Contract of Indemnity/Indian Contract Act(II),1872

Indian Contract Act (II), 1872

 

Contract of Indemnity

An Indemnity contract is one of the most important forms of commercial contracts. Various industries, such as the insurance industry, rely on these contracts. This is due to the nature of these contracts. Basically they help companies to compensate their losses and therefore reduce their risks. This is extremely important for small and large companies. 

Contract of Indemnity/ Indian Contract Act II 1872

Contract of Indemnity

The term Indemnity literally means "Security against loss". In an indemnity contract, one party, that is, the indemnifier agrees to compensate the other party, that is, compensation for the loss suffered by the other party.

The English law definition of an indemnity contract is: "It is a promise to save a person from the consequences of an act." Therefore, it includes within its scope losses caused not only by human agency, but also those caused by accidents or fires or other natural calamities.

The definition of an indemnity contract as set forth in Section 124 - “A contract by which one party promises to save the other from loss caused by the conduct of the promisor himself, or by the conduct of any other person, it's called a compensation contract.

The definition provided by the Indian Contract Act is limited to losses caused by the act of the promisor or by the act of any other person.

Pursuant to an indemnity contract, the responsibility of the promisor arises from the loss caused to the fiancé by the conduct of the same or by the conduct of another person. [Punjab National Bank v Vikram Cotton Mills].

Every insurance contract, other than life insurance, is an indemnity contract. The definition is restricted to cases where the loss has been caused by some human agency. [Gajanan Moreshwar v Moreshwar Madan]

Section 124 deals with a particular type of compensation that arises from a promise made by an indemnifier to save the indemnified from loss caused to him by the conduct of the indemnifier himself or by the conduct of any other person, but does not deal with such classes. of cases where compensation arises from loss caused by events or accidents that do not depend on the behavior of the indemnifier or any other person. [Moreshwar v Moreshwar ]

Defined "indemnity contract." A contract by which one party promises to save the other from loss caused by the conduct of the promisor himself, or by the conduct of any other person, is called an "indemnity contract."

For example, A promises to deliver certain goods to B for Rs. 2,000 every month. C enters and promises to compensate B for losses if A fails to deliver the goods. This is how B and C will enter into contractual indemnity obligations.

An insurance contract is very similar to indemnity contracts. Here, the insurer promises to compensate the insured for his losses. In return, it receives consideration in the form of a premium. However, the Contract Law does not strictly govern this type of transaction. This is because the Insurance Law and other similar laws contain specific provisions for insurance contracts.

Parties under indemnity contracts

There are generally two parties to compensation contracts. The person who promises to compensate for a loss is the Compensator. On the other hand, the person whose losses the indemnifier promises to repair is the indemnified. We may also refer to the indemnified party as the Indemnification Holder. For example, in the example above, C is the Indemnifier and B is the Indemnification Holder.

Nature of compensation contracts

An indemnity contract can be express or implicit. In other words, the parties can expressly create such a contract on their own terms. The nature of the circumstances may also implicitly create compensation obligations. For example, A performs an act at B's request. If B suffers some losses and A offers to compensate them, they implicitly create an indemnity contract.