Indemnity (Indian Law) — Definition + Section 124 ICA Framework

Definition

In Indian law, indemnity is a contract by which one party promises to save the other from loss caused by the conduct of the promisor or by the conduct of any other person. The definition appears in Section 124 of the Indian Contract Act, 1872:

"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'."

The party giving the promise is the indemnifier; the party receiving the promise is the indemnitee or indemnity-holder.

Statutory basis

Sections 124 and 125 of the Indian Contract Act, 1872 govern indemnity contracts. Section 124 defines the contract; Section 125 spells out the indemnity-holder's rights, including the right to recover damages, costs, and sums paid in compromise of third-party claims.

Indian courts have expanded the Section 124 framework beyond the original English common-law position. The Bombay High Court in Gajanan Moreshwar v Moreshwar Madan (1942) held that indemnity is not merely reactive — the indemnity-holder need not wait until they have paid the third-party loss before claiming. They can compel the indemnifier to pay the third party directly or to discharge the liability in advance.

Standard market caps in Indian B2B contracts

In commercial B2B contracts, indemnification follows a three-tier structure:

• General indemnity: capped at 12 months of fees (the standard market position).
• Super-cap exceptions: IP infringement (uncapped), confidentiality breach (24 months or uncapped), DPDP penalties (uncapped).
• Mandatory carve-outs: gross negligence, wilful misconduct, fraud — uncapped regardless of contract drafting.

For the full drafting framework, see our indemnification clause deep-dive.

Practical example

A SaaS vendor (Provider) sells a CRM platform to an Indian customer. The Provider's terms include an IP indemnity — if a third party sues the Customer claiming the SaaS infringes their patent, the Provider indemnifies the Customer for damages and defence costs. The indemnity is uncapped because IP infringement claims can exceed the contract value.

Related reading

• Indemnification clauses under Indian law — the full Section 124 drafting framework
• Limitation of liability clauses — how indemnity carves out of the LoL cap
• Vendor agreement template — sample indemnity clause
• AI contract review pillar — review indemnity clauses at scale