When does the indemnifier's liability commence under the ICA,1872?
When does the indemnifier's liability commence under the Indian Contract Act, 1872?
Section 125 of Indian Contract Act does not specify the time of commencement of indemnifier’s liability. Different High Courts have made differing observations and given different verdicts. Kolkata, Allahabad and Patna High Court have held that the indemnity-holder can claim such indemnity as has been promised to him when he called upon to perform an act or pay the damages against which he has been indemnified. In other words indemnifier’s liability is concurrent with that of indemnity holder’s. for eg: S gives a stolen item to A for auction and A asks for indemnity if he is sued by the owner of that item. A is entitled to claim damages as soon as he is sued by the owner-he need not wait till he makes payment of such damages.
But the Mumbai, Lahore and Nagpur High Courts have given contrary verdicts. The Courts have held that the indemnifier’s obligation arises only when the indemnity holder has actually performed his obligations. In other words the indemnity is only a reimbursement of the loss suffered by the indemnity holder.
Of the two schools the first is akin to English interpretations. In the case of parker v. Levis the Court observed that if a person expressly indemnifies somebody and the suit is filed in the court of law then the indemnity holder can ask the indemnifier to protect him. If the indemnifier does not do so then the holder of indemnity is entitled to make a settlement on his own terms and later sue the indemnifier under the contract of indemnity. Justice Chagla made a similar observation in the case of Ganjan v. Moreshwar when he said that “ if the indemnified has incurred a liability and it is absolute he is entitled to call upon the indemnifier to save him from that liability and pay it off.” Justice Backely has commented on this in the words “ Indemnity is not given by repayment after payment. Indemnity requires that party to be indemnified should never be called upon to pay.”
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