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Report No. 13

101. Section 125.-

This section deals only with the rights of the indemnified in the event of his being sued. The indemnified has other rights besides those mentioned in section 125. There is a sharp cleavage of opinion in the various High Courts as regards the remedies available to an indemnity-holder. While some High Courts, e.g., Calcutta,1 Madras,2 Allahabad3 and Patna4 held that the indemnity-holder can compel the indemnifier to place him in a position to meet a liability without waiting until the indemnity-holder has actually discharged it or has suffered actual loss, the Lahore High Court,5 the Judicial Commissioner of Nagpur6 and the Bombay High Court7 (in earlier cases) took the view that no right belongs to the indemnified until the loss occurs.

So far as the Bombay High Court is concerned, Chagla J. (as he then was), clarified the position8 and since then the Bombay High Court has also fallen in line with the Allahabad and Patna High Courts. We are of the opinion that the view expressed by Chagla J. is correct and should be adopted by the legislature. Under the English Common Law no action can be maintained until actual loss has been incurred. But in equity, if liability to pay has become absolute, the indemnified is entitled to maintain an action, even though actual loss has not yet resulted. It has been judicially recognised that adherence to English Common Law results in hardships and injustice and, indeed, the Courts of Equity in England have introduced the above mentioned rule to mitigate the rigour of the Common Law.

1. Prafulla Kumar Basu v. Goppe Ballabh Sen, ILR (1944) 2 Cal 318.

2. Ramalignga v. Unnamalai Achi, 38 Mad 7913

3. Abdul Majeed v. Abdul Rashid, AIR 1936 All 598.2

4. Chuni Bai Patel v. Nathu Bai Patel, 22 Pat 655.

5. Sham Sundar v. Chandu Lal, AIR 1935 Lah 974.

6. Ranganath v. Pachusao, AIR 1935 Nag 117.

7. Shankar v. Laxman, AIR 1940 Bom 302.

8. Ganjanan Moreshwar v. Moreshwar Mohan, AIR 1942 Bom 302.

The decisions of the Court of Equity in England proceeded upon the principle that to indemnify does not merely mean to reimburse in respect of money paid, but, 'in accordance with its derivation', to save from loss in respect of the liability against which the indemnity has been given. These decisions have been followed in India by Judges who have taken a view consistent with the position in English Law described above.

The rights and remedies of the indemnity-holder in equity, have been thus described in Halsbury's Laws of England:

"in equity, the rules of which now prevail in all Courts, even in the absence of such a special agreement, the person entitled to the indemnity may enforce his right as soon as his liability to the third party has arisen, and, therefore, he may obtain relief before he has actually suffered loss. He may, therefore, in an appropriate case, obtain an order compelling the promisor to set aside a fund out of which the liability may be met or to pay the amount due directly to the third party, or even, when the promisor is under no liability to the third party, as is the case in contracts of mere indemnity, to the promisee himself. Nor is the party indemnified precluded from obtaining relief by the fact that his liability to the third party cannot be effectively enforced against him".1

1. Halsbury Laws of England, 2nd Edn., Vol. 16 (15).

We recommend that on the basis of the position in English Law, as set out above, the rights of the indemnity-holder should be more fully defined1 and the remedies of an indemnity-holder should be indicated even in cases where he has not been sued.

1. Vide section 125A, App I.

102. Sections 126-129.- No change is considered necessary in sections 126 to 129.

Indian Contract Act, 1872 Back

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