Open Access Research Article
CONTRACT OF INDEMNITY: OLD ENGLISH LAW, NEW ENGLISH LAW, AND INDIAN LAW: A COMPARISON - By AARZOO SAHDEV
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Article Details
CONTRACT OF
INDEMNITY: OLD ENGLISH LAW, NEW ENGLISH LAW, AND INDIAN LAW: A COMPARISON
(AUTHOR)
AARZOO SAHDEV
TABLE OF CONTENTS
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Sno.
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Topic name
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1.
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Certificate of Originality
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2.
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Approved Proposal
2.1 Introduction
2.2 Statement of Problem
2.3Objectives of Report
2.4Literature Review
2.5Research Methodology
2.6 6Limitations
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3.
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Rationale
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4.
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Statement of Problem
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5.
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Objectives of the Report
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6.
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Research
DISCUSSING OBJECTIVE
1&2
6.1 Indemnity under the
Indian Context
6,2 Indemnity under the
English Context
6.3Distinction between
Indemnity laws under ICA and English law
6.4 Distinction between
Indemnity under Old English law and New English law
DISCUSSING OBJECTIVE 3
6.5 Rights of an
indemnifier
6.6Rights of an indemnity
holder
6.7 Literature review (case
study: Employer’s indemnity)
DISCUSSING OBJECTIVE 4
6.8 Views and Suggestions
of the 13th Law Commission Report, 1958
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7.
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Conclusion and Analysis
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8.
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Research Methodology
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9.
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Limitations
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10.
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References and Bibliography
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CERTIFICATE
OF ORIGINALITY
1. I, Aarzoo Sahdev certify that the
paper details my own original research. All sources are properly acknowledged
in the paper. To the best of my knowledge, all of the work mentioned in the
paper e is original, and no parts have been taken or reproduced without
the proper authorization from other sources.
2. The current manuscript/paper has
not yet been accepted for publication anywhere in any format (in any language)
and is not currently being considered for publication anywhere in any format.
3. I confirm that the above
statements are correct and that the paper contains nothing defamatory.
4. To the extent that the work
contains text passages, figures, data, or other material from the works of
others, the undersigned warrants that the work is original that she is the
author of the work and that the undersigned has secured all required
permissions.
Place: Rohtak, India
Date: 15 October 2022
RATIONALE
The rationale of this report is
mainly centered around the comparison of the indemnity laws in the Indian and
English contexts.
According to the Indian Contract Act of 1872,
an indemnity contract is one in which one party promises to protect the other
from any losses incurred as a result of the promisor's own or another party's
actions.[1] According
to Section 124 of The Act, indemnity is defined as a risk transfer mechanism
between two parties: the party from which the risk is transferred and the party
making the risk commitment. The indemnified/promisee or indemnity-holder is the
former; the promisor or indemnifier is the latter.
A particular maxim found in Old English
law provides a summary of what it actually implies in that system, " You
Must Be Damnified Before You Can Claim to Be Indemnified ".[2] From the
foregoing, it follows that the English legal system prioritized the loss rather
than the cost of covering the loss. The analogy that best shows the English
law's element of indemnity is that you cannot expect the doctor to mend a
broken bone unless and until you have really broken one. A promise that the
indemnity holder may never be called upon to pay is known as an indemnification
in English law. A promise of this nature may be made explicitly or inferred
from the facts of the case. [3]
The report seeks to discuss the view
of the 13th Law Commission Report, 1958 as well as its suggestions
on expanding the scope of indemnity under Indian law.
STATEMENT OF PROBLEM
Considering that only losses
caused by human agency are covered by indemnification under Indian law, the
scope of indemnity is narrower under English law. The Law Commission of India
advised that indemnity (under the Indian Contract Act, 1872; hereafter referred
to as ICA) should also cover situations where losses may or may not
occur as a result of a person's action (similar to English law) in its
13th report in 1958. By broadening the section's applicability and making it
more ubiquitous in diverse circumstances, this was suggested to extend the
scope for compensation and include more opportunities for indemnification
of losses. However, the
recommendation has not yet been implemented.
The research seeks to discuss whether
or not this suggestion should be implemented, in India. To explore whether or
not the scope should be expanded the portion on Indemnity, covered by the 13th
Law Commission Report, 1958 has been vividly discussed and conclusions have
been drawn from the same.
OBJECTIVES OF THE REPORT
Aforementioned are the objectives of
the report, these objectives have been discussed in the same order as they have
been listed:
?
To discuss, evaluate and comprehend the differences and
similarities between English law and Indian law, as pertains to the Contract of
Indemnity as well as the difference between the Old and the New English law
relating to the same
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To analyze landmark judgments, which set precedents and
contributed to the development of English and Indian law, vis a vis the
Contract of Indemnity
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To enumerate the rights and duties of the indemnifier and the
indemnity holder, under the Indian context, and include a case study on
“Employer’s Indemnity”, under the Indian context
?
To assess whether or not the scope for the Contract of Indemnity
should be expanded in India, making it similar to the English law
DISCUSSING OBJECTIVE 1: To discuss, evaluate and comprehend the
differences and similarities between English law and Indian law, as pertains to
the Contract of Indemnity as well as the difference between the Old and the New
English law relating to the same.
And
DISCUSSING OBJECTIVE 2: To analyze landmark
judgments, which set precedents and contributed to the development of English
and Indian law, vis a vis the Contract of Indemnity.
INDEMNITY UNDER THE INDIAN CONTEXT
According to Section 124 of the
Indian Contract Act of 1872, a contract of indemnity is one in which one party
promises to protect the other against loss brought on by the guarantor's own or
another party's actions.
For instance, X could consent to act
as a guarantor for his student son Y, meaning that X would be obligated to make
payments on Y's behalf if Y was unable to pay his rent and monthly costs to Z
(a PG), making up for the damages Z.
In agreements between occupants and
property owners, indemnity clauses are frequently used. Residents agree to hold
the property owners harmless from any costs or damages incurred as a result of
injuries sustained on the property while the property owners assume
responsibility for anything that may be dangerous or unsettling.
A minor indemnity clause will not
prevent the occupant from suing if the incident was caused by the property's
minor disrepair, for example, if the owner is indemnified from damages if the
occupant gets hurt on the property accidentally. However, if the owner is
regularly informed that a particular area of the property is dangerous and likely
to cause some damage and injuries to the occupant.
The definition of an indemnification
contract includes both express and implied guarantees. The Indian Contract Act of 1872 deals
with implied indemnification situations under Sections 69, 145, and 222.
Essentials
of a Contract of Indemnity:
-To guarantee that an aggrieved party
has a specific remedy to address bugs or faults in products or services
delivered under the Contract, it is an absolute promise to compensate for
defined loss or injury.
-It is a promise to make good on or
take precautions against loss, harm, or damage.
-In general, it covers all contracts
for security, guarantee, etc. It is an independent contract rather than a
supplementary one.
-It is a method for determining
risk-based accountability.
-Wherever feasible, indemnity clauses
should specify the circumstances under which compensation will occur. They must
be concise and straightforward.
Discussed further are the landmark
cases of indemnity covered under Indian law, namely Gajanan Moreshwar Parelkar
Vs Moreshwar Madan Mantri (1942), which was tried in the Bombay High Court and
the judge presiding was Justice Chagla and Osman Jamal & Sons Vs Gopal
Purshottam (1942). The facts, issues, observations and judgments of the court
have been discussed.
Landmark Indian Cases on Indemnity
Gajanan Moreshwar
Parelkar vs Moreshwar Madan Mantri[4]
Facts
Facts: For 999 years, Plaintiff has
rented land from BMC. The plaintiff granted the defendant's request to hold the
property so he could construct a structure there. Over time, the plaintiff also
mortgaged the property for pending payments from the defendant to the material
supplier totaling Rs. 10,000. In exchange for the plaintiff being released from
all obligations related to the land, the lease of the plot was also transferred
into the defendant's name. However, the defendant did not absolve the plaintiff
of the debts for which the plaintiff had brought a lawsuit. The plaintiff
requested that the defendant hold him harmless from all obligations arising
from the mortgage and deed of additional charge.
Issues:
Is an actual loss necessary to obtain
compensation from the indemnifier?
If the plaintiff had not yet suffered
a loss, was this claim for indemnity premature?
Observations:
Justice Chagla held as follows:
“It is true that under the English
common law no action could be maintained until actual loss had been incurred.
It was very soon realized 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 stepped in and
mitigated the rigor of the common law. The Court of equity held that if his liability had become
absolute then he was entitled either to get the indemnifier to pay off the
claim or to pay into Court sufficient money which would constitute a fund for
paying off the claim whenever it was made.”
Decision:
The case was decided in favor of the
plaintiff.
Osman Jamal and Sons Limited v. Gopal Purshttam ILR (1929) [5]
Facts:
A business was working in the
position as the defendant firm's commission agent when it made purchases of
specific products on behalf of the defendants, which they neglected to do. The
supplier gained the right to recover from the business a specific amount of
money as compensation for the breach. The claim wasn't paid because the company
went into liquidation.
Issues:
?
Whether
the defendant liable to indemnify the plaintiff even though the latter had not
actually paid the vendor?
Decision:
It
was decided that even though the business hadn't actually paid the vendor, the
Official Liquidator may still get their money back. However, the court ordered that the
money be held aside so that it can be utilized to pay the vendor in full for
whose contract the business had acquired liability.
INDEMNITY UNDER THE ENGLISH CONTEXT
English law serves as the
foundation for the majority of the Indian law of indemnification that has been
examined in the preceding chapters. The English Law of Indemnity and Indian Law
differ from one another in a few key ways. The Indian Law of Indemnity is a
subset of the English Law, which is a universal set.
According to English law, an
indemnity agreement is "a promise to hold someone safe from loss resulting
from a transaction carried into at the promisor’s instance." Protection
from the effects of any action or circumstance, not just human agency.
Old English Law
The maxim "you must be damnified
before you claim to be indemnified" was developed; it calls for actual
loss.
New English law:
It has been noted that
"indemnity is not necessarily conferred by return after payment" in
the case of Richardson Re, Ex parte The Governors of St. Thomas's
Hospital. The requirement of indemnity is that the party receiving it
never be required to make a payment.
Discussed further are the landmark
cases of indemnity covered under Indian law, namely Richardson Re The
Governors of St. Thomas Hospital, ex parte (1911) and Regional Manager Oriental
Fire And General Insurance Company Madras Vs. Savoy Solvent Oil Extractions Ltd
(1997) The facts, issues, observations, and judgments of the court have been discussed.
Richardson Re The Governors of St. Thomas Hospital, ex parte[6]
Observations and Decisions:
According to Buckley L.J., if the
above amount were distributed among the creditors generally, the creditor whose
claim the debtor was indemnified against would only receive a dividend and
would be entitled to an additional dividend if additional assets were received.
Against this claim, the debtor would have no further rights of indemnity, and
as a result, his indemnification against such a creditor would not be complete
as it had been intended to be.
Let's say A has a claim against B,
but B has a right to indemnity from C.B. in relation to that claim, and C.B.
files for bankruptcy. Is B's bankruptcy trustee in a position where he can
compel the payment of the claim's amount to him and then utilize the money so
obtained for distribution among the creditors generally, as opposed to the case
where he merely pays a dividend on the claim that A has against the bankrupt?
It's not necessary for payment to be made in full to grant indemnity. In order
for there to be an indemnity, the person receiving it must never be required to
make payments.
Regional Manager Oriental Fire and General Insurance Company Madras Vs.
Savoy Solvent Oil Extractions Ltd [7]
It was determined that a life
insurance contract is not an indemnity contract since, in such a transaction,
other factors come into play. For instance, a life insurance contract may
dictate that a certain amount of money will be paid upon a person's death or
upon the passing of a predetermined amount of time (even if the assured is
still alive). In such a scenario, the issue of the amount of loss incurred by
the assured or compensation for it does not come up. Additionally, even if a
certain amount is payable in the event of death, the entire amount insured
becomes due because, unlike property, a person's life cannot be valued.
DISTINCTIONS BETWEEN INDIAN AND
ENGLISH LAW OF INDEMNITY
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Contract of Indemnity under English law
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Contract of Indemnity under Indian law
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1. A contract of
indemnification is defined by English law as "a promise to keep a person
harmless from the consequences of an act."
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1. According to Section
124, a contract of indemnity is defined as "an agreement by which
one party promises to protect the other from loss caused to him by the action
of the promisor himself, or by the conduct of any other person."
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2. The liability under this encompasses losses brought
on by natural disasters such as fires, accidents, and other tragedies as well
as those brought on by the human agency.
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2. The liability of the
promisor arises from loss caused to the promisee by the conduct of the
promisor himself or by the conduct of another person. [Punjab National Bank v
Vikram Cotton Mills]
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3. Wider scope as compared to the Indian law of
indemnity.
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3. Scope is narrow as compared to English law.
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DISTINCTIONS BETWEEN OLD AND NEW
ENGLISH LAW OF INDEMNITY
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Indemnity under Old English law
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Indemnity under New English law
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1. Maxim followed, “you must be damnified before you claim to
be indemnified”
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1. Maxim followed, “indemnity is not necessarily given by
repayment after payment.”
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2. Required actual loss before
payment was made.
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2. The requirement of indemnity is
that the party receiving indemnity never is required to make a
payment.
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DISCUSSING OBJECTIVE 3: To enumerate the rights
and duties of the indemnifier and the indemnity holder, under both laws, and
include a case study on “Employer’s Indemnity”, under English and Indian
Scenario
RIGHTS OF AN INDEMNIFIER
The Indian Contract Act, 1872 is
silent on this aspect.
RIGHTS OF AN INDEMNITY HOLDER:
SECTION 125
Rights of the Indemnity Holder in a
Lawsuit— Acting within the scope of his authority, the promisee in an indemnity
agreement is entitled to recover from the promisor:
(1)
all
damages that he may be required to pay in a lawsuit involving any matter to
which the promise to indemnify applies; In other words, the established
obligation to pay the last arises for the indemnifier at the primary site when
a third party brings a claim against the indemnified.
(2)
all
costs that he may be required to pay in a lawsuit involving any such matter if,
in bringing or defending it, he did not disobey the promisor's instructions and
acted as it would have been prudent for him, In one instance, A urged B to sell
some products to C by lying to B about who owned them and posing as the owner.
Real owner D. filed a lawsuit against B following the sale. After B was ordered
to pay the cost, B filed a lawsuit against A to rely on this clause, and the
judgement was upheld in his favour.
(3) Any payments he may have made in
accordance with any compromise of a similar lawsuit, provided that the
compromise complied with the promisor's instructions and was one that the
promisee would have made if there had been no contract of indemnity or if the
promisor had given him permission to do so. Any agreement for less than the
whole amount is arbitrary, unfair, and in violation of Article 14 of the
Constitution.
LITERATURE REVIEW/CASE STUDY ON EMPLOYER’S
INDEMNITY
The following is a literature review
of the: “Employer’s Indemnity Action”[8],
by John C. Folkenroth :
INTRODUCTION
The established principle of a
master-servant relationship is that masters are liable for the wrongdoings that
their subordinates commit while working for them (in the course of
employment) However, given that (the master) is not at fault himself,
is it valid hat even the master may seek reimbursement or
indemnification from the servant's tortious actions and the damages paid
to third parties? It is argued that this indemnity option is rarely utilized by
employers because they worry about negative impacts on worker productivity in
addition to objections from labour unions. As a result, given that this area of
contract law is comparatively underdeveloped, a study of the rule in relation
to the literature review has been conducted below.
NARRATION
In the American case of Ocean Steam
Navigation Co. v. Compania Transatlantica Espanola[9],
where it was argued that any individual who endures a loss as a result of
another individual's actions has a right to be reimbursed, whether or not there
was an express contract between them, the employer's indemnity
first garnered public acknowledgment here, in this instant case. Later
cases affirmed this ruling and argued that the unjust enrichment concept[10] served as
the foundation for it.
However, the early British cases in
this area had their foundation on a contractual basis. In Lister v. Ice and
Cold Storage Co.[11]
, the House of Lords ruled that a truck driver is responsible for
compensating his company for the costs associated with compensating an injured
pedestrian. The House made the case that an employment contract logically
entails that the employee has a duty to use reasonable skill and care.
Therefore, the master would have a cause of action against his servant for the
breaking of an implied condition of contract in situations when employees are
careless.
LATER
APPLICATIONS
The author then asserts that the
"deep pocket theory" can adequately explain the justification for
demanding damages for master's negligence. Due to the servant's lack of
resources and the fact that the employer gained from the servant's actions that
caused the damage, the master is required to make payment.
CRITICISM
When examining the reasons for the
employer's court-filed indemnification action, the author heavily relies on the
Lister case[12]. This
case, however, has been criticized for citing irrelevant precedents. In its
ruling, the Harmer v. Cornelius[13]
case—often cited—held that an inept scene-painter could be fired before the end
of his term. The Lister case, which involved a single unintentional act by an
otherwise qualified truck driver who had been working for his company for the
better part of 20 years[14], does not
fit the parallel. The Harmer case, which discussed ability rather than
perfection, was therefore not relevant in this instance.
INDIAN
SCENARIO
The Indian Contract Act of 1872's
Section 124 addresses the topic of legal indemnity. It outlines three key
characteristics of any indemnity contract: 1) A promise from the indemnifier to
the indemnity-holder; 2) A promise to protect the indemnity-holder from loss,
and 3) A promise that the extent of the loss is limited to that brought on by
human conduct. The last factor leads to the conclusion that the Act's
definition of indemnity is a very narrow one, even in cases of Employee’s
indemnity.
CONCLUSION
The researcher takes issue with the
author's methodology for reaching the same conclusion, even though he does
agree with the author's end conclusion that only actions of extreme negligence
should be covered by an indemnity right.
The deep pocket idea chokes off any
booming sector, regardless of how infrequently it is applied. The suggestion to
stop using insurer subrogation is also unrealistic. Without rights of
subrogation, few insurance companies would actually sell coverage to the
employee. It is a universally recognized premise.
DISCUSSING OBJECTIVE 4: To assess whether or
not the scope for the Contract of Indemnity should be expanded in India, making
it similar to the English law- based on the 13th Law Commission
Report
VIEWS AND SUGGESTIONS OF THE 13th
LAW COMMISSION REPORT,1958 ON THE LAWS GOVERNING INDEMNITY
This report's primary goal was to
trace the history of the Indian Contract Act and all of its modifications.
Another goal was to revise both the Act and the Contract of Indemnity.
The Law Commission believes that
Section 124 of the Indian Contract Act, which defines indemnity under Indian
law, is insufficient because it does not define all of the various aspects of
indemnity. The same was said of Section 125 of the Act, where the rights of the
promissee are again not addressed by Indian law. The courts frequently must rely
on Indian common law, which is identical to English law in this regard. [15]
According to the Commission,
indemnification is defined in English law as a promise to protect the promisee
against loss resulting from occurrences or accidents that may or may not be
dependent on other people's behavior, or from responsibility stemming from
whatever the promisee does at the promisor's request. A contract may be
expressed or implied in order to create an indemnity
right. This essentially broadens the definition of implied contracts
for indemnity when someone acts on another's demand and causes harm to a third
party; the one who makes the demand is responsible for compensating the person
who complies.
The Commission believes that the definition in Section 124 of The Indian
Contract Act needs to be modified and changed in order to incorporate the other
type of indemnity, which covers damages from accidents, natural disasters, and
other causes as well as implicit indemnity as a concept.
The commission goes on to claim that
Section 125 of The Act is insufficient since it does not identify all of the
promisee's rights, which are many. A few courts and the judiciary have backed
the idea that the promisee can exercise his right to indemnity and be released
of all liabilities by the promisor even if he has suffered any actual loss,
while others have disagreed. The Law Commission, however, concurs with the
indicated viewpoint. The Commission noted the following in an effort to further
explain the idea since the courts that backed the viewpoint followed the
English Law of Indemnity.
Even in the absence of such an unique
agreement, the person entitled to the indemnity may assert his right to do so
as soon as his duty to the third party has emerged. As a result, he may receive
relief prior to actually suffering damage because equity's rules now govern all
Courts. Therefore, even when the promisor has no obligation to the third party,
as is the case in contracts of simple indemnity, the promisee himself, he may
in the right circumstances obtain an order compelling the promisor to set aside
a fund from which the liability may be satisfied or to pay the amount due
directly to the third party.[16]
Later on, the commission cites the
Sheffield Corporation v. Barclay[17] case, in
which Lord Davey makes the following remarks. When someone who is vested with a
statutory or common law duty of a ministerial nature is required to exercise
that duty upon the request, direction, or demand of another, (it doesn't seem
to matter which word you use), and without any intentional wrongdoing on his
part acts in a way that appears to be legal but is, in fact, unlawful and a
breach of the duty, and thereby exposes him to liability to third parties,
there is implied by law a contract by the person making[18].
The Law Commission's Recommendations for Additions
The Commission believes that the definition in Section 124
of The Indian Contract Act needs to be modified and changed in order to
incorporate the other type of indemnity, which covers damages from accidents,
natural disasters, and other causes as well as implicit indemnity as a concept.
The suggested amendment to Section
124 is as follows:
A contract of indemnity is one in
which one party expressly or imply promises to protect the other against loss
brought on by the conduct of the promisor, the conduct of another party, or the
conduct of an event unrelated to the action of the promisor.
As previously mentioned, the creation
of a brand-new section called Section 72 A
72 A. When an implied contract of
indemnity may be used. Without a specific agreement to the contrary, the person
performing an act at the request of another is entitled to be compensated by
that person if the conduct proves to be harmful to a third party's rights
despite the act not being plainly tortious to the person performing
its knowledge.
Following is recommended in light of
the Law Commission's assessment of the rights set forth in Section 125 of The
Act:
125A Rights of Indemnity Holder:
When liability has arisen against him
in favor of a third party, the promisee under a contract of indemnity may,
acting within the bounds of his authority, obtain against the promisor, in the
proper case, a decree compelling the promisor to set aside a fund out of which
the promise may meet such liability or directing the promisor to discharge such
liability himself.
Regardless of whether any actual loss
has been suffered and even in the absence of the kind of suit mentioned in
section 125, the promisee may bring a claim under this section.
CONCLUSION AND ANALYSIS
Although there are several gaps in
the legislation outlined in the Indian Contract Act of 1872 about the
indemnity's qualities, indemnity under an indemnity is fully developed. The Act defines indemnification in a
limited sense as a contract wherein the indemnifier commits to defending the
indemnified party against any harm caused to it by the indemnifier's own or
another person's conduct.
Surprisingly, this definition does
not include indemnification for damages that may arise from situations that are
not always related to the actions of the indemnifier or any other person, such
as loss brought on by a fire or an unforeseen accident.
Similar to this, the party being
indemnified may be held liable for actions taken at the request or direction of
the indemnifier. The majority of principal-agent relationships can use this.
Even though there is a gap in the law, the courts have stepped in to fill it
and determined that the Indian Contract Act does not include all aspects of the
law governing indemnity. There are instances where courts have expanded the
indemnity to include these circumstances.
This issue was acknowledged by the
Law Commission, which in its 13th report suggested broadening the concept of
indemnity
. Thus, a modification to the Indian
Contract Act is desired to provide more certainty and clarity regarding this
issue. Due to this, the
courts historically held that the party being indemnified could only file a
claim for indemnification after being sued and suffering damages. However, in
later rulings, courts have decided that if this viewpoint is accepted, it would
place an unacceptable burden on the party being indemnified because they would
not be able to use the indemnity until they had paid the damages.
If an indemnified party can convince
the court that there is a valid claim against him or her and that the contract
of indemnification covers the claim, then the indemnified party may bring legal
action against the indemnifier even before suffering any actual
damage. Thus, a standard indemnity clause offers protection from any and
all losses, claims, and liabilities that may arise in connection with the
specified transaction, regardless of how they may arise.
Considering the economics of the
transaction, it is crucial from the standpoint of an indemnifying party to
include carve-outs for these kinds of losses and preferably have a cap on the
maximum responsibility that the party is ready to accept.
Any illogical, arbitrary, or
unconscionable clause in a contract is subject to judicial examination, and
courts have the authority to limit the extent of such a clause. This is
something that should be kept in mind while drafting indemnification clauses in
contracts.
A contract to indemnify means more
than just a contract to refund for money spent; it also, in a derived sense,
refers to the indemnifier's obligation to defend the party being indemnified
from a third-party claim.
Sec. 124 of the Indian Contract Act,
1872, which defines what indemnity means under Indian law, only focuses on one
type of indemnity and does not specify what the judiciary should focus on in
cases where the other types of indemnities, such as those arising from the
conduct of phenomena, such as thunder causing a fire or earthquakes, etc., are
present. It also does not mention the implied form of indemnity, which the High
Court later clarified in its decision in the case of Secretary of State vs. The
Bank of India[19].
Because of the aforementioned,
contracts for insurance are not covered by contracts for indemnities. However,
the legislative and definition of English law both cover a wide range of
express and implied indemnities. However, life insurance policies are not
regarded as indemnities under English law. One cannot claim the indemnity until
they have not experienced any of the losses specified in the contract, which
defeats the entire purpose of indemnity under Indian law's definition and
allocation of rights to the promisee. The promisee, who is unable to cover the
losses in his or her own capacity, is in a helpless situation that presents a
significant problem for the courts.
This has its origins in English law,
which upholds the same rights for the promisee and adheres to the dictum that
damnation comes before compensation. Later on, though, it was overturned by equity
courts in England and even in Indian law, although not by a change in the
legislation itself, but rather through a case law known as Gajanan Moreshwar
Parelkar vs. Moreshawar Madan Mantri.
In its thirteenth report, the Law
Commission of India acknowledged both of the aforementioned issues and went
into further detail before recommending changes to the Indian Contract Act,
1872. The Law Commission even advises adding a brand-new Section 72(A) that
classifies indemnity as a form of quasi-contract. Finally, it advises changing
Section 125 to reflect the required language stating that the promisor is
nonetheless liable even if the promisee does not incur a loss. Even though
English law and Indian law differ from one another, they are comparable in
several ways. However, not enough to refer to them as the two halves of the
same coin. Both states' laws about the genuine nature of indemnity have gaps in
them. However, these loopholes are being rectified in accordance with needs
along with jurisprudence and court proceedings.
The development of legal concepts and
the improvement of existing ones are facilitated by reports like the Law
Commission Report. The English Law and its provisions should be upheld by the
Indian Courts, but not to the extent that they become wholly dominated by it.
In the recent past, the IT sector has
seen a significant increase in the execution of indemnification contracts.
There are several circumstances or scenarios in which the continuation of an
indemnity can have a significant impact for some people while having little or
no impact on others. The law of contracts has a novel idea known as the
"Indemnity Lottery," which holds that outcomes in civil indemnity
proceedings are always unpredictable.
In conclusion, an indemnity is a very
helpful condition characterized that may be used to give the party being
indemnified a form of guaranteed payment in the event that the other party
makes a claim against it that actually belongs to the indemnifier.
RESEARCH METHODOLOGY
RESEARCH DESIGN
For this research, I have adopted
both empirical and theoretical research designs. Empirical research is based on
information accumulated by unique trials or perceptions, while theoretical
research design analyzes and makes associations between observational examinations
to characterize or propel a hypothetical position.[20]
For the theoretical research aspect, peer-reviewed journals, articles, and
papers on relevant topics such as “Contract of indemnity V Contract of
guarantee”, “Rights of an indemnifier”, “Scope of indemnity under English and
Indian law” have been referenced and cited.For the empirical research, I have
conducted and analyzed a CASE STUDY gathering information about how Employee's
indemnity plays out in English and Indian context. The research gathered from
the case study has been rigorously analyzed and put into the context of the
main research.
NATURE/SOURCE OF DATA/INFORMATION
The data gathered for this research
is from a theoretical point of view. It has been gathered from peer-reviewed
journals and articles, legislations, and statues. For the empirical research, a
case study, which is Employer’s indemnity has been carried out. A literature
review of an accredited published paper (by John C Folkenroth) on the same is
done.
LIMITATIONS
Liability issues can never be
resolved with a straightforward indemnity clause. The law tends to be against
people who try to avoid responsibility for their conduct or who seek an
exemption from responsibility. A careless party shouldn't be allowed to totally
shift all claims and damages filed against him to another, non-negligent party,
and this is the main justification for this. For e.g. An amusement park ticket
states that a person visiting the park cannot hold management accountable for
any accidents of his or hers owing to ride malfunctions or other occurrences.
However, because it is not founded on a contract, such a defence rarely
prevails in court.
Even though the 13th Law
Commission Report, 1958 suggested widening the scope of indemnity in India to
include acts other than those in human agency, the implementation of such will
increase the liability of the indemnity holders to a greater extent and there
were will be surmountable questions as to the equity and justice in such.
Moreover, Sec 124[21] defines a
contract if indemnity as a contract “… 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” , if the scope of the
contracts of indemnity under Indian law are extended, there will be a thorough
rewriting and revision of Sec 124-125[22],
which specify the definition of indemnity and the rights held by an indemnity
holder.
REFERENCES AND BIBLIOGRAPHY
|
ONLINE PEER REVIWED JOURNALS
|
|
Academia, Contract of Indemnity
& Guarantee,
https://www.academia.edu/9012692/Contract_of_Indemnity_and_Guarantee
Wayne Courtney, Indemnities And The
Indian Contract Act 1872, 27 National Law School of India Review 66,
|
|
Academia, Contract of Indemnity
& Guarantee,
https://www.academia.edu/9012692/Contract_of_Indemnity_and_Guarantee
|
|
RESEARCH PAPERS
|
|
16 Quintin Hogg Hailsham of Saint
Marylebone, Halsbury: Laws of England 15 (London Butterworth [u.a.] 6th edi.
|
|
Winfield, Law Of Quasi-Contracts,116-117
(London: Sweet & Maxwell, 1952)
|
|
STATUES AND LEGISLATIONS
|
|
The Indian Contract Act,1872, No.9
of the Acts of The Parliament (India)
|
|
Indian Partnership Act, 1932, No.
9, Acts of Parliament, 1932 (India).
|
|
Sales of Goods Act,1930, No. 5,
Acts of the Parliament, 1930 (India).
|
|
CASES
|
|
Gajanan Moreshwar Parelkar vs
Moreshwar Madan Mantri, (1942) 44 BOMLR 703
|
|
Shankar Nimbaji Shintre vs Laxman
Supdu Shelke, (1940) 42 BOMLR 175
|
|
The Secretary Of State vs The Bank
Of India Limited, (1938) 40 BOMLR 868
|
|
Adamson v Jarvis, 4 Bing 66
|
|
Mohit Kumar Saha vs New India
Assurance Co, AIR 1997
|
|
Krishnaswani Iyer v. Thathia
Raghavian chetty, AIR 1928 Mad 43
|
|
OTHER
|
|
Law Commission of India 13th
report, 1958
|
[1] The Indian Contract Act, 1872, Section
124, No.9, Acts of The Parliament, 1872 (India)
[2] Academia, Contract of Indemnity &
Guarantee, https://www.academia.edu/9012692/Contract of Indemnity
and Guarantee
[3] Wayne Courtney, Indemnities And The
Indian Contract Act of 1872 , 27 National Law School of India Review,
66–68. (2015)
[4] (1942) 44 BOMLR 703
[5] AIR 1929 Cal 208, 118 Ind Cas 882
[6] 2 KB 705, 715 (CA)
[7] 1996 (2) ALT 1005
[8] John C. Folkenroth, The Employer's
Indemnity Action , 34 Louisiana Law Review (1973) accessed from
[http://digitalcommons.law.lsu.edu/lalrev/vol34/iss1/10
[9] 134 N.Y. 461, 31 N.E. 987 (1892). (1892).
[10] United States v. Gilman, 206 F.2d 846
(9th Cir. 1953).
[11] 1957] A.C. 555 (1956)
[12] Supra n.9.
[13] (1858) 141 ER 94
[14] Roscoe Steffen, The Employer's
"Indemnity" Action, The University of Chicago Law Review, Vol. 25, No.
3.
[15] Secretary of State v. The Bank of India,
AIR 1938 P.C 191 (192)
[16] Law Commission of India 13th report, at
49
[17] Sheffield Corporation v. Barclay, (1905)
A.C 399
[18] Winfield, Law Of Quasi-Contracts,116-117
(London: Sweet & Maxwell, 1952)
[19] (1938) 40 BOMLR 868
[20] Collier, N.C., 1910. The
Validity of Contract of Indemnity for Liability to Third Persons Arising Out of
Negligence. Cent. LJ, 71, p.39.
[21] Indian Contract Act, 1872
[22] Indian Contract Act,1872
Article Information
CONTRACT OF INDEMNITY: OLD ENGLISH LAW, NEW ENGLISH LAW, AND INDIAN LAW: A COMPARISON - By AARZOO SAHDEV
Authors: AARZOO SAHDEV
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/11/12
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
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- ISSN 2582-6433
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