Report No. 13
99. Section 124.-
The definition of a contract of indemnity given in this section is not exhauStive. It deals with only one class of indemnity and defines only some of the rights belonging to an indemnity-holder of that particular class. The result has been that the Courts had to draw upon "the common law of India, which in this respect, is identical with that of England."1 In English Law, the word 'indemnity' is used in a sense wider than that indicated by the definition in section 124. It includes a promise to save the promisee from loss caused by events or accidents which do not or may not depend on the conduct of any person, or from liability arising from something done by the promisee at the request of the promiser. A right to indemnity may be created by express contract or by implied contract. In the latter case, the intention to create the right is based upon the true inference to be drawn from the facts.
There is another class of cases where the law attaches a legal or equitable duty to indemnify in the particular set of circumstances. In such cases, the general principle of law is that 'when an act is done by one person at the request of another, which act is not in itself manifestly tortious to the knowledge of the person doing it and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested that it should be done'. This statement of the principle is a quotation from Mr. Cave's argument in Dugdale v. Lovering, 1875 LR CP 196 which was approved by Lord Halsbury, L.C., in the case of Sheffield Corporation v. Barclay, 1905 AC 392. In that case Lord Davey observed:
"Where a person invested with a statutory or common law duty of a ministerial character, is called upon to exercise that duty on the request, direction or demand of another, (it does not seem to me to matter which word you use), and without any default on his part acts in a manner which is apparently legal but is, in fact illegal and a breach of the duty, and thereby incurs liability to third parties, there is implied by law a contract by the person making the request to keep indemnified the person having the duty against any liability which may result from such exercise of the supposed duty. And it makes no difference that the person making the request is not aware of the invalidity in his title to make the request, or could not with reasonable diligence, have discovered it".2
In the same case, Lord Davey also said, "in some cases it is a question of fact whether the circumstances are such as to raise the implication of a contract for indemnity; but in cases like the one before your Lordships, when a person is requested to exercise a statutory duty for the person making the request, I think the contract ought to be implied".3
We think that this class of cases should be classified as quasi-contractual. With reference to the surety's claim in equity, Prof. Winfield remarked that 'that redress was given not only upon express promise of indemnity by the debtor, but also upon an implied obligation which would nowadays be classified as quasicontractual'.4 The liability in such cases is based upon an assumed and fictitious request. In Secretary of State v. Bank of India Ltd., AIR 1938 PC 191 (193). Lord Wright, in reference to the aforesaid statement of the law by Lord Davey, remarked.
"It (the principle) is often, as in the statement by Lord Davey, said to be based on a contract implied by law, the request importing a promise to indemnify the other party against the consequences to him of acting upon the request. But in the words adopted by Lord Halsbury, it is said that the person is entitled merely to an indemnity. The fiction of a contract implied by law adds nothing, though it may seem to justify the Court in holding as a matter of law that the party is entitled to the indemnity on the basis that the assertion by the applicant of his request is the offer of a promise to indemnify if the other party acts upon that request to his damage".5
1. Per Lord Wright in Secretary of State v. Bank of India, AIR 1938 PC 191 (192).
2. Ibid., 399.
3. Ibid., 401.
4. Winfield Law of Quasi-Contracts, pp. 116, 117.
5. AIR 1938 PC 191 (193).
100. We recommend that the definition of the "Contract of indemnity" in section 124 be expanded to include cases of loss caused by events which may or may not depend upon the conduct of any person. It should also provide clearly that the promise may also be implied.
Further, a section1 should be added in the Chapter on Quasi-Contracts covering cases where an obligation to indemnity may be implied in law.
1. Vide section 72A, App I.