CASE STUDY ON OSMAL JAMAL V.

GOPAL PUROSHOTTAM

CONTRACT ACT II – 4.5

Submitted By

Ayush Gaur

(UID – SM0117012)

Faculty In- Charge

Ms. Daisy Changmai

NATIONAL LAW UNIVERSITY AND JUDICIAL ACADEMY, ASSAM

6th May, 2019

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TABLE OF CONTENT

Table of cases.......................................................................................................................II
List of Statutes....................................................................................................................III
List of Abbreviations..........................................................................................................IV
Introduction……………………………………………………..…...........................VI-VII
Aim (s)..............................................................................................................................VIII
Objectives (s)……………………………………………………………………............VIII
Scope and Limitations…………………………………………………………..............VIII
Review of Literature……...………………………………...……….….........................IX-X
Research Questions and Hypotheses...........………………………………...…............XI
Research Methods..............................................................………………..….................XI
1.1 The contract of Indemnity
1.1.1 Essentials
1.1.2 Remedies and Punishments
2.1 Case facts : Osmal Jamal v. Gopal Puroshottam
2.1 Liability of the accused
2.2 Remedies and Punishment
3.1 Case commentaries
Conclusion…...…………………………………………………………………................XII
Bibliography........................................................................................................................XII

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LIST OF CASES

1. Yeoman Credit Ltd. v. Latter, 1961] 1 W.L.R 828

2. Kadiresan chettiar v. SpRMRm Ramaswami Chettiar. (1947) AIR 1946 Mad 472

3. Osman Jamal and Sons Ltd. v. Gopal Purshottam. (1928) AIR 1929 Cal 208.

4. Radha Kanta Pal v. United bank of India Ltd AIR 1955 Cal 217.

5. Mahabir Prasad V. Siri Narayan. AIR 1918 Pat 345

6. Moreshwar v. Moreshwar Madan (1942) 44 BOMLR 703

7. Shankar Nimbaji vs. Laxman Supdu, Chand Bibi vs. Santoshkumar Pal, (1940) 42
BOMLR 175
8. Jaswant Singh vs. Section of State 14 BOM 299.

9. K Bhattacharjee vs. Nomo Kumar, 1899 26 CAL 241

10. Shiam Lal vs. Abdul Salal, 1931 ALL 754

LIST OF STATUTES

1. The Indian Contract Act, 1872

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LIST OF ABBREVIATIONS

ABBREVIATION WORD
AIR All India Report
Art. Article
Corpn. Corporation
CrLj Criminal Law Journal
Ch. Chapter
ICA, 1872 Indian Contract Act, 1872
Ed. Edition
Ltd. Limited
Pg. Page number
p. Paragraph
SCC Supreme Court Cases
SC Supreme Court
v. Versus
Vol. Volume

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 INTRODUCTION

The concept of indemnity is a widespread topic in the world of business and transaction
wherein one party is considered to be the indemnifier of another party.

―Indemnity‖ is a widespread expression used not only in a contractual context. It can be

defined as ―a duty to make good any loss, damage or liability incurred by another,‖ or
alternatively ―the right of an injured party to claim reimbursement for its loss, damage or
liability from a person who has such duty.‖

Simply put, indemnity requires that one party indemnify the other if certain expenses spoken
of in the contract of indemnity are incurred by him. For example, car rental companies
stipulate that the person hiring will be responsible for damage to the rental car caused by his
reckless driving and will have to indemnify the rental company.

In this research project, the researcher aims to study and understand the provisions of
Contract of Indemnity under Sec. 124 and Sec. 125 of the Indian Contract Act, 1872 and
analytically comment on the case of Osmal Jamal v. Gopal Puroshottam. Sec. 124 of the ICA,
1872 that defines ‗Contract of Indemnity‘ with the assistance of the famous case of Gajanan
Moreshwar v. Moreshwar Madan. Under sec. 125 the Indian Contract Act, 1872 comes into
play when the indemnity holder is sued i.e., under specific situation that the researcher aims
to explain in the research project.

Lastly, the most important section of the research project is related to the famous case of
Osmal Jamal v. Gopal Puroshottamo is a landmark case in the doctrine of indemnity at
common and in equity. The case if mainly related to a sum to be recovered under indemnity,
assign ability of to a particular creditor. Through this case, the researcher tries to explain the
concept of Indemnity in a practical form. Towards the researcher also tries to put forward
observations made by various scholars and the researcher to provide a wider view of the
research project.

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OBJECTIVES

 To study and understand the provisions of Contract of Indemnity under Sec. 124 and
Sec. 125 of the Indian Contract Act, 1872.
 To analytically comment on the case of Osmal Jamal v. Gopal Puroshottam.

SCOPE AND LIMITATIONS

SCOPE

The scope of this project is mainly limited to Sec. 124 and Sec. 125 of the ICA, 1872. The
researcher studies their legal provisions along with case laws to supplement. The research
project also studies the famous case of the doctrine of Indemnity, Osmal Jamal v. Gopal
Puroshottam and comments on its judgement.

LIMITATION

 As the researcher mainly focuses on the Indian Contract law, various legal cases are
taken into account in order to indicate the legal provisions and their implementation in
the society. In this process, there are different context under which the victim has
been punished or has not been punished. This results in wide study area.
 Majority population of India lives in rural area and only a minor population lives in
the urban area. The theoretical and practical condition of the both rural and urban is
different. Thus, formation of similar laws under the Indian Contract Act, 1872 might
result in conflicting situation.

REVIEW OF LITERATURE

Though different literature has been used in the formation and compilation of the research
project by the researcher. But, these have largely contributed towards the understanding of
the project.

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  Pollock & Mulla, ―THE INDIAN CONTRACT AND SPECIFIC RELIEF ACTS‖,
14th Edition 2012, LexisNexis

This book helped the researcher in understanding the concept of Indemnity and it also
explains the essentials that are needed for the contract of indemnity. This book also explains
the concept of indemnity with help of many case laws. It explains the remedy and punishment
that a person can avail in the contract of Indeminity.

 R.L Meena, ―LAW OF CONTRACT‖,6th ed., 2008, Universal Law Publishing Co.
Pvt. Ltd.

This book has helped the researcher in understand the legal concepts of indemnity,
indemnifier, and indemnified. This book gives a very good and easy to understand the
concepts of Indian Contract Act. It also talks about what are the options a person has after a
contract of indemnity has been violated.

RESEARCH QUESTIONS AND HYPOTHESES

RESEARCH QUESTIONS

1. What are the legal provisions of Sec. 124 and Sec. 125 of the ICA, 1872?
2. How is the indemnifier related to the indemnity-holder?

HYPOTHESES

The Indian Contract Act, 1872 has clear and pristine terms for the contract of indemnity but
often there are clashes between parties at the time of business transactions and cause either of
the party loss. The scope of this project is mainly limited to Sec. 124 and Sec. 125 of the
ICA, 1872. The researcher studies their legal provisions along with case laws to supplement.
The research project also studies the famous case of the doctrine of Indemnity, Osmal Jamal
v. Gopal Puroshottam and comments on its judgement.

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RESEARCH METHODS

1. Approach to research

In this project, the researcher has adopted Doctrinal type of research. Doctrinal research is
essentially a library –based study, which means that the materials needed by a research may
be available in libraries, achieves and other databases. The research is totally based on
library. Various types of books were used to get the adequate data essential for this project.
The researcher also used computer laboratory to get important data related to this topic. Help
from various websites were also taken.

2. Sources of data collection

Data has been collected from secondary sources like books, web sources etc. No primary
sources like survey data or field data were collected by the researcher.

3. Method of citation

The method of citation adopted in this particular research project is as prescribed by the
NLUJAA.

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1. ENFORCEEABILITY OF THE CONTRACT OF INDEMNITY
―Indemnity‖ is a widespread expression used not only in a contractual context. It can be
defined as ―a duty to make good any loss, damage or liability incurred by another,‖ or
alternatively ―the right of an injured party to claim reimbursement for its loss, damage or
liability from a person who has such duty.‖ Indemnity clauses are used in very dissimilar and
vast numbers of commercial contracts. As the following will show, it is not possible to
define, in general, the exact content of indemnity clauses, as this will depend upon the
wording of each individual contract. It is important to keep in mind that the effects of such
clauses are not decided by the label ―indemnity clause,‖ but on the basis of the contractual
wording itself.
The second form of liability is where one party agrees to indemnify another party against
liability which third parties may incur towards that other party. This category has many
resemblances with guarantees, but an obligation to indemnify must be distinguished from an
1
obligation to guarantee. An example of this is the case of Yeoman Credit Ltd. v. Latter,
where a company let a car on hire-purchase to the first defendant, who was an infant. The
second defendant signed a form headed ―Hire-purchase indemnity and undertaking,‖ and the
question was whether this document was an indemnity or a guarantee. Since the hire purchase
agreement would be void because of statutory provisions,2 a guarantee would also be void
because it guarantees a void contract. An indemnity, on the other hand, would be enforceable,
as the fact that the debtor was a minor would not provide a defence against the primary
liability to indemnify the creditor. The court held that ―an indemnity is a contract by one
party to keep the other harmless against loss, but a contract of guarantee is a contract to
answer for the debt, default or miscarriage of another who is to be primary liable to the
promise.‖3

Simply put, indemnity requires that one party indemnify the other if certain expenses spoken
of in the contract of indemnity are incurred by him. For example, car rental companies
stipulate that the person hiring will be responsible for damage to the rental car caused by his
reckless driving and will have to indemnify the rental company.

Most attention of late has been given to development of indemnity contracts in the IT
industry. There are some circumstances in which the existence of an indemnity would make a

1
[1961] 1 W.L.R 828
2
Namely the Infants Relief Act, 1874
3
Anson‘s Law of Contract 28.ed, p. 79

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significant difference while in others, a contract of indemnity will have little or no role to
play. Another new concept called ‗Indemnity Lottery’ can be found in the law of contract that
implies that in civil cases of indemnity results can never be predicted. Brazilian jurist
Leonardo Castro is credited for coining the term.

A simple indemnity clause is not the answer to liability issues. The law leans disfavouably
towards for those who try to avoid liability or seek exemption from liability of their actions.
The underlying reasoning is that a negligent party should not be able to completely shift all
claims and damages made against it to another, non-negligent party. For example, many a
times a ticket to an amusement park may claim that a person entering the park will not hold
the management liable. Rarely will such a defense work in a court of law because it is not
based on a contract. Most people hurt on an amusement park ride are able to sue for damages
quite successfully.

1.1 The contract of Indemnity

Under Sec. 124 of the Indian contract act 1872, indemnity is a protective compensation
package, wherein a person promises to protect from the losses incurred by the promisor or
any other individual. It is an instance of ―original liability‖ and acts as compensation cover.
4
There are two categories of individuals involved in a contract of indemnity. It includes an
―indemnifier‖ also known as ―indemnitor‖; he is the individual having the liability to
compensate. The other category is that of ―indemnified‖ or the ―indemnity holder‖ or the
―indemnitee‖,5 he is the person being compensated by the indemnitor. It is an instance of a
bilateral agreement to make good of the losses.6 Duty to indemnify can arise out of
contractual obligations- express or implied statutory obligations or even relations like
principal and agent, employer and employee etc.7 This has been emphasized in Kadiresan
chettiar v. SpRMRm Ramaswami Chettiar.8 Thus, not always does the duty to indemnify arise
out of contracts; it can also be non-contractual as it can be implied which arise out of acts or
supposed relationships. In its 13th report in 1958, The Law Commission of India

4
Pollock & Mulla, ―THE INDIAN CONTRACT AND SPECIFIC RELIEF ACTS‖, 14th Edition
2012, LexisNexis, P. 335-1336.
5
―Contracts of Indemnity‖ (Law Notes), 18th February 2014,
<http://www.lawnotes.in/Contracts_of_Indemnity> accessed on 26th April,2019.
6
Avtar Singh, CONTRAT & SPECFIC RELIEF, 10th ed. 2008, Eastern Book Co, (Contract of Indemnity), pp.
583-589.
7
POLLOCK & MULLA, Supra note 1, 1340.
8
(1947) AIR 1946 Mad 472

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recommended that indemnity also include instances where losses may or may not happen as
result of a person‘s conduct.9 This was to increase the protective cover for compensation and
include more chances of indemnifying losses by increasing the scope of the section and
making it more pervasive to different situations. However, till date the recommendation
stands unincorporated.

Earlier in the English common law the contract of indemnity could not be used till actual loss
took place, in other words the indemnifier could not be compelled to compensate till actual
loss was suffered by the indemnity holder, however under recent equitable principles any
claim to indemnify can be successfully used when the claim is clear and enforceable.10 This
has been emphasized in Osman Jamal and Sons Ltd. v. Gopal Purshottam.11 Thus as per the
new and recent rules any case of probable losses can also invoke indemnity. This was also
used in Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri.12 The Indemnity holder
can recover costs when two pre-conditions are fulfilled under Sec. 125 when he/she is sued -
He/she has been authorized by the promisor to ―bring or defend‖ the suit. He/she has not
contravened orders and acted in an unreasonable manner. The extent of liability in indemnity
is on a case to case basis.13 There is no single rule that covers it entirely- it is dependent on
agreements between the indemnifier and the indemnified,14 as seen in Smith v. South Wales
Switchgear Ltd.15 Thus courts scrutinize the provisions and accordingly provide
compensation packages on a case to case basis.

In Contracts of Indemnity, indemnifier cannot recover any loss incurred due to the
compensation paid as his responsibility to indemnity holder but in case of guarantee the
surety has the right to claim compensation from the principal debtor after paying the
creditor.16 This rule has been explained in Radha Kanta Pal v. United bank of India Ltd.17
Thus guarantee consists of a duty to payback which is absent in indemnity. Contracts of
indemnity are seemingly less complicated than contracts of guarantee as the latter has three

9
POLLOCK & MULLA, Supra note 1, 1336.
10
POLLOCK & MULLA, Supra note 1, 1343.
11
(1928) AIR 1929 Cal 208.
12
(1942) 44 BOMLR 703.
13
S.S Srivastava, LAW OF CONTRACT I&II, 4th ed., 2011, Central Law Publications, (Indemnity), pp. 253-
257
14
POLLOCK & MULLA, Supra note 1, 1345.
15
(1978) 1 ALL ER 18.
16
POLLOCK & MULLA, Supra note 1, 1366.
17
AIR 1955 Cal 217.

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parties with three sub-contracts as compared to the former which has two parties with two
sub contracts.18 Contracts of indemnity consist of original liability not collateral liability
which would make it a contract of guarantee. This rule has been explained in Mahabir
Prasad V. Siri Narayan.19 While contracts of indemnity are formed at the request of
indemnifier, guarantee contracts are formed at the instance of the principal debtor. Indemnity
is also closely associated with occurrence of actual loss while in contracts of guarantee the
legal liability stands confirmed and fixed.20

1.1.1Essentials of Sec. 124 and Sec. 125 of ICA, 1872

Under Sec. 124 of the Indian Contract Act, 1872, ―Contract of indemnity‖ has been defined
as 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.‖ 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.‖" 21

Illutration - 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.
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."22

One of the landmark cases under Sec. 124 of the ICA, 1872 is the case of Gajanan
Moreshwar v. Moreshwar Madan,23 that clearly states when can indemnity be claimed.

FACTS:

Plaintiff (P) got a plot of land on lease from municipal corp. of Mumbai. P allowed
Defendant (D) to erect building on that land. D, in this course, incurred debt of Rs.5ooo from

18
POLLOCK & MULLA, Supra note 1, 1337-38.
19
AIR 1918 Pat 345
20
Indemnity and Guarantee (Indiancaselaws.wordpress), 18th February, 2014,
th
<http://indiancaselaws.wordpress.com/indemnity-and-guarantee/> accessed on 29 April 2019.
21
R.L Meena, ―LAW OF CONTRACT‖,6th ed., 2008, Universal Law Publishing Co. Pvt. Ltd., (Indemnity),
pp.315-316
22
Ibid
23
(1942) 44 BOMLR 703

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building material supplier (K), twice. On both the occasion, P mortgaged part of the land to
K. P, on D‘s request transferred the land to D, on the consideration that he (P) would be
discharged of all the liabilities arising out of that land. D failed to adhere to his consideration.
P filed a suit for discharge of liabilities on him, alleging D to be indemnifier.

ISSUE: Whether the suit for indemnity was premature as P had not yet incurred any loss as
such?

CONTENTIONS (Defendant):
1. As per s. 124, the promisor promises to safeguard the other from the damage
that is caused to him, not the damage which may be caused to him. Since there is no
damage to the plaintiff as yet, P is not entitled to sue the indemnifier. (Shankar
Nimbaji vs. Laxman Supdu, Chand Bibi vs. Santoshkumar Pal.24 )
2. The liability of the plaintiff is not absolute but contingent. There is nothing to show
that if the mortgagee was to sue to enforce his mortgage and the property was sold,
there would be any deficit for which the plaintiff would be liable.25
The judgement awarded by Justice Chagla is as follows,
1. ICA is both an amending and a consolidating Act, and it is not exhaustive of the law
of contract. Section 124 deals only with one particular kind of indemnity in which the
loss is caused by the conduct of the indemnifier himself or of other person, but does
not cover the cases outside this or cases when liability arises because of something
done by the indemnified at the request of the indemnifier. Sec. 124 talks about
subsequent conduct but here the liabilities were past, i.e. prior to the date when the
contract was actually entered into force. Earlier to this contract, all the acts were done
merely on request and without any consideration and hence, were not binding.
Therefore Sec.124 is inapplicable here.
2. Under both the mortgage and the further charge there is a personal covenant by the
plaintiff to pay the amount due, and it would be open to the mortgagee to sue the
plaintiff on the personal covenant reserving his rights under the security. Therefore,
the liability of the plaintiff under the personal covenant is absolute and unconditional.

24
(1940) 42 BOMLR 175
25
ibid

13
 3. Principles of equity (as applied in English Courts) can be applied here to relieve P
from all the liabilities (as ICA is not exhaustive of the law of indemnity).

2. Right of indemnity-holder and indemnifier

2.1 Rights of indemnity-holder:

The rights of the indemnity holder are dependent on the terms of the contract of indemnity as
a general rule. Sec. 125 of the Indian Contract Act, 1872 comes into play when the indemnity
holder is sued i.e., under specific situation.

The indemnity holder is entitled to recover the: if the act of indemnity holder is within the
scope of indemnifier or according to him-

All the damages that he may have been compelled to pay in any suit in respect of any matter
to which the promise of the indemnifier applies.

For example, if a contracts to indemnify B against the consequences of any proceedings

which C may take against B in respect of a particular transaction? If C does institute legal
proceeding against B in that matter and B pays damages to C, A will be liable to make good
all the damages B had to pay in the case.

all the costs of suits that he may have had to pay to the third party provided he acted as a man
of ordinary prudence and he did not act in contravention of the directions of the indemnifier
or if he had acted under the authority of the indemnifier to contest such a suit.

26
In the case of Adamson vs. Jarvis, Adamson was entitled to recover the money he had to
pay to the true owner of the cattle as well as any expenses incurred by him to get a legal
counsel, etc. Actually in this case Adamson was an auctioneer who was given cattle by
Jervis. Adamson followed the instruction of Jervis and sold the cattle. But, Jervis was not a
real owner of that particular cattle. And there after the real owner filed a suit against
Adamson.

26
(1827) 4 Bing 66: 5 LJ (os) (CP) 68: 29 RR 503.

14
Held- It was held that defendant was liable for loss of plaintiff and compel to compensate him
as per Sec.125.

All the sums that he may have paid under the terms of any compromise of any such suit
provided such compromise is not contrary to the indemnifier‘s orders and was a prudent one
or if he acted under authority of the indemnifier to compromise the suit.

2.2 Rights of indemnifier

The rights of the indemnifier have not been mentioned expressly anywhere in the Act. In
Jaswant Singh vs. Section of State27 it was decided that the rights of the indemnifier are
similar to the rights of a surety under Sec.141 where he becomes entitled to the benefit of all
securities that the creditor has against the principal debtor whether he was aware of them or
not. Where a person agrees to indemnify, he will, upon such indemnification, be entitled to
succeed to all the ways and means by which the person originally indemnified might have
protected himself against loss or set up his compensation for the loss.

The principle of subrogation i.e., substitution is founded in equitable principles. Once the
indemnifier pays for the loss or damage caused, he will step into the shoes of the indemnified.
Thus, he will have all the rights with which the original indemnifier protected himself against
loss or damage. The principle of subrogation is applicable due to both the ICA, 1872 itself
and principles of equity.

3. OSMAL JAMAL V. GOPAL PUROSHOTTAMO

Osmal Jamal v. Gopal Puroshottamo is a landmark case in the Doctrine of indemnity at

common and in equity. The case if mainly related to a sum to be recovered under indemnity,
assignability of to a particular creditior.

Where commission agents had incurred liability on behalf of their principals, who had agreed
to indemnify them, and the agents having subsequently gone into liquidation, the Official
liquidator sued the principals for the amount of liability. It was held, that lie could recover the
said amount even though the agents having gone into liquidation had not actually paid their
vendor. It was also held, further, that as the indeninifier was concerned with the application

27
14 BOM 299.

15
of the money which he paid, that amount should be set apart for the payment in full to the
vendor in respect of whose contract the agent had incurred the liability.

In India, there is no specific provision which states when a contract of indemnity is

enforceable. There have been confliction judicial decisions throughout. In Osmal Jamal &
Sons Ltd vs. Gopal Purushotam,28was amongst the first Indian cases where right to be
indemnified before paying was recognised. But now, a consensus of sorts has been formed in
favour of the opinion of Equity Courts. In K Bhattacharjee vs. Nomo Kumar,29 Shiam Lal vs.
Abdul Salal,30 and Gajanand Moreshwar,31Case, it has been decided that the indemnified may
compel the indemnifier to place him in a position to meet liability that may be cast upon him
without waiting until the promisee (indemnified) has actually discharged it.

3.1 Facts of the case

The plaintiff company entered into an agreement with the defendant firm on inter alia the
following terms;—

In this case the plaintiff company is in liquidation and is represented by the Official
Liquidator. By a contract made in July 1925 it was agreed inter alia that the plaintiff company
should act as commission agents for the defendant firm in the purchase and sale of hessian
and gunnies and that the defendant firm would indemnify the plaintiff company against all
losses in respect of such transactions. Pursuant thereto, on or about the 2nd December 1925,
the plaintiff company purchased certain hessian from one Maliram Ramjidas, which the
defendant firm failed to pay for or take delivery of, with the result that the goods were resold
by the vendor at less than the contract price and he has claimed the balance from the plaintiff
company. Consequently the plaintiffs now seek to recover this sum from the defendants
under the aforesaid indemnity, in addition to a further sum for commission which otherwise
they would have received. The defendants contend, firstly, that the plaintiffs have never
become liable to the vendor, because they acted only as agents for disclosed principals,
namely, the defendant firm, and therefore no right to indemnity has arisen. This argument
seems to rest upon a misapprehension of fact. The plaintiffs purchased through a broker as

28
1728] ILR 56 CAL 262.
29
1899 26 CAL 241.
30
1931 ALL 754
31
A.I.R. 1942 Bom, 302, at 304.

16
principals and not as agents which becomes evident upon perusal of the bought and sold
notes. Consequently they are liable to the vendor for breach of the contract of sale.

Secondly, the defendants contend that inasmuch as it is admitted that the plaintiffs have not
actually made any payment to the vendor in respect of their liability to him, they are not at
present entitled to any sum on account of the aforesaid right of indemnity

3.2 Issues

1. Whether that the plaintiff company would act as omission agents for the defendant
firm for the purchase and sale of hessian and gunnies and charge commission on all
such purchases.

2. Whether that the defendant firm would indemnify the plaintiff company against all
losses in respect of all transactions entered into on their behalf.

3.3 Opinion of the Judge

In this case, the lerned counsel wanted to take refrence of the re Richardson, Ex parte the
Governors of St. Thomas's Hospital [1911] 2 K.B. 705 and especially to the observations
therein of Fletcher Moulton, L.J. at p. 712 where it was stated that

Suppose A has a claim upon B, but in respect of that claim, B has a right of indemnity from
C.B. goes bankrupt. Is Bs' trustee in bankruptcy in a position in which he can force to pay the
amount of the claim to him and then can use the money so obtained for distribution amongst
the creditors generally, whereas he only pays a dividend upon the claim which A has against
the bankrupt.

If you seek guidance in the matter from common law, there is no doubt whatever that it went
on this principle. It would not help a man to make a profit out of what was merely an
indemnity. If, for instance, B was bound to pay a sum to A and C was bound to indemnify B,
which is the case before us, then B could not sue C unless he could aver payment to A.

17
But the learned Lord Justice was there expounding the doctrine of the common law, which he
recognized was different to the rule in equity. Moreover in that case the right of indemnity
did not arise from contract but from a trust and the learned Judge goes on to say at p. 714:

It would not be right for a trustee to obtain money from this right to be indemnified against
payments made to the head creditor when he not only has not made those payments but
comes here to say that he does not intend so to do. Therefore I come to the conclusion that, as
a general principle, an indemnity like this can be used by the trustee only for the purpose of
bringing about payment to the head creditor of the claim against which be is indemnified.

3.4 Judgement

An answer to this question was answered in the case of Osmal Jamal & Sons Ltd. v Gopal
Purushotham was that the plaintiff Company agreed to act as commission agent for the
defendant firm for purchase and sale of ―Hessian‖ and ―Gunnies‖ and charged commission
on all such pure Chases. To this the defendant firm agreed to indemnify the plaintiff against
all losses in respect of all transactions that were to take place. The plaintiff company
purchased certain Hessian from Maliram Ramjidas. The defendant firm failed to pay for
Hessian. Then Maliram Ramjidas resolved it at lesser price and claimed the damages from
the plaintiff company. The plaintiff company went into liquidation and the liquidator filed a
suit to recover the amount claimed by Maliram and the from the defendant firm under the
contact of indemnity. The defendant argued the plaintiff had not yet paid any amount to.
They were not entitled to maintain the suit under indemnity. It was held negative and decided
in plaintiff‘s favour with a direction that the amount when recovered from the defendant firm
should be paid to Maliram Ramjidas.‘

Now the present case seems to me to fall in the category of those in which the party giving
the indemnity is concerned with the application of the money which he pays. The defendants
may be liable as undisclosed principals and it would be a most unjust result if after paying the
full amount claimed in this ease, of which sum the vendors would receive only a dividend,
they were called upon to pay a further sum to the vendor to make up the balance due on the
contract made by their agents on their behalf.

18
Therefore there will be a decree in favour of the plaintiff company for two sums of Rs. 7,175-
8-6 and 224-4. and costs with a direction that the sum of Rs. 7,175-8-6 be paid by the Official
Liquidator to Maliram Ramjidas in settlement of his claim.

4. Case commentaries
4.1. Case commentaries by scholars
Under para. 4 of the case there have been distinctions that were drawn also by Cozens-Hardy,
M.R. at p. 709, where he says, In the first place this is not the case of a contractual right of
indemnity. It is merely an equitable right which every trustee has to be indemnified by his
cestui que trust. It is a right which the common law would not in any way have recognized.
Equity has always taken a wider and more liberal view of these rights of indemnity than the
old Common Law Courts did. It is settled at common law that, given a contract of indemnity,
no action could be maintained until actual loss had been incurred. The common law view was
first pay and then come to the Court under your agreement to indemnify. In equity that was
not the view taken. Equity has always recognized the existence of a larger and wider right in
the person entitled to indemnity. He was entitled, in a Court of Equity, if he was a surety
whose liability to pay had become absolute to maintain an action against the principal debtor
and to abstain an order that ho should pay off the creditor and relieve the surety. Another way
in which the indemnity was often worked out in the Court of Chancery was by ordering a
fund to be set a part to meet the liability as and when it arose. So that in the view of the Court
of Equity it was not necessary for the person entitled to the indemnity to be ruined by having
to pay the full amount in the first instance. He had full power to take proceedings under
which that fate might be averted, and he might substantially protect himself and secure his
position by coming to the Court.

Further, para. 5 of the case, Buckley, L.J. says at p. 715,Indemnity is not necessarily given by
repayment after payment. Indemnity requires that the party to be indemnified shall never be
called upon to pay

Para. 13 of the case, Kennedy, L.J., says at p. 638, There appears to me to be authority for
holding that, in the view of a Court of Equity to indemnify does not merely mean to
reimburse in respect of moneys paid, but (in accordance with its derivation) to save from loss
in respect of the liability against which the indemnity has been given. See Wright, J., in
Wolmershausen v. Gullick [1893] 2 Ch. 514, 527, 528, citing Lord Lindley's work on

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Partnership, 5th Edition, pp. 374, 375. As Neville, J., points out in the course of his judgment
in this case Liverpool Mortgage Insurance Co's. case [1913] 2 Ch. 612, if it be held that
payment is a condition precedent to recovery, the contract may be of little value to the person
to be indemnified, who may be unable to meet the claim in the first instance.

4.2 Case commentaries by the researcher

In this famous case of the doctrine of indemnity, the researcher observes that matter of
contention that has been stated above. In the the present case seems to the researcher that it
fall in the category of those in which the party giving the indemnity is concerned with the
application of the money which he pays. The defendants may be liable as undisclosed
principals and it would be a most unjust result if after paying the full amount claimed in this
ease, of which sum the vendors would receive only a dividend, they were called upon to pay
a further sum to the vendor to make up the balance due on the contract made by their agents
on their behalf. Though the court had given the judgement that there will be a decree in
favour of the plaintiff company for two sums of Rs. 7,175-8-6 and 224-4. and costs with a
direction that the sum of Rs. 7,175-8-6 be paid by the Official Liquidator to Maliram
Ramjidas in settlement of his claim.
The researcher feels that as there the existence of a contract of indemnity between the
plaintiff and the defendant, they are obliged to work in terms of the objectives of the contract
that protects and obliges the parties under the contract of indemnity.

CONCLUSION

The research project aims to study and understand the provisions of Contract of Indemnity
under Sec. 124 and Sec. 125 of the Indian Contract Act, 1872 and to analytically comment on
the case of Osmal Jamal v. Gopal Puroshottam. The main scope of the project is mainly
limited to Sec. 124 and Sec. 125 of the ICA, 1872. The researcher studies their legal
provisions along with case laws to supplement. The research project also studies the famous
case of the doctrine of Indemnity, Osmal Jamal v. Gopal Puroshottam and comments on its
judgement. In the first context, the concept of Indemnity is clearly explained with relation to
Sec. 124 and Sec. 125. It was noted that that ―an indemnity is a contract by one party to keep

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the other harmless against loss, but a contract of guarantee is a contract to answer for the
debt, default or miscarriage of another who is to be primary liable to the promise.‖ Under
Sec. 124 of the Indian contract act 1872, indemnity is a protective compensation package,
wherein a person promises to protect from the losses incurred by the promisor or any other
individual. It is an instance of ―original liability‖ and acts as compensation cover. There are
two categories of individuals involved in a contract of indemnity. It includes an ―indemnifier‖
also known as ― ―indemnified‖ or the ―indemnity holder‖ who have a contract of Indemnity
between them for a particular buniness transaction.
The researcher also explains the new concept called ‗Indemnity Lottery’ can be found in the
law of contract that implies that in civil cases of indemnity results can never be predicted.
Brazilian jurist Leonardo Castro is credited for coining the term.
In the second context, with the assistance of two main case laws, the subject of indeminity is
explained. Earlier in the English common law the contract of indemnity could not be used till
actual loss took place, in other words the indemnifier could not be compelled to compensate
till actual loss was suffered by the indemnity holder, however under recent equitable
principles any claim to indemnify can be successfully used when the claim is clear and
enforceable. This has been emphasized in Osman Jamal and Sons Ltd. v. Gopal Purshottam.
Thus as per the new and recent rules any case of probable losses can also invoke indemnity.
This was also used in Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri. The
Indemnity holder can recover costs when two pre-conditions are fulfilled under Sec. 125
when he/she is sued - He/she has been authorized by the promisor to ―bring or defend‖ the
suit.
Thus, the research project provides a clear meaning of the Contract of Indemnity along with
illustrative case commentaries on the practical functioning of the subject matter.

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BIBLIOGRAPHY

Books

 Anson‘s Law of Contract 28.ed

 Pollock & Mulla, ―THE INDIAN CONTRACT AND SPECIFIC RELIEF ACTS‖,
14th Edition 2012, LexisNexis
 Avtar Singh, CONTRAT & SPECFIC RELIEF, 10th ed. 2008, Eastern Book Co.

Website

 Contracts of Indemnity‖ (Law Notes), 18th February 2014,

<http://www.lawnotes.in/Contracts_of_Indemnity
 Indemnity and Guarantee (Indiancaselaws.wordpress), 18th February, 2014,
<http://indiancaselaws.wordpress.com/indemnity-and-guarantee

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