₹200₹260
About the Document
Indemnity bond is a surety which is provided by a party which guarantees the other party that it will be compensated in case of any damage regarding the information in the indemnity bond. In other words, we can say that it is a promise by one party to another that it will bear the losses if incurred. Indemnity bond is most often used for the general insurance policies. In case, the policy document gets lost or damaged by the customer, upon maturity of the policy, the company may ask for an indemnity bond for the settlement of the policy claim. Indemnity bond has been derived from, Section 124 of the Indian Contract Act, 1872 which states that, when one party promises to pay for the losses of another party within a contract, it is termed as agreement of indemnity.
The two parties between whom the contracts happen are called, Principle (The party which will financially compensate the other party in case of a loss) and obligee (The party which will be compensated by the Principle).
Purpose of Indemnity Bond:Indemnity bond are also called surety bond, these are widely used all across the business world. It helps businesses as it assures payment if one party fails the promise or fails to fulfil the clause of the contract. In other words, it guarantees financial remuneration in case the contracted party does something illegal. The Indemnity bond can be enforced in case of a violation of the contract. The party breaking the rules of the contract is liable to pay for the damage to the other.
Types of Indemnity Bond:In the indemnity bond can be requested for s number of reason as well as it can be signed by varied parties. Some of the types of Indemnity bond are listed as under:
- Indemnity Bond between employer and Employee – A bond can be drafted and signed between an employer and employee, where in, the employer can ask the employee to work for a specific period of time and in case the employee quits before that time, the employer is liable to get compensation from the employee.
- Bond for loss of share certificate/policy papers – As mentioned above, in case of a loss of the share certificate or policy document, an indemnity bond can be drawn which should state the reason for loss and a should also request to issue a new certificate.
- Bond between Government and Independent Contractors – Most of the development and construction work is done by private contractors for the government, where in the government funds the entire project and contractors make their profit. Indemnity bond can be executed between the government and contractors.
Preparing and drafting of the indemnity bond is not a very tricky process, the contractor might have several years of experience, however it is always advisable to seek help from the experts, after all, it is a legal document which is binding on the parties involved. It might lead to financial losses which can be devastating for a person/company etc. Registering the indemnity bond is necessary, otherwise it has no value.
Some of the steps for the registration are:- Drafting the Indemnity Bond by a lawyer
- Stamp paper fee payment
- Appointment at the Office of the sub registrar.
- Payment of the registration fee.
- At the sub registrar’s office at the appointed date and time, the parties reach along with two witnesses each for the necessary paper work.
- After 7 to 10 days, the registered indemnity bond is collected.
- Protection from Loss – The Bond acts as a shield for the obligee for any monetary loss due to a wrongdoing of the principle as it becomes legally liable to financially recompense the obligee.
- The wordings of the indemnity bond can be “Express” or “Implied”. Express promise is a promise made in express term. An Implied promise is one where the promise is shown by the conduct.
- It should have all the basics of contract as per the Indian Contract Act 1872.
- Execution of the promise – The bond gives the holder the right to recover damage or losses by filing a suit. It also enables the indemnity holder the right to obtain the cost incurred during the court case.
- Initiation of the Indemnity Bond – the indemnity bond cannot be invoked until the indemnity holder has incurred financial loss or damage. In other words, till the loss is endured, the indemnifier doesn’t become liable.
Indemnity bond is definitely a tool which ensures one, protection from financial setbacks at the hands of another party or person, however it must be understood that, the indemnity bond should be well drafted and an expert should be consulted before going ahead with it. It also builds trust between parties and due to which the business flourishes.
