Re-Examining The Law Of Indemnity In India
- IJLLR Journal
- 2 days ago
- 2 min read
Divyam Vyas, Symbiosis Law School Pune, Symbiosis International (Deemed University)
Sanvi Gupta, Symbiosis Law School Pune, Symbiosis International (Deemed University)
Avanti Sowani, Symbiosis Law School Pune, Symbiosis International (Deemed University)
ABSTRACT
The Indian Contract Act, 1872 mentions the law of Indemnity in only a few sections, mainly Sections 124 and 125. At first glance, these provisions look simple. However, their real-life application leaves many questions unanswered. For example, can the indemnified person claim money even before they have actually paid the third party? The Act has limited definitions for indemnities. In fact, there is no succinct explanation of the relationship between the indemnifier and holder of the indemnity. This is because courts have to step in and display judicial creativity to fill these gaps. This, to some extent, creates a level of doubt regarding jurisdiction and highlights that overhaul of the law is necessary to address these inadequacies and make any attempt to uniformity and fairness obvious.
One major issue is that Section 124 only recognises indemnity against loss caused by the conduct of the promisor or any other person. It does not include losses from events such as accidents or natural causes, which are very common in commercial transactions. In the modern business scenario, indemnity clauses in contracts are increasingly used for various forms of risk management; yet the Act fails to provide full support for the same. In the absence of proper backing for the same under the act itself, courts have gone beyond the literal meaning of the laws by expanding the meaning of the word 'indemnity.' This helps in the delivery of justice while creating an inconsistent position in the laws themselves.
Another significant problem concerns the rights of the indemnity holder. Section 125 lists certain rights, such as the right to recover damages, costs and sums paid under compromise. But it is not clearly stated when exactly these rights can be exercised. Traditionally, the view was that the indemnity holder must first suffer an actual loss before claiming indemnity. However, later judicial decisions have recognised that waiting for actual loss can be unfair and impractical. Courts have allowed indemnity holders to compel the indemnifier to save them from loss even before it occurs. This shift shows that judges have creatively filled gaps left by the legislature, but it also reveals that the statutory framework is poorly thought out.
