Concept Of Indemnity

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Indemnity literally means “security against a loss” and is a term that is used not just in a contractual context. According to Black’s Law Dictionary, indemnity can be defined as “ the right of an injured party to claim reimbursement for its loss, damage or liability from a person who has such a duty” The term ‘indemnity’ was generally used for insurance contracts, but it should be noted that Life insurances does not come under the ambit of contract of indemnity, as it was held in the case of Oriental Fire and General Insurance Co v. Savoy Solvent Oil Extractions Ltd.

The concept of indemnity even though was introduced by the government of the crown, when India was a colony under the British empire, there exists a significant difference between
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The plaintiff an auctioneer, sold certain cattle on the instruction of the the defendant. It subsequently turned out that the livestock didn’t belong to the defendant, but to another person, who made the auctioneer liable and the auctioneer in turn sue the defendant for the loss he had thus suffered by acting on the defendant’s direction. The court laid down that the plaintiff having acted on the request of the defendant was entitled to assume that, if, what he did turned out to be wrongful, he would be indemnified by the defendant. Hence, from this case law it can be understood that indemnity in English law means a promise to save a person harmless from the consequences of an act. The promise may be express or it may be implied from the circumstances of the case.

Whereas, according to Section 124 of the Indian Contract Act, 1872, a contract of indemnity is “a contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person”. Which in in most simple meaning says a contract of indemnity is one in which there is a promise to compensate for another’s
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Section 125 of the Act, deals only with the rights of the indemnity-holder in the event of his being sued. It is by no means exhaustive of the rights of the indemnity-holder, who has other rights besides those mentioned in the section. It was further discussed that an indemnity might be worth very little indeed if the indemnified could not enforce his indemnity till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a judgment was pronounced, and it was only after he had satisfied the judgment that he could sue on his indemnity. It is clear that this might under certain circumstances throw an intolerable burden upon the indemnity-holder. He might not be in a position to satisfy the judgment and yet he could not avail himself of his indemnity till he had done so. Therefore, the Court of equity

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