A Short Glance on Indemnity


 This article was written by Saisneha Das a student of National Law University , Odisha.

A contract by which one person promise to save the other person from loss caused by the conduct of the person or by the conduct of any other person. The person who promise to save is known as the ‘indemnifier’ and the person whom he has promised to save is known as the ‘indemnified’ or the ‘indemnity holder’. Alternatively it can be read as the right of an injured party to claim reimbursement for its damage or loss or liability from a person who has such duties.[1] Indemnity literally means ‘security from losses’.

 In a case K.P.Rm. Kuppan Chettiar v. Sp.R.M Rm Ramaswami Chettiar and another [2]Madras High Court laid down the principle that if an act done by A at request of B which is not apparently tortuous to the knowledge of A but turns out to be injurious to right of C and A is held liable to pay C, A is entitled to be indemnified by B.

The facts of the case were- A mortgage was taken in name of A for the benefit of B and C, from D. Later on at the request of B an issued registered receipt of the mortgage without actually receiving the amount. And as a result there was violation of right of C and A was made liable to pay certain amount to C. And A held B liable to indemnify him.

It was held that when a benamidar pays the amount to one of the joint real owner or passes a receipt to one of the joint real owners, it does not really  necessarily implies that  he was acting to make a fraud for one of the joint real owner. And on passing of the receipt A did not act on a tortuous basis as it was not so in the knowledge of A and as the act was done under the request of b so A has a right to be indemnified by B.

A contract of indemnity is a security against the anticipated loss. The question that arses is that – Whether the liability of the Indemnifier commences only when the indemnified suffers actual loss or when there is an apprehension that the indemnified by all chances is likely to suffer loss? An answer to this question was answered in the case of Osmal Jamal & Sons Ltd. v Gopal Purushotham[3]. Plaintiff Company agreed to act as commission agent for the defendant firm for purchase and sale of “Hessian” and “Gunnies” and charged commission on all such pure

Chases. To this the defendant firm agreed to indemnify the plaintiff against all losses in respect of all transactions that were to take place. The plaintiff company purchased certain Hessian from Maliram Ramjidas. The defendant firm failed to pay for Hessian. Then Maliram Ramjidas resolved it at lesser price and claimed the damages from the plaintiff company. The plaintiff company went into liquidation and the liquidator filed a suit to recover the amount claimed by Maliram and the from the defendant firm under the contact of indemnity. The defendant argued the plaintiff had not yet paid any amount to. They were not entitled to maintain the suit under indemnity. It was held negative and decided in plaintiff’s favour with a direction that the amount when recovered from the defendant firm should be paid to Maliram Ramjidas.

In Gajanan Moreshwar Parelkar V. Moreshwar Madan Mantri case the plaintiff transfers a plot of land to BMC and BMC agreed to keep the plot on lease for 999 years. Now defendant wanted to construct a building on the piece of land and the owner allowed to do so. Now the plot was in the possession of the defendant but the owner was the plaintiff. Construction materials were supplied by a Keshavdas. At one point of time there was a due of Rs. 5000 but the defendant was unable to pay. So defendant requested the plaintiff to mortgage. So the property was mortgaged to Keshavdas and as a result now Rs5000 and 10% interest was payble. Again Rs. 5000 was demanded on supply by Keshavdas. Defendant requested now on the same property charge was put to Keshavdas. Now the property was too transferred to plaintiff, but the title deed was with Keshavdas and he did not give. The owner now sued for indemnity as he wanted title deeds as consideration for land transfer. The defendant said that promisor promises to save promise from loss caused to him until mortgagee files a suit ageist Almost all insurance except life insurance and personal accident insurance are contract of indemnity. Here the insurer’s promise to indemnify is absolute. [4] As defined in Contract Act, a contract of indemnity would not include a contract of insurance against losses which are subject matter to the insurance, and it can be differentiated from the other contracts of insurance which protects the insured against liability of the third party.  In case of fire insurance the assured cannot be recovered until and unless he proves loss to that amount.[5]

In case of Subhash v. National Insurance Corporation[6] the appellant was being driven by his driver along with another Mr Kapoor. The car was being allegedly being driven by the driver in a very high speed and in a negligent manner. The driver lost control and did hit into a tractor trolley and the appellant suffered from 100% disability and injury in the backbone but however Mr Kapoor escaped injuries. The appellant was moved to Rohtak Hospital in Delhi. The appellant filed a claim petition which was disposed of by learned P.O MACT vide impugned judgement dated 15/07/2008. And thus the tribunal awarded a sum of Rs 10, 11,032/- which included stationary award of Rs 25,000/- already paid to the appellant plaintiff; plaintiff is not entitled to sue the defendant.

Contract of indemnity covers only when the loss is caused that was mentioned in the terms of contact and that to by the indemnifier himself or any other third party. That is promisor accrues to promise when promise is damnified.  Suit before actual loss is premature. In the case of Abdul Hussain Shaikh gulamali Jambawalla V. Bombay Metal Syndicate[7] the plaintiff and sold goods and had also recovered the amount against it.In the letter dated October 11, 1957, the defendants stated: “In respect of the transactions under your invoice x x x x x dated 25th September 1957 we do hereby indemnify you against any amount of sales tax that may be levied by the authorities with or without any guarantee thereof, as the case may be, as and when charged”.

[1] Henry Campbell Black, Black ‘s law dictionary 837 ( 9th edn 2009)

[2] K.P Ram  Kappa Chattier v. Sperm Mr. Ram swami  Chettiar,33AIR ,472, (Mad.1946)

[3] Somali Jamal & sons v. Goal Purushottam ,208, AIR,(Cal.1929)

[4]  Avtar Singh,Contract & Specific Relief Act 574(11th edn 2013)

[5] Indian Contract Act 1972, M.Mahmood, 974

[6] Subhash v National Insurance Corporation,4,582(Mah LJ .2010)

[7] Abdul Hussain Shaikh gulamali Jambawalla V. Bombay Metal Syndicate ,252,AIR, (Bom. 1972)

Add a Comment

Your email address will not be published. Required fields are marked *