If any person has agreed to indemnity a person against a particular claim and debt, demand and an action is brought on that demand the indemnity holder the defendant have to give notice to the indemnifier to come and defend the action if he does not come and refuses to do as he asked. Thus, he has to compromise on best term and can bring an action under contract of indemnity.
Section 125 deals with the rights of indemnity holder. According to this section, the promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor-
1. Damages
The indemnity holder has the right to claim damages which he was compelled to pay in a lawsuit proceeding. The indemnifier then becomes liable to pay those damages which were agreed upon bona fide. Moreover, all the damages paid by the indemnity-holder to any third person or the indemnifier himself can be recovered by the indemnifier.
In Parker vs. Lewis the court held that if the indemnified brought an action to claim damages from the indemnifier, or agrees to compromise the suit, the indemnifier would be absolutely liable to compensate irrespective of whether the case was decided in his favour or not. Even when the suit is appealed further, the indemnifier would still be liable to pay as per the contract.
In Nallappa Reddi v. Vridhachala Reddi,
the court clearly stated that the defendant (in this case, the indemnifier) cannot escape liability to indemnify the indemnified by alleging any contentions.
2. Costs :
The indemnified has the right to claim costs incurred while defending a law suit, given that he/she acts in a prudent manner, and not against the order of the promisor, or with the authority of the promisor.
In Alla Venkataramanna vs. Palacherela Manqamma ,the court stated that the indemnifier is liable to indemnify the promisee for losses incurred while defending lawsuits by third parties, in spite of not being a party to the contract.
3. Sums :
Amount paid in case of compromise of the suit can also be recovered, without contravening the orders of indemnifier. For this arrangement, the indemnifier must act in good faith and his/her aim must not be to deceive the indemnifier.The bargain must also be reasonable and not immoral. In other words,anything more would be undeserved windfall for one party and penalty of the other.
In Gopal Singh v. Bhawani Prasad,the court maintained that only those costs can be recovered that are supposed to be incurred by a reasonable person.
