Scope of Contingent Contract–The definition of a contract of indemnity under this section is narrower than the one under the English law. According to S.124 the loss must have been caused either by the (i)conduct of the promisor or (ii) any other person. It does not include loss caused by natural factors not involving human conduct, like accidental fire, etc. But in English law, the loss might be caused by a human agency or by other natural factors also. Thus, Contracts of insurance, which are the commonest examples of contracts of indemnity under the English law, are not covered by the Indian Contract Act, according to which indemnity is restricted to those cases only in which the loss which is sought to be reimbursed, is caused by the conduct of the promisor or any other person. The loss must be such as the promisor has taken upon himself to indemnify.
Rights of indemnity holder when sued—According to S. 125 the indemnity holder i.e., the promisee) is entitled to recover from the promisor—
1. All damages-which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies.
2. All costs—which he may be compelled to pay in any such suit, —(a) if in bringing or defending it.—(i) he did not contravene the orders of the promisor, and (ii) he acted as it would bave been prudent for him to act in the absence of any contract of indemnity. (b) if the promisor authorized him to bring or defend the suit.
3. All sums— which he may have paid under the terms of any compromise of any such suit,—(a) (i) if the compromise was not contrary- to the orders of the promisor, and (ii) was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity; (b) if the promisor authorized him to compromise the suit. It has been held that S..124 and 125 do not embody the whole of the Indian Law on the subject of contract of indemnity.