitled to recover the indemnity.

If we were to take a look at the English Jurisprudence then we would find that the original English Rule was that indemnity was payable only after the indemnified had actually suffered the loss, by paying off the claim. The maxim read that "you must be damnified before you can claim to be indemnified".

However, this established line of thinking has evolved and the law is now different. This has been explained in the case of Gajanan Moreshwar Parlekar v Moreshwar Madan Mantri [iii]. Here the courts acknowledged that the indemnity might be very little indeed if the indemnified could not enforce his indemnity till he had actually paid the loss. The court of equity had held that if the liability had become absolute then he was entitled to either get the promisor to pay off the claim on his behalf or to pay into court, sufficient money which would go ahead and contribute to the fund which would then be used to pay off the claim whenever made.

Indemnity is not necessarily given by repayment after payment. The concept of indemnity lies on the fact that the indemnity holder shall never be called upon to pay in the first place. This principle has been followed by the High Court of Calcutta in the case of Osman Jamal and Sons Ltd v Gopal Purshttam[iv].

Furthermore, the high courts of Allahabad, Madras and Patna have all expressed their concurrence in various cases to this principle that as soon as the liability of the indemnity-holder to pay becomes clear, he would have the right to put the indemnity holder whom he is under contract with, in a position so as to meet the claim. However there have also been cases of exceptions where contrary views have been expressed [v].

End-Notes:
  1. (1827) 4 Bing 66: 29 R R 503.
  2. (1875) LR 10 CP 196
  3. AIR 1942 Bom 302, 304:
  4. ILR (1929) 56 Cal 262
  5. Shanker Nimbaji v Laxman Sapdu AIR 1940 Bom 161
Written By: Mr. Saikat Mukherjee, A 3rd year BA LLB student at Symbiosis Law School, Nagpur.
Email [email protected]

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