Indemnification Contract

Forums The Indian Contract Act, 1872 Indemnification Contract

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      Q. How many parties are involved in an indemnification contract, and what are the important elements?


      Section 124 of the Indian Contract Act, 1872 defines the contract of indemnification. According to Section 124 of the Indian Contract Act, 1872 “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.” In simple words, an indemnity agreement is a contract between two parties. In this contract, one party promises to compensate the other for any prospective losses or damages. The main goal of entering into an indemnification contract is to safeguard the promisee from any damages or loss. The loss could be caused by the promisor’s or another person’s actions. In the old English law, Indemnity was defined as “a promise to save a person harmless from the consequences of an act. Such a promise can be express or implied from the circumstances of the case”.

      As a result, there are two parties involved in the Indemnity Contract. The following are the two parties:
      a. A person who protects against or compensates for the loss caused by damage, often known as a promisor or indemnifier.
      b. The other person who is compensated for a loss, also known as the promise or indemnified/Indemnity-holder.

      The basic concept of indemnity is that a person (indemnitor/indemnifier) is compelled to compensate another person (indemnitee/indemnity holder) for a specific loss he or she has sustained.

      The following are some important aspects provided by this definition:
      a. A loss is necessary.
      b. The loss must be caused by the promisor or someone else.
      c. The indemnifier’s liability only covers damages and loss.

      As a result, it’s evident that this contract is conditional, and it’s only enforceable if the loss occurs.

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