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Indemnity Bond: Meaning, Format, Types, Legality


Under Chapter 8 of the Indian Contract Act of 1872 in Section 124, an “agreement of indemnity” has been characterized. Promise by one party to make great every one of the losses to the next party or any outsider concerned is known as an indemnity bond. Several terms and conditions apply to these bonds. Such kinds of bonds have been endorsed against the gamble that can cause loss to the other party.

What Does it Mean to Make an Indemnity Bond? 

A repayment bond is a plan between two able parties who can pursue an arrangement under Section 10 of the Indian Contract Act. Dependent upon explicit agreements, one party is cling to repay the other or any outsider for any misfortunes. The repayment bond depends on explicit agreements that frame each party’s obligations. The indemnifier is the party who vows to repay the other party for any misfortunes. Conversely, the reimbursed party is the person who is qualified to get paid for any misfortunes they might cause.

For instance, Anjana might vow to repay Shruthi if they infringe on Lalitha’s safeguarded licensed innovation freedoms. This means that Anjana will repay her if Shruthi experiences any misfortunes because of the encroachment. This repayment agreement between Anjana and Shruthi illustrates how a reimbursement bond can shield parties from monetary misfortunes.

Significant Section of the Indian Contract Act Concerning Indemnity Bond

A contract of indemnity is a legally enforceable agreement between the two parties, represented by the India Contract Act of 1872. A portion of the significant Section in regards to bonds of indemnity or contract in the ICA is given below:

1. Section 10 of the Indian Contract Act

Section 10 of the ICA discusses the competent parties who can go into a contract. The parties list is given below:

  • Free consent of the parties
  • Parties of the indemnity bond should be able to contact
  • The thought, if any, should be lawful
  • The object of the contract of indemnity should be a lawful item
  • The contract should not be explicitly declared void by any regulation
  • Should not be infringed upon by any regulation
  • Parties should achieve the age of a more significant part
  • Parties should not be of unsound mind

2. Section 124 of the Indian Contract Act

Under Section 124 of the Contract Act, the meaning of an indemnity bond or contract of indemnity has been given exhaustively. In this Section, indemnity contact has been characterized with a model’s help. According to this Section, an agreement between the two parties to make the loss good against the promise or some other outsider will be known as the contract of indemnity between these two parties. For this contract, no less than the least must be there. According to the Indian Contract Act Section 10, these parties must be competent.

3. Section 125 of the Indian Contract Act

Section 125 of the Contract Act discusses the privileges of the indemnity holder. The promise in a bond of indemnity, who is acting within the extent of their authority, has all the options to recover from the promisor the accompanying:

  • Recovery of the multitude of damages
  • Recovery of the variety of costs
  • Recovery of a variety of sums

Format of Indemnity Bond

There are many arrangements of bond of indemnity. Various experts have various styles of drafting an agreement for indemnity. However, these are, for the most part, coordinating with the customary organization of a bond of indemnity. These bonds are broken down into three parts, each of which is explained in detail below:

First Part

The first Section of an indemnity bond incorporates vital data about the parties engaged in the agreement. This data envelops the names and addresses of the two players, as well as the date and spot where the bond of indemnity was executed. This initial part of the document is fundamental since it gives crucial insights regarding individuals and the agreement itself. On the off chance that the names of the parties are not precisely expressed, the bond can’t be viewed as a legitimate agreement. Hence, ensuring that this initial Section of the bond of indemnity is finished precisely and in full is essential.

Fundamental Body of the Indemnity Bond

In the fundamental body of the bond of indemnity, different significant conditions have been given with all the details. The two parties should go through this part of the bond two times before marking the indemnity bond. Any mix-up with this part can be deadly to the parties of the bond. The following are a few significant clauses in the indemnity contract:

  • Definition part
  • Interpretation clause
  • Indemnity clause
  • Sunset clause
  • Dispute goal clause
  • Administering regulation clause
  • Termination clause
  • Renewal clause
  • Consideration (thought) clause
  • Alternate dispute resolution clause if preferred by the parties

Last Part

In the last part of the contract of indemnity, the mark of the two players of the bond has been taken within the sight of two witnesses. This part of the bond plays a vital role in settling on this bond, a legally binding agreement. Before marking the bond of indemnity, the two players should cautiously go through the first part and the fundamental body of the bond. Parties must sign it after reading and comprehending it properly.

Different Kinds of the Contract on Indemnity

Most of the time, an indemnity clause can be found in any contract. Whether we are discussing contracts or individual bonds, this proviso is practically present in each type of agreement. The absolute, most ordinary kind of bond of indemnity is given below:

  • Credit Arrangement
  • Business contracts
  • Supply arrangement
  • Authorizing understanding
  • Legal contracts
  • Rent Arrangement
  • Lease Arrangement


In the ongoing world of new companies and organizations, indemnity bonds play an extremely significant part. Whenever any business agreement was endorsed between the two parties, a bond of indemnity came into force since, these days, most arrangements have indemnity provisos. A bond of indemnity is a security given to the next party to make its losses good. Such kinds of bonds generally accompany specific agreements. There are typically three sections to an indemnity bond draft: a presentation with parties’ names and addresses, the principal body containing fundamental provisos, and a last segment for marks and witnesses. These clauses, mentioned in the main body, are a standard part of many contracts because they protect one party from losses.

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G.Durghasree B.A.B.L (Hons)

G Durghasree B.A.B.L (Hons) is a registered trademark attorney with extensive experience as an Advocate for a period of 8 years. She possesses expertise in trademark law, including trademark filing and trademark hearings. Additionally, she is skilled in contract drafting and reviewing, providing legal advice and opinions, particularly in the areas of Company Law, Insolvency and Bankruptcy Code (IBC), and Goods and Service Tax Law (GST). Her experience encompasses both litigation and non-litigation aspects of these laws.