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Indemnity Bond in India: Features, Types and Enforcement

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Introduction: Indemnity Bond

An indemnity bond grants the surety the legal right to collect whatever money the surety has paid out in a claimed circumstance from the principal.

Surety bonds include indemnity bonds. Their aim is to ensure financial compensation for any damage caused by the bonded party's unlawful acts. The principal signs an indemnity arrangement with the surety provider while obtaining indemnity bonds. 

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Indemnity Bond: Types

There are following types of indemnity bond:

  • Supply agreements
  • Licensing agreement
  • Commercial contracts
  • Loan agreement
  • Legal contracts

Requirement of indemnity bond:

An indemnity bond can be needed for a variety of reasons. To exemplify it finds its usage in government schemes of indemnity.

Indemnity bond: Features

The following features that constitute indemnity bond are as follows:

  • The contract of indemnity must entail on good faith and reliance.
  • It only covers the loss caused in actual, which may be caused by the promisor or someone else, and it only covers the loss caused by an incident specified in the contract.
  • It is important to remember that the indemnity contract's consideration or object must be lawful.

Enforcement of indemnity bond

The violation of the provisions of the contract is a requirement for the Indemnity bond to be enforced. The breach of contract creates liability, and the defaulting party is then accountable for compensating the other side.

Indemnity bond: Advantage

An indemnity bond has the benefit of being able to be tailored to cover any kind of anticipated loss. All contracting parties are aware of what will be payable and when. Indemnity bonds facilitate in business culture and ensures money is paid back.

The principal signs an indemnity arrangement with the surety company when applying for indemnity bonds. It specifies that they, rather than the surety, bear complete financial liability in the event of claim of bond.

Contract of indemnity

Certain provisions of the Indian Contract Act, 1872 (“the Act”) define the nature of an indemnity contract and the promisee's rights underneath it.

Defining indemnity: A contract of indemnity, according to Section 124 of Indian contract Act, is "a contract under which one party agrees to save the other from loss caused by the promisor's actions, or through the conduct of some other person." In one way, the meaning in Section 124 is inadequate: a contract is bilateral in nature, but the definition only provides for one party's obligations, but then again, only for one form of obligation. In English situations, the term "contract of indemnity" is often used in a more precise context to define a contract wherein the one party's sole, or only partial, executory promise is to indemnify other.

The word 'indemnity' is a broad term that can be used to define any settlement in which one party is guaranteed to not undergo a loss.

There are two types of ‘indemnity agreements that must be distinguished:

  • Firstly, it is inclusive of those wherein the important concern with regards to undertaking deals with protecting the promisee against any loss.
  • On the second basis, those wherein the promisee is incidentally or essentially indemnified against such a loss.

Limitation of Contract of indemnity

Contract of indemnity entails a limitation wherein the only express promise of contract of indemnity are protected by Section 124 of the Act. Whether or not the interpretive research gloss is accurate, Indian law has easily identified and recognized implied indemnities.

Indemnity holder: Rights

Under the indemnity contract, the promisee has the right to recover the following from the promisor:

  • Any damages that he might be forced to pay in any action relating to any matter to which the promise of indemnification relates.
  • All costs he could be forced to pay in any other suit if he did not violate the promisor's orders in attempting to bring or defending it and acted in the way that he should have acted in the situation wherein there isn't any indemnity contract.
  • All sums charged under the terms of any such suit's compromise.

Duties of indemnity holder

  • To act in compliance with the indemnifier's orders.
  • To act as a prudent man would.
  • To put all vital facts to the indemnifier's knowledge.


In several ways, Indian law on contract of indemnity has deviated from English law and taken its own course. Further Indemnity bond ensures to protect the party against losses that might occur in future as a consequence of the principal's inability to fulfill his or her obligations.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.


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