Chapter VIII - Of Indemnity and Guarantee
Section 124
Section 124: Contract of indemnity
An indemnity is a promise to protect another person against the specified kind of loss. Its wording determines the commercial risk accepted.
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Need advice on Section 124?
This article is for general information. Refer to the Indian Contract Act, 1872 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
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.
Rule and business relevance
Section 124 describes a contract to save another party from loss caused by the promisor’s conduct or the conduct of another person. Supplier and transaction indemnities should identify the protected person, triggering conduct and covered loss.
Limits and related provisions
Do not assume every loss-allocation clause has unlimited coverage. Read the undertaking and distinguish an indemnity from a guarantee of a third person’s default under section 126.
Hypothetical business example
Hypothetical example: A supplier promises to indemnify a distributor against loss from a specified third-party intellectual-property claim. Whether a particular payment falls within that promise depends on its agreed scope.
Practical decision flow
Identify who promises protection and who receives it.
Match the loss and the conduct causing it to the indemnity wording.
Keep the claim, loss calculation and any contractual notice or defence records.
Check the applicable legal framework
This guide explains the central provision. Applicable State amendments, the agreement, transaction date and other governing laws can affect its application. Check the current legal framework before relying on it for a commercial decision.
Practical checklist
Do
- Identify who promises protection and who receives it.
- Match the loss and the conduct causing it to the indemnity wording.
- Keep the claim, loss calculation and any contractual notice or defence records.
Avoid
- Do not assume every loss-allocation clause has unlimited coverage. Read the undertaking and distinguish an indemnity from a guarantee of a third person’s default under section 126.
Glossary
- Indemnifier
- The party promising to save the other from the covered loss.
- Indemnity-holder
- The party receiving that protection.
Frequently asked questions
Does this definition make every business loss recoverable?
No. The loss must fall within the indemnity and the applicable legal framework.
Is an indemnity the same as a guarantee?
No. A guarantee under section 126 concerns performance or liability of a third person in case of default.
What should the clause identify?
The protected party, covered conduct and loss, and any limits or claim-handling conditions.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026