|| THE INDIAN CONTRACT ACT, 1872 || Contract of indemnity || Section 124 ||

Meaning of Indemnity: The term 'indemnity' means to make good the loss or to compensate the party who has suffered some loss.

The Contract of Indemnity and Contract of Guarantee are specific types of Contract. The specific provisions relating to these contracts are contained in Sections124 to 147 of the Indian Contract Act, 1872. In addition to these specific provisions, the general principles of contracts are also applicable to such specific contracts.

Contract of indemnity [Section 124] Definition:

A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity”.

Illustration A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.

Meaning of Indemnifier and Indemnity-holder

The person who promises to make good the loss is called the 'indemnifier': In the aforesaid example, A is the indemnifier. The person whose loss is to be made good is called 'indemnity-holder'. In the aforesaid example, B is the indemnity-holder.

Whether Contract of Indemnity Covers the Cases of Loss Caused by the Events or Accidents which do not Depend upon the Conduct of the Promisor or any other Person

If the definition of contract of indemnity as per Section 124 is strictly interpreted, it would not cover the cases of loss caused by the events or accidents which do not depend upon the conduct of the promisor or any other person. In other words, contracts of insurance would be outside the purview of the contract of indemnity. Since the intention of law makers had never been to exclude the contracts of insurance from the purview of contracts of indemnity, the courts in India have decided to apply the same equitable principles that the courts in England do. As per English law, a contract of indemnity is defined as "a promise to save another harmless from loss caused as a result of a transaction entered into at the instance of the promisor." This definition covers a promise to make good the loss arising from any cause whatsoever. Thus, Indian courts follow the English law in respect of contract of indemnity which covers the contracts of insurance also.