CONTRACT OF INDEMNITY: ENGLISH LAW & INDIAN LAW

INTRODUCTION

The term ‘Indemnity’ can be characterized through the famous “Black’s Law Dictionary” as
“an obligation to make good any loss, damage, otherwise, anyone else's fault would be
incurred. Indemnity has the broad sense of "keeping one harmless"; that is, one side holds the
other harmless for any injury or damage that may otherwise occur.. Indemnity can be
considered as sub-species of compensation otherwise damages.1” In a similar fashion,
indemnity contracts are those type of contracts which deal with compensatory benefit to the
adverse parties of the contract. Plainly speaking, an indemnity stands for a recommendation
of some problem suffered by the party of the contract otherwise because of a contract of
indemnity otherwise from a duty as result of the relationship between the parties to the
contract otherwise under a provision of law.2 As per Indian Contract Act 1872, a contract
through which an individual gives his consent to compensate the other party from any
damage occured due to the act of promisor otherwise through the act of any third party is
known as indemnity contract3. The individual who provides the indemnity is known as the
"indemnifier" and the individual who is protected is known as the "indemnity-holder"
otherwise "indemnified"4

RESEARCH QUESTION

1. Analyse the statutory provision of the indeminity as per thr Indian and English law.
2. Analyse the precedent and look for the variation in the application of laws in Indian
and English context..

CONTRACT OF INDEMNITY IN INDIAN CONTEXT

Indemnity contracts are defined in Section 1245 of the Indian Contract Act, 1872 while the
conditions for the contract of indemnity is same as that provided under Section 10 6 of the
Act.7 The essential conditions for the contract of indemnity have been stated under Section

1
“Black’s Law Dictionary, (11th ed 2019).
2
Anson’s Law of Contract, Oxford Publication , (29th ed 2010).
3
Section 124, Indian Contract Act, No. 9, Act of Parliament, 1872.
4
Avtar Singh, Contract Act and Specific Relief, EBC Publication, (12th ed, 2017).
5
Supra note 4.
6
Section 10 Indian Contract Act, No. 9, Act of Parliament, 1872.
7
Indian Contract Act, No. 9, Act of Parliament, 1872.”
125 of the Act.8 For the very first time the principle of indemnity was dealt in “Osman Jamal
& Sons Ltd v/s Gopal Purshotam” 9

Facts: The petitioner is a corporation working as a commission agent for a respondent’s

company. The respondent’s company was busy in trade of of Hessian and Gummies, where
the respondent’s company promised with to the petitioner’s corporation that if the
respondent’s company suffers any loss the amount will be indemnified by the petitioner’s
corporation. The petitioner's company purchased Hessian from Maliram Ramjets, but the
respondent's company failed to pay and sent the Hessians. As a result, Maliram Ramjets sold
the same to a third party for a fraction of the retail price.. Maliram Ramjets sued the
petitioner for the losses incurred, but the petitioner corporation was meandering up and hence
asked the respondent to indemnify foe the same. Neverthless, the respondent did not agree to
pay the amount and stated that due to petitioner the respondent failed to make the payment on
time.

Observation by the court: The court observed that the respondent owns the liablity to
indemnify the petitioner due to the promise made during the enforecement of the contract.
The case is an example of an express indemnity contract which came into existence in the
year 1929. In 1938 a landmark precedent of implied contract of indemnity was introduced
namely “Secretary of State vs. Bank of India Ltd.” 10

Nonetheless, the main point is that the only part of critical research is a contract guarantee of
indemnity, not a contract of indemnity. It should then be treated in the same way as a
guarantee of indemnity, which is only one of the clauses of an indemnity deal, is approached.
Probably for the same cause, the methodological difference between a indemnity contract and
a indemnity promise does not seem to burden and add to the pendency of the Indian courts.
Sections 124 and 125 both refer to the "promisor" and "promisee," respectively, and Section
125(1) refers to the "promise to indemnify." Many other legal authorities use the term in a
similar way. The word "indemnity" is broad and can be used to describe any situation in
which a party is not in a position to suffer a defeat.A demarcation should be observed
between two forms of “indemnity”. Firstly, the ones in wich the primal focus is to protect the
party from any form of loss. Secondly, those in which the important issue of the undertaking
is not of such nature, although the promisee is by the by otherwise efficiently indemnified.

8
“Section 10 of the Indian Contract Act, 1872.
9
Osman Jamal & Sons Ltd v/s Gopal Purshotam , AIR 1929 Cal 208
10
Secretary of State vs. Bank of India Ltd, AIR 1938 PC 191.”
Sections 124 and 125, are concerned with the former arrangements and are promises of
indemnity in the strict sense. Usage of “indemnity” in the latter sense is, nevertheless, fairly
ordinary

Contracts of insurance, though are promises to indemnify, are contingent contracts.11 The
right to indemnify occurs in such conditions where the relationship between the parties to the
contract is of a nature which as per the law or in the equity consists a formal duty to
indemnify the counter part.12 An obligation to give indemnity can be take control of by legal
provisions to a meticulous form of contract. The promise to indemnify may be express
otherwise implied.13 It may be conjecturered as a information arisig out of the charecteristic
of the matter.14 Where a person buys a property subject to a charge, there is an implied
indemnity from him to pay off the charge.15 Similarly, if a person does something at the
request of another, and that act turns out to be injurious, the person who acts is entitled to be
indemnified by the person who made the request.16

Illustration: Where X enters into a contract with Y to indemnify him in opposition to the
result of any suit which Z may take in opposition to Y with reference to a definite amount of
5000 Indian rupee. Then, it acts as an indemnity contract. The Act gives a narrow definition 17,
and it fails to state the entire legal background in respect to contracts of indemnity18

CONTRACT OF INDEMNITY IN ENGLISH CONTEXT

"Indemnity" in English law means “a promise to save person harm less from the
consequences of an act.” The principle of the contract of indemnity was laid down in the case
of Adamson v. Jarvis19. The promise may be express otherwise it may be implied from the
circumstances of the case.20. “A corporation, having registered a transfer of stock on the
request of a banker, was held entitled to recover indemnity from the banker when the
transfers were discovered to be forged.”21 Indeed, every contract of insurance, other than life
assurance, is a contract of indemnity.22 Under the common law, contracts of indemnity may
11
“Chandmull Jain v General Assurance Society Ltd, AIR 1959 Cal 558.
12
Kadiresan Chettiar v SpRMRm Ramaswami Chettiar (1947) Mad 58.
13
Tilak Ram v Surat Singh AIR 1938 All 297, 175 Ind. Cas. 241 (FB).
14
Kadiresan Chettiar v Sp RM Rm Ramaswami Chettiar, AIR 1946 Mad 472.
15
Mehdatunnissa Begum v Halimatunnissa Begum, AIR 1939 Pat 194.
16
supra note 10.
17
State of Orissa v United India Insurance Co Ltd AIR 1997 SC 2671.
18
Gajanan Moreshwar Parelkar v Moreshwar Madan Mantri, (1942) Bom 670.
19
Adamson v Jarvis, (1827) 4 Bing 66: 29 RR 503.
20
Dugdale v. Lowering, 1875 LR CP 196.
21
Sheffield Corpn v Barclay, 1905 AC 392.”
22
“Oriental Fire and General Insurance Co v Savoy Solvent Oil Extractions Ltd, (1997) 6 ALD 1.
include indemnity for the loss caused by the conduct of another person, otherwise by events,
otherwise loss resulting from acts done on the request of a third party.23

Illustration: If A wishes to defend B, he grants B an indemnity that can be upheld in court,

and he enters into a deal with C that C will not sue B, reminding C of the indemnity contract,
and so C sues B in violation of the contract with A, A will recover from C as restitution the
sum that he is obligated to pay to B under the indemnity contract24

English common law follows the below mentioned principles of indemnity in its contract
law:

1. “And after the indemnity holder suffers a loss will the indemnifier reimburse him.
2. If the indemnity holder violates the indemnifier's orders.
3. If the indemnity holder incurs any costs in the course of the suit, or if the indemnity
holder otherwise spends any sum of compromise25

COMPARATIVE ANALYSIS
In English law, the concept of indemnity has been given a wider meaning as compared to the
legal principles in the Indian system. The basic difference lies in that fact that in the Indian
Law the wrong is done either by the promisor otherwise by another person while the English
statute covers the loss by any person, accident otherwise even by Act of God. Thus, the legal
benefits under the English law are much more as compared to the Indian Contract law. Thus,
the contract holder gets an additional benefit in of accident like fire otherwise by an act of
God like an Earthquake. The English law very well covers the claims of accident otherwise
an act of God, This is very relevant and beneficial in the coming years where the use of
technology and artificial intelligence will be maximized thereby leading to minimal human
intervention. At the same, the Indian law of indemnity does not comes in consonance with the
contracts of the future decade and may attract an amendment as per the needs of the time.

CONCLDING OBSERVATION AND SUGGESTIONS

23
Scruttons Ltd v Midlands Silicones Ltd, [1962] AC 446 at 473.
24
London Drugs Ltd v Kuehne and Nagel International Ltd, [1993] 4 LRC 415 Can SC.”
25
Ibid
Based on the above analysis and observation, it can be stated that the English law of
indemnity is much more wider in scope and application as compared to the Indian law of
contract. This in turn has a number of merits and demerits. Firstly, the Indian law of contract
does not recognize indemnity when there exists an accident otherwise an act of God. This
puts the parties to the contract at a risk of suffering loses. The contemporary issue of the
pandemic is perfect example of this scenario which would have led to the indemnity of a
number of contracts in India. Secondly, India’s population and growing business environment
makes it vulnerable to the risk of suffering loses due to accident otherwise other claims.
Hence it becomes pertinent to note that the India Law of indemnity may be amended at later
stage to include the loses incurred by any form of accident otherwise an act of God. Thirdly,
this scenario is relevant because the coming decade is equipped with artificial intelligence
and blockchain technology where chances of human intervention is minimal in most of the
execution tasks. This will have an effect on the contracts that are enforced in the coming
years. As a result, keeping all options in view, the contract of indemnity under Indian law can
be amended to meet the needs of the coming years.Fourthly, as per the budget of 2020-21,
India is inviting more insurance penetration in the market which means an increased growth
of indemnity contacts in the coming days. This has been done keeping in mind the situation
of the global pandemic. Thus, there exists another reason to overhaul the indemnity laws in
India.