INDIAN LAW OF INDEMNITY AND ENGLISH LAW OF INDEMNITY: AN ANALYSIS
AUTHORED BY - AAROHI OJASWI
ROLL NUMBER - IPL01003
SECTION – A
PROFESSOR - VARNIKA TAYA
I, Aarohi Ojaswi, certify that this research paper, titled Indian Law Of Indemnity and English Law Of Indemnity: An Analysis, does not contain any material that has been previously published or written by another person to the extent that has been allowed by my professor. This research paper is a product of my creative and original work. The sources used are properly acknowledged in the paper.
The current paper has not been accepted for publication anywhere in any format(in any language) and is not currently being considered for publication anywhere in any format.
I confirm that the above statements are correct and that the paper contains nothing defamatory.
Aarohi Ojaswi (Author)
Place: Rohtak, India
Date: 23rd September 2022.
The term 'Indemnity' literally means "security or protection against loss."
In extensive terms, a contract of Indemnity is a situation of a special contract wherein one party promises to save the other party from a loss.
A contract of Indemnity is bipartite and has two parties, namely the promisor, also known as the indemnifier, who bears the losses, and the promisee, also known as the indemnity holder or the indemnified, for whom losses are covered/compensated.
The fundamental objective behind a contract of Indemnity is to protect the promisee/indemnity holder from unanticipated losses.
The Indian Contract Act, 1872, contains various provisions that describe and categorise the nature of a contract of indemnity and the rights of the promisee under it. On the other hand, in English law, the rules governing contracts of indemnity are primarily a product of case law; statute affects only some aspects, most notably indemnity insurance.
Touching upon the historical basis of indemnity, By 1872, when the Act came into force, the English law on contractual indemnities could be said to have reached a late adolescence or early adulthood stage. In ordinary law courts, the fundamental nature of the claim on an indemnity had been established. Courts of equity also exercised jurisdiction to enforce contracts of indemnity.
In earlier times, the concept of the 'scope' of an indemnity, an integral part of modern thinking, was applied intuitively. For example, a principal could indemnify an agent. Such examples remain relevant, but nowadays, indemnities are more sophisticated and used in various contexts.
One of the issues with today's contemporary commercial transactions is that the term 'Indemnity' holds a comprehensive range of definitions that sometimes are vague. This research points to the discrepancies in the Indian Contract Act related to a contract of Indemnity. Furthermore, the ICA is silent on the rights of the indemnifier, and this research paper aims to shed light on the ambiguous rights of an indemnifier. In addition to the issues mentioned above, this research article focuses on the essentials of a contract of Indemnity and on the rights of an indemnity holder. Lastly, the former topics have been covered by analysing the English and Indian Law of Indemnity and establishing a comparative scrutiny.
Research methodology is essentially the "how" a certain piece of research is conducted in actuality. More specifically, it deals with the methodical methods a researcher employs when designing a study to guarantee accurate outcomes that meet the goals and objectives of the project.
The 'Theoretical Research' research approach was used to complete this research work. The goal of theoretical study is to gather knowledge on a certain subject or issue and deepen understanding.
This research methodology is employed in many different fields of knowledge because it strives to provide answers to fundamental problems.
Indemnity is defined in Section 124 of the Indian Contract Act of 1872. According to the definition, indemnity is "a contract by which one party promises to save the other from loss caused to him by the promisor's own conduct or the conduct of any other person."
Every type of contract must include the elements mandated by the Indian Contract Act of 1872. A contract of indemnity, like any other contract, contains all of the essential elements of a valid general contract as defined in sections 1 to 75 of the Indian Contract Act. The elements of such a contract must meet all of the requirements for a valid contract as stated in Sections 1 to 75 of the Indian Contract Act. For example, a minor or a person of an unsound mind cannot be a party to the contract, and if consent was obtained through coercion or fraud, among other means, such an indemnity contract is invalid. A contract of indemnity is a legally binding written agreement in which one party promises to compensate another party for loss caused by the promisor's or any third party's conduct.
The term 'indemnity' is broad and can correspond to any arrangement in which a party is assured not to suffer loss. There are two kinds of 'indemnity' arrangements: those in which the essential concern of the undertaking is to protect the promisee precisely against loss, as well as those in which the essential concern of the undertaking is not of that nature; however, the promisee is incidentally or effectively indemnified against a loss. Article and Sections 124 and 125 cope with the foremost arrangement.
The following is an illustration of an indemnity contract:
'A' is a businessman who owns 'A's Bakery. B asks A to collaborate and make cakes with a specific type of flour named ‘Arara’ from the market. If A suffers losses as a result of changing his flour, B will compensate A for all losses incurred by him.
As a result, B would be liable as the promise to indemnify A for any losses he suffered as a result of changing the flour.
The essential elements of a contract of Indemnity are as follows:
Secretary of State vs. Bank of India Ltd is an Indian landmark judicial pronouncement that introduced the concept of an implied contract in 1938.
The brief facts and the decree held in the case is as follows:
Facts: In this case, an agent possessed a government promissory note that the agent to the bank had forged and endorsed. The agent presented the promissory note to the bank with malicious intent, but the bank used that promissory note in good conscience for a redeveloped and issued from the public debt office. All the while, the actual owner of the promissory note sued the secretary of state for promissory note conversion. After that, the secretary of state sued the bank on the premise of implied indemnity.
Held: The court held that when a person does any act on the request of any third person and such act violates the right of the third person, then the person who commits an act is entitled to claim indemnity from that person who is requested to do that act.
This was the case where we saw the implied contract of indemnity.
The indemnity bearer is the beneficiary in an indemnity contract, ensuring that he or she has the majority of the rights. An indemnity holder’s rights are conferred to them under Section 125. The rights prescribed to them are as follows:
There is no mention of indemnifier's rights in the Indian Contract Act of 1872. Even so, it is crucial to note that an indemnifier has the same rights as the surety. A surety is an individual who
assures something. The benefit of the creditor's security against the principal debtor is obtainable to a surety. In this regard, the following judicial observations in Simpson v. Thomson are noteworthy:
"It is a well-known principle of law that where one person has agreed to indemnify another, he has the right to use all the ways in which the person indemnified has protected or reimbursed himself for the loss."
The English legal system defines indemnity in considerable detail. According to English Law, a contract of indemnity means saving the person from harm, and the act results. It promises to save another person from loss in any predicament, including fire or an accident. Loss does not have to be caused by humans. Fire and marine insurance contracts fall under the umbrella of indemnity contracts. However, life insurance is not an indemnity contract.
To define an indemnity contract in English, it is critical to refer to the legal maxim "you must be damnified before you can claim for indemnification," which means if the promisor suffers no loss, he will not seek indemnity, exhibiting that injury is a necessary precondition for seeking indemnity under English law.
A landmark pronouncement established the principle of contract of Indemnity under English law. The case was the case of Adamson vs. Jarvis. The brief facts and judgment decided in the case are as follows:
Facts: In this case, Jarvis was the defendant, and Adamson was the plaintiff. The plaintiff functioned as an auctioneer and was handed cattle to be sold at auction by Jarvis, who was not the actual cattle owner. The plaintiff sold the cattle in accordance with Jarvis's explicit instructions.
Adamson was successfully sued for conversion by the actual cattle owner. Adamson was required to pay the damages for the same; as a result, Adamson sued Jarvis to be compensated for the loss he incurred in paying the damages to the owner.
Held: The court determined that because the plaintiff followed the defendant's instructions, it is presumed that if anything went wrong as per the instructions, the defendant would be obligated to pay the damages; in the end, Jarvis was required to pay the damages to Adamson.
There were some significant differences between the English and Indian legislations, as the Indian Contract Act 1872 was introduced with some changes. The scope of indemnity under English law is more comprehensive than that under Indian law.
As per English law, a contract of indemnity is defined as a promise by one party to compensate another for loss incurred as a result of a specific event identified as the "trigger event." This definition of indemnity has nothing to do with who was willing to take responsibility for the event resulting in liability's development.
Notwithstanding, the concept of indemnity under Indian law only includes indemnity for loss caused by the indemnifier's or any other person's acts, and it excludes any other loss as just a consequence of a natural tragedy. In contrast, in English law, the concept includes situations wherein covering for losses caused by all three above-mentioned situations is permissible.
The indemnity holder cannot sue the indemnifier for reimbursement until a loss has been incurred, according to English common law. This clause causes significant difficulties for the indemnity bearer because, in some cases, he may be unable to cover the claim or the damages out of pocket. In those cases, the Court of Equity granted relief. The regulations were changed by the Court of Equity. As a result, the indemnity holder may now request indemnity from the indemnifier for the obligation for which the indemnity was promised.
There has been disagreement among various High Courts in India about whether or not the indemnifier can be compelled to indemnify before the indemnity holder has suffered any damage. The Nagpur High Court ruled that compensation cannot be granted before a person has suffered any loss. The high courts of Bombay, Calcutta, Madras, Patna, and Allahabad have all expressed opposing views. They believe the indemnity bearer has the right to seek indemnity even before suffering a loss.
Section 124 of the Indian Contract Act, 1872, defines Indemnity. A contract of Indemnity is a written agreement of legal value wherein one party promises to compensate another party's loss due to the promisor's conduct or any third party. The term 'Indemnity' is broad and can correspond to any arrangement in which a party is assured not to suffer loss. The essential elements of a contract of Indemnity are as follows:. There are two parties - the promisor and the promisee.
A contract of indemnity is entered into to protect the promisor from the loss of a particular thing. The primary objective of an indemnity contract is to mitigate the losses incurred by the indemnity holder. Indemnity holders have the right to recover all costs incurred in a suit for indemnity from the indemnifier. They are also entitled to recover sums paid under the compromise of any suit if such a compromise did not contravene their directions. There is no mention of indemnifier's rights in the Indian Contract Act of 1872. An indemnifier is obligated to pay all damages in the contract of Indemnity .A surety is an individual who assures something; an indemnifier has the same rights as a surety.
The English legal system defines indemnity in considerable detail. According to English Law, a contract of indemnity means saving the person from harm covered in a wider scope. Loss does not have to be caused by humans. A landmark pronouncement established the principle of contract of Indemnity under English law.
The concept of indemnity under Indian law only includes indemnity for loss caused by the indemnifier's acts, and excludes any other loss as just a consequence of a natural tragedy. In English law, the concept includes situations wherein covering for losses caused by all three above- mentioned situations is permissible.
There is no dispute that Indian law has developed the indemnity. The Indian Contract Act of 1872, which the legislature noted has several gaps regarding the elements of an indemnity contract, is one area where it falls short.
What is meant by indemnity under Indian law is defined in Section 124 of the Indian Contract Act, 1872. It only concentrates on a single type of indemnity. It does not specify what the courts should consider when dealing with other indemnities, such as those resulting from natural disasters like earthquakes or thunder that starts a fire, among others, and it does not address the implied form of indemnity that the High Court later defined in its ruling in the case of Secretary of State vs. The Bank of India.
The above is why insurance contracts are not included under indemnities.
However, the concept and legislation in English law include a diverse range of express and implied indemnities. However, life insurance is not regarded as an indemnity under English law.
One cannot claim indemnification until they have not experienced any of the losses specified in the contract, which defeats the entire purpose of indemnity under Indian law's definition and allocation of rights to the promisee. The promisee is utterly helpless in this situation because they cannot cover the losses in their capacity, which presents a significant problem for the courts. This roots in English law, which again upholds the promisee's rights and adheres to the dictum that damnation comes before compensation.
However, it was later upheld by equity courts in England and even in Indian law, though not as a revision to the statute itself but as a result of the Moreshawar Madan Mantri v. Gajanan Moreshwar Parelkar case law.
In its 13th report, the Law Commission of India acknowledged the aforementioned issues. Before recommending a change to the Indian Contract Act of 1872, it expanded on the same. According to the Commission, the definition of indemnity in Section 124 should include language expressing both its express and implied nature. Furthermore, it is suggested that the scope of a contract of Indemnity must include factors beyond human agency and hold a more expansive scope including accidents and acts of God.
Indian Contract Act, 1872
Manupatra Legal Database http://docs.manupatra.in/newsline/articles/Upload/78F904F2- E9A9-4BA3-9748-09C42A63621E.pdf
http://law.uok.edu.in/Files/5ce6c765-c013-446c-b6ac-b9de496f8751/Custom/ Contract%20of%20%20indemnity%20and%20Guarantee%20(2)%20(3%20files%20merged). pdf