Theoretical overview
Rights and duties of indemnifier and discharge : The rights of the indemnity- holder are the duties of indemnifier, and duties of the indemnity-holder are the rights of indemnifier.
Discharge of contract means the termination of contractual relationship between parties.
Parties to the contract of Indemnity:
The contract of indemnity consists of two parties: –
Promisor or Indemnifier:– The person who promises to bear the loss. For eg: ‘P’ is the indemnifier or promisor because he promises to bear the loss of ‘Q’.
Promise or Indemnity holder:– The person whose loss is covered or who are compensated. For example: – ‘Q’ is the promise or indemnity or indemnity-holder because his loss is covered by ‘P’.
Right of the indemnity holder:
- Right to recover damages paid in a suit [Section 125 (1)]:– An indemnity holder has the right to recover from the indemnifier which he may be obliged to pay in any suit in respect of the contract of Indemnity applies.
- Right to recover cost incurred in defending a suit [Section 125(2)]:– An Indemnity holder has the right to recover the cost incurred by him in defending a law suit in the court of law.
- Right to recover amount paid under compromise [Section 125(3)]:– An Indemnity holder has the right to recover the amount paid by him in any compromise under the suit from the Indemnifier
Rights of Indemnifier:
It is a well-known principle of law that where one person has agreed to compensate another, he will agree to do well for his losses, so Indemnifier has right to protect or reimburse himself in any way or means from the losses.
Duties of Indemnity holder = Rights of Indemnifier:-
- Duty to Act Prudently:– Except as otherwise stated in the contract, the indemnifier shall not be indemnified for the loss caused by the negligence of the indemnity holder. In other words, it is the duty of the indemnity-holder to act prudently.
- Duty not to cause any harm or loss:– If the indemnity-holder acts with the intention of causing any loss or damage, the indemnifier shall not be liable for such loss. In other words, it is the duty of the indemnity or holder not to cause harm or harm.
- Duty to comply with the intentions of the Indemnifier:– If the indemnity-holder acts against the instruction of the other party or the promisor, the indemnifier shall not be liable for such damages as the Indemnity holder goes beyond the instructions given by the Indemnifier. In other words, it is the duty of the indemnity-holder to follow the intent of the promoter.
Relevant sections
Section 125 defines the right of indemnity holder
Right to recover damages paid in a suit [Section 125 (1)]
Right to recover cost incurred in defending a suit [Section 125(2)]
Right to recover amount paid under compromise [Section 125(3)]
IMPORTANT CASE LAWS
Bihal Chandra vs. Chattur Sen (AIR 1976 ALL 506):– In this case, the seller had promised the other person to pay against the fees. Court held that the indemnification clause will only include the existing fees and not that subsequently imposed, retrospectively.
Jaswant Singh vs. Section of State 14 BOM 299: – It has been decided that the rights of the indemnifier are similar to the security under section 141 where it is the right to benefit from all the securities that the creditor has against the principal debtor, whether or not he has been aware of them.
Points to remember
- The rights of the indemnity- holder are the duties of indemnifier, and duties of the indemnity-holder are the rights of indemnifier.
- The contract of indemnity consists of two parties , indemnifier and indemnity holder
Discharge of contract means a termination of a contractual relationship between parties. A person is liable to perform contractual duties until he or she is discharged. If the person fails to act without being discharged, responsibility for the loss will arise
