Section 125 The Indian Contract Act, 1872
Section 125 of the Indian Contract Act, 1872 deals with the rights of the indemnity-holder when sued.
📜 Section 125 – Rights of Indemnity-Holder when Sued
"The promisee in a contract of indemnity, acting within the scope of his authority, 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, 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;
(3) 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."*
🔍 Explanation:
Section 125 outlines what an indemnity-holder (the person protected by the indemnity) can recover from the indemnifier (the person giving the indemnity) when sued.
✅ Key Rights of the Indemnity-Holder:
Damages: Any damages he was legally required to pay in a case covered by the indemnity.
Legal Costs: Court or legal expenses if the indemnity-holder acted reasonably and as authorized.
Compromise Payments: Amounts paid in settlement (compromise) of such a case, if the compromise was fair and prudent.
💡 Example:
A contracts to indemnify B against consequences of any legal action related to a shipment. B is later sued and has to pay ₹50,000 as damages, ₹10,000 as legal fees, and settles the matter for ₹20,000. If B acted reasonably and as authorized, B can recover all these costs from A under Section 125.
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