Indemnities: Jaiib/DBF Paper 3 (Module B) Unit-5

Indemnities: Jaiib/DBF Paper 3 (Module B) Unit-5

Dear bankers,

As we all know that is Indemnities for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Indemnities (Unit-5), Legal Aspects of Banking Operations (Module B), Legal & Regulatory Aspects of Banking -Paper 3.

♦Contract of Indemnity Defined

Section 124 of the Indian Contract Act, 1872 defines contract of indemnity as follows:

  • Contract of indemnity” defined: A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity.” —A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity.””
  • 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 200 rupees. This is a contract of indemnity. A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.”

Differentiate between Indemnity and Guarantee

INDEMNITY GUARANTEE
It refers to reimbursement of loss. It is merely a security to Creditor.
It is explained in Section 124 of Indian Contract act, 1872. It comes under Section 126 of Indian Contract Act, 1872.
Only two parties i.e. Indemnifier and Indemnified. Includes three parties- surety, principal debtor and creditor.
Only 1 contract is done. Includes 3 contracts between the 3 parties.
Primary liability. Secondary liability

 

♦Right of An Indemnity Holder

Section 125 of the Contract Act lays down the rights of an indemnity Holder.

Rights of indemnity-holder when used.The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor— —The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor—”

  • All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;
  • All 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;
  • All 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.

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