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RESEARCH PAPER

SUBJECT : CONTRACT 2
TOPIC :
Rights of Indemnity holder ; Judicial
interpretation, Gajanan Moreshwar Parlekar vs
Moreshwar Madan Mantri , AIR 1942

Submitted by : ABHISHEK.A.GOWDA
Roll Number : 18DBLAW001
Class and Semester : BBA LLB ; Second Semester
Date of submission :
Signature:
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ABSTRACT

The focus of the research paper is the Rights of Indemnity holder or

the indemnified when sued which comes under section 125 of the
Indian Contact Act, 1872. In order to discuss the rights of
indemnified we need to understand what is Contact of Indemnity
which comes under section 124 of Indian Contract Act, 1872 and a
case law i.e Adamson vs Jarvis .Essentials of Indemnity and
Insurance indemnity will be discussed in brief. Rights of indemnity
holder is main topic of research paper which comes in extent of
liability and there are three points under this and a case will be
explained to illustrate the same i.e Right to recover damages ,Right to
recover all costs when he brings up the suit or when he is being sued
Right to recover all sums paid by him in a compromise
Commencement of liability will be discussed in brief and the case
Gajanan Moreshwar Parlekar vs. Moreshwar Madan Mantri will be
discussed and judicial interpretation regarding the case will be stated
and similar cases will be discussed
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INTRODUCTION

Contract of Indemnity:

General meaning: Indemnity means a promise made by one party to

secure or protect the other party from the loss suffered by him due to
the act of a third party.

A duty to make good any loss or the liability incurred by the other

Indemnity – According Section 124 to Indian Contract Act, 1872

A contract by which one party promises to save the other from the
loss caused to him by the contract of promiser himself or by conduct
of any other person, is called a ‘Contract of Indemnity’

Eg : Fire Insurance

There are two parties in a Contract of Indemnity i.e

Indemnifier: The party making the promise eg: Insurace company

The Contract of Indemnity can be oral or writing

Indemnified/Indemnity holder: The party against whom the promise is

made eg: Insured property holder

Illustration

‘A’ contracts to indemnify ‘B’ against the consequences of any

proceedings which ‘C’ may take against ‘B’ in respect of a certain
sum of 4000 rupees. This is contract of indemnity
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Case Study : ADAMSON vs. JARVIS[1827] 4 BING 66

Facts : Adamson was an auctioneer who was given cattle by Jarvis to

be sold at an auction. Adamson followed the instructions and sold the
cattle. But Jarvis was not the owner of the cattle. The real owner of
the cattle sued Adamson for conversion and was successful. Adamson
had to pay the damages and then he sued Jarvis to be indemnified for
the loss that he suffered by the way of damages paid to the real owner

Adamson is the Indemnified/Indemnity holder

Jarvis is the Indemnifier

Held : Adamson carried out Jarvis’s instruction and was entitled to

presume that if anything went wrong as per instructions, he would be
indemnified. Jarvis was ordered to pay damages to Adamson

Rights of Indemnity Holder

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According to section 125 of the Indian Contract Act

Rights of Indemnity holder when sued – The promise in a contract of
indemnity, acting within the scope of authority, is entitled to recover
from the promise-
(1) All the damages which he may be compelled to pay in
any suit in respect of any matter to which the promise of
indemnify applies
(2) All the costs which he may be compelled to pay in any
such suit if, in bringing or defending it, he did not
contravene the orders of the promisor and acted as it
would have been prudent for him to act in the absence
of any contract of indemnity, or if the promisor
authorized him to bring or defend the suit
(3) All the sums which he may have paid under the terms of
any compromise of any such suit, if the compromise
was not contrary to the orders of the promisor ,and was
one which it would have been prudent for the promisee
to make in the absence of any contract of indemnity, or
if the promisor authorized him to compromise the suit
i.e.
(1) Right to recover damages
(2) Right to recover all costs in bringing up or defending the suit
(3) Right to recover all the sums which he may have paid under the
terms of a compromise

*Not contraventions of the promisor

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*Acted prudent in absence

Duties of Indemnity holder

Even though the duties of the indemnity holder is not mentioned in

any section, we can say that the indemnity holder have some implied
duties.

Eg: It is the duty of the indemnity holder to comply to the terms and
conditions of the contract and any alteration can enable the
indemnifier to reject the claim of indemnification`

Gajanan Moreshwar Parlekar vs. Moreshwar Madan

Mantri
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(1942) 44 BOMLR 703

FACTS :

Gajanan Moreshwar, the plaintiff got a plot of land on lease from

municipal corporation of Mumbai. Plaintiff allowed the defendant
Moreshwar Madan to erect a building on that land. The defendant ,in
this course, incurred a debt of rupees 5000 from building material
supplier, third party, twice. On both the occasion, plaintiff mortgaged
part of land to the third party. The plaintiff, on defendant’s request
transferred the land to defendant, on the consideration that he would
be discharged from all the liabilities arising out of that land.
Defendant failed to adhere to his consideration. Plaintiff filed a suit
for discharge of liabilities on him, alleging D to be the indemnifier

ISSUE: Whether the suit for indemnity was premature as plaintiff had
not yet incurred any losses as such?
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CONTENTIONS (Defendant)

1. As per section 124, the promisor promises to safe guard the

other from the damage that is caused to him, not the damage
which may be caused to him. Since there was no damage to the
plaintiff as yet, the plaintiff is not entitled to sue the indemnifier
(Citation :Shankar Nimbaji vs. Laxman Supdu , Chand bibi vs
Santosh kumar Pal)
2. The liability of the plaintiff is not absolute but contingent. There
is nothing to show that if the mortgage was to sue to enforce his
mortgage and the property was sold, there would be any deficit
for the plaintiff would be liable.

HELD : Bombay High Court

Justice Chagla

1. With respect to first contention of the defendant

Indian Contract act is both an amending and a consolidating Act,

and it is not only exhaustive of the law of contract. Section 124 deals
only with one particular kind of indemnity in which the loss caused
by the conduct of indemnifier himself or of the other person ,but
doesn’t cover the cases outside this or cases when liability arises
because of something done by the indemnified at the request of
indemnifier. Section 124 of Indian Contract act talks about
Subsequent conduct but here the liabilities were past i.e. prior t the
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date when contract was actually entered into force. Earlier to this
contract, all the acts were done merely on request without any
consideration and hence, were not binding. Therefore Section 124 is
inapplicable here.

2. With respect to second contention of the defendant

Under both mortgage and the further charge there is a personal

covenant by the plaintiff to pay the amount due, and it would be open
to the mortgagee to sue the plaintiff on the personal covenant
reserving his rights under the security. Therefore, the liability of the
plaintiff under personal covenant is absolute and unconditional

3. Principles of equity(as applied in English courts ) can be applied

here to relive P from all the liabilities (as Indian Contract Act is
not exhaustive of Law of Indemnity)

CITATIONS :

Abdul Hussain Shaikh Gulamali Jambawalla vs. Messrs

Bombay Metal Syndicate

Texmaco Limited vs. State Bank of India

Oriental Insurance Company Limited vs Sk Dada Bademiya

Reliance Industries vs. Balasore Alloys Limited

Nallapa Reddy vs Virdhachala Reddy (1911)

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