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CONTRACT OF INDEMNITY- UNDER ENGLISH AND INDIAN LAW

INTRODUCTION:

Contract of indemnity:

A contract of indemnity is a legal agreement that involves one party who promises to compensate or reimburse another party in the event of loss or damage, it is a form of protection against any financial loss or legal obligations[1]. However several differences exist in relations laws in India and England concerning the contracts of indemnity.

LAWS GOVERNING:

Laws that govern the contract of indemnity in India and England differ due to their distinct legal systems and their respective jurisdictions. In India, indemnity is governed by The Indian Contract Act, of 1872 under sections 124[2] and 125[3] which defines indemnity and sets a legal framework for guiding the contract of indemnity and the rights and liabilities of the parties involved. In England indemnity is governed by common law principles that are developed through case laws, precedents and judicial decisions of the judges, the principles of equity and fairness also influence the interpretation and application of contract of indemnity in English law. This can be observed in landmark cases like Adamson v Jarvis[4]in this case the plaintiff mistakenly auctioned off the cattle on the instruction of the defendant believing the defendant to be the true owner but it turned out that the cattle belonged to another person and the defendant was not the actual owner of the cattle when the original owner of the livestock made the plaintiff liable he, in turn, sued the defendant indemnity for the loss he suffered by following the defendant’s instructions, the court observed that the plaintiff acted on the defendant’s request and therefore the plaintiff is entitled to claim indemnity. similarly, in the case Dugdale v Lowering[5]the plaintiffs had goods which were claimed by two parties including the defendant. The plaintiffs asked for an indemnity bond when the defendants demanded the delivery of trucks but received no reply. Nevertheless, the plaintiffs delivered the trucks. Here the plaintiffs were entitled to recover indemnity as it was considered to be an implied contract of indemnity since the plaintiffs had made it clear that they made the delivery only on the condition that they needed to be indemnified Both in Indian and English laws precedents and case laws play a vital role in determining and deciding a case, however in India the law is much codified and the provisions are given more significance while dealing with contracts of indemnity

SCOPE OF LIABILITY:

Under English law, the term loss has a wider and broader scope where loss by any means including natural factors like fire and water also comes under the realm of indemnity, here except for the contract of life insurance every other insurance falls under the indemnity.

But in India, the scope of indemnity is much narrower and is restricted to only damage or loss caused by human conduct. Section 124[6] of the Indian Contract Act 1872[7], while defining a contract of indemnity explicitly states that “a contract by which one part 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”[8]. From this definition, it can be deduced that the loss caused due to natural events or acts of god is not covered under this section. For example, loss due to a fire accident or shipwreck is excluded from a contract of indemnity. Contracts of insurance are also outside the scope of indemnity and fall under contingent contract and cases like Adamson v Jarvis are also not included under indemnity[9].

COMMENCEMENT OF LIABILITY:

Under the original English rule, the indemnifier will be held liable only after the indemnity holder or the indemnified has suffered an actual loss by paying off the claim. This is based on the legal Maxim “you must be damnified before you are indemnified” which means that the indemnity holder should have been in any kind of loss or damage for which he has settled the claim by paying the sums

Under English law, it can inferred that for a contract of indemnity to commence and to hold the indemnifier liable certain essentials[10] must be satisfied which includes that,

  1. The indemnity holder should’ve suffered any loss or damage 
  2. The indemnity holder should have settled the loss by paying off his claim 
  3. He should not have acted contrary to the conditions and instructions of the indemnifier and must comply with the directions of the indemnifier[11]

This applies not just to loss but also to the damages resulting from the breach of contract by the indemnifier and in the case of defending or pursuing legal action against a third party’s claim.

But the law in India is different, it has made certain modifications to the original rule, it was established in the well-known case of Gajanan Moreshwar Patellar v Moreshwar Madan Mantri[12], where the court observed that this rule may pose an intolerable burden upon the indemnity holder because he may not be in a position to satisfy the claim but he cannot hold the indemnifier liable to pay for the sums. and in the case of maintaining a legal suit, under certain circumstances, he may not be able to bear the legal expenses but he has to wait until the judgment has been pronounced to make the indemnifier liable, in this case, it has little and no concern towards the indemnity holder[13]. In the landmark judgement Richardson re ex parte the governors of St. Thomas hospital, the court emphasised that the scope of indemnity should not be limited to only reimbursement of sums. Hence the court of equity stepped in and observed that repayment after payment is not mandatory[14]if there exists an absolute liability on the part of the indemnifier the indemnity holder is entitled to call upon him the pay the claims to the creditor or the court and needs not wait until the claim is paid to make the indemnifier liable. In the case, Osman Jamal and Sons v Gopal Purushottam[15]the high court of Calcutta held that the official liquidator is eligible to get the payment even though the company has not paid the vendor[16].

CONCLUSION:

In conclusion, the laws and the concept of indemnity in India are similar to some extent to the laws in England. However, they differ in terms of their scope and liability, the consideration and understanding of these differences are significant in the interpretation and application of indemnity laws when dealing with contracts, as these laws and precedents may tend to influence the rights and obligations of the parties involved.

Author(s) Name: Kavinila.S (TamilNadu Dr.Ambedkar Law University)

Reference(s):

[1]The Indian Contract Act,1872

[2]The Indian Contract Act,1872

[3]he Indian Contract Act,1872

[4]Adamson v Jarvis [1827] 4 BING.66:29 R.R 503

[5]Dugdale vLowering [1875] 32 LT 155

[6]The Indian Contract Act,1872

[7]The Indian Contract Act,1872

[8] The Indian Contract Act,1872

[9] ‘Contract of Indemnity: Comparison of Indian laws and English law’ (Law Essentials 2022) <https://lawessential.com/miscellaneous/f/contract-of-indemnity-comparison-of-indian-laws-and-english-law?blogcategory=Miscellaneous>accessed on 13 October 2023

[10]Avatar Singh,” Contract and specific relief” (Eastern Book Company 11th and 2013), 572

[11]Burhar ‘Indian law of indemnity and the English law of indemnity- an analysis’ (legal service India) <https://www.legalserviceindia.com/legal/article-5725-indian-law-of-indemnity-and-english-law-of-indemnity-an-analysis.html> accessed on 2o November 2023

[12]Gajanan Moreshwar Patellar v Moreshwar Madan Mantri[1942]44 BOMLR 703

[13] Burhar ‘Indian law of indemnity and the English law of indemnity- an analysis’ (legal service India) <https://www.legalserviceindia.com/legal/article-5725-indian-law-of-indemnity-and-english-law-of-indemnity-an-analysis.html> accessed on 14 October 2023

[14] Sakshi ‘Richardson re ex parte the governors of St. Thomas hospital’ (course hero 2019) <https://www.coursehero.com/file/p542oqh/Richardson-Re-ex-parte-The-Governors-of-St-Thomas-Hospital-6-Where-Buckley-LJ/> accessed on 14 October 2023

[15]Osman Jamal and Sons v Gopal Purushottam [1928] AIR 1929 Cal 208, 118 Ind Cas 882

[16]Avatar Singh,” Contract and specific relief” (Eastern Book Company 11th and 2013), 571-577