Indemnity Clause: Meaning, Sample & Drafting Tips (India)
An indemnity clause is a promise by one party to make good specified losses the other party suffers — typically from third-party claims, breach of law or IP infringement. In India, section 124 of the Indian Contract Act, 1872 defines a contract of indemnity, and a well-drafted clause sets its trigger, scope, procedure and cap.
How it works under Indian law
Section 124 of the Indian Contract Act, 1872 defines a contract of indemnity as a promise to save the other party from loss caused by the conduct of the promisor or of any other person. Section 125 gives the indemnity holder the right to recover damages, costs of defending a suit and sums paid under an authorised compromise.
The statutory definition is narrow, so commercial indemnities are drafted to cover what section 124 may not — for example losses caused by events rather than conduct, and defence costs before liability is established. Indian courts have long held that an indemnity holder need not always wait until it has actually paid the loss before enforcing the promise; the clause should still say so expressly.
An indemnity is a primary obligation that sits alongside the ordinary damages claim under section 73. That is why counterparties insist that indemnities are subject to (or expressly carved out of) the limitation of liability clause — the interaction between the two clauses is where most disputes arise.
Drafting checklist
- Name who indemnifies whom, and whether it is one-way or mutual.
- List the specific triggers (breach, negligence, IP infringement, breach of law, data breach) rather than "any loss".
- Decide whether the indemnity covers only third-party claims or also direct losses between the parties.
- Set the claims procedure: notice period, control of defence, settlement consent, cooperation.
- State expressly whether the indemnity is inside or outside the liability cap.
- Add carve-outs for losses caused by the indemnified party itself.
- Say whether the indemnity survives termination and for how long.
Sample indemnity clause
Two versions: a standard position and an alternative you can offer in negotiation. Replace every [placeholder] before use.
Standard indemnity (mutual, third-party claims)
Standard position[Indemnifying Party] shall indemnify, defend and hold harmless [Indemnified Party], its affiliates and their respective officers and employees from and against all losses, damages, liabilities, costs and expenses (including reasonable legal fees) arising out of any third-party claim to the extent caused by: (a) a breach of this Agreement by the Indemnifying Party; (b) the gross negligence, wilful misconduct or fraud of the Indemnifying Party or its personnel; or (c) a violation of applicable law by the Indemnifying Party. The Indemnified Party shall (i) notify the Indemnifying Party in writing within [15] days of becoming aware of the claim, (ii) allow the Indemnifying Party to control the defence and settlement (provided no settlement admits fault on behalf of the Indemnified Party without its prior written consent), and (iii) provide reasonable cooperation at the Indemnifying Party's cost.
Balanced version (capped, with mitigation)
Balanced — suits a supplier who accepts an indemnity but needs it boundedSubject to Clause [Limitation of Liability], [Supplier] shall indemnify [Customer] against losses finally awarded by a court or arbitral tribunal, or agreed in a settlement approved by [Supplier], in respect of a third-party claim to the extent arising from [Supplier]'s breach of Clause [Confidentiality], Clause [Data Protection] or its infringement of a third party's intellectual property rights. [Supplier]'s aggregate liability under this Clause shall not exceed [two times] the Fees paid or payable in the [twelve] months preceding the claim, save for losses arising from fraud or wilful misconduct. [Customer] shall take reasonable steps to mitigate its losses, and [Supplier] shall have no liability to the extent a claim results from [Customer]'s own breach, modification of the deliverables, or use not in accordance with this Agreement.
Who pushes for what
Typical negotiating positions on each side of the table.
Customer / buyer
Pushes for broad triggers, coverage of direct losses, indemnity outside the cap and survival without time limit.
Supplier / service provider
Pushes for third-party claims only, a separate (often higher) super-cap, mitigation duties and control of the defence.
Common middle ground
Uncapped for fraud, wilful misconduct and IP infringement; a super-cap for data breach; general cap for everything else.
Common mistakes
- Writing "indemnify against any and all losses whatsoever" — unlimited and hard to price or insure.
- Leaving the indemnity silent on the liability cap, so each side reads it its own way.
- No notice and defence-control mechanism, which invites disputes about settlements made without consent.
- Copying a US-style "defend and hold harmless" clause without checking how it works with section 124-125.
Frequently asked questions
Is an indemnity clause enforceable in India?
Yes. Section 124 of the Indian Contract Act, 1872 recognises contracts of indemnity, and section 125 sets out what the indemnity holder can recover. Courts enforce commercial indemnities according to their wording, so precise triggers, procedure and caps matter.
What is the difference between an indemnity and damages?
Damages under section 73 compensate for loss caused by a breach and are subject to remoteness and mitigation. An indemnity is a promise to cover specified losses, which may include losses caused by third parties or by events, and is often drafted to apply regardless of breach.
Should an indemnity be capped?
It is a commercial decision. Many Indian contracts cap general indemnities at a multiple of fees but leave fraud, wilful misconduct and IP infringement uncapped. Whatever is agreed, state it expressly in both the indemnity and the limitation of liability clause.
Does an indemnity bond need stamp duty?
Yes — an indemnity bond is a stamped instrument in most states, and the duty depends on the state stamp law. An indemnity clause inside a larger agreement is usually covered by the duty on the main agreement; check the applicable state schedule.
Related tools, formats and guides
Build a clause library with approved fallbacks in CaseDocker
Store your approved clause language and pre-agreed fallback positions in CaseDocker's Contract Management module, and use Playbooks to route any deviation to the right approver before the contract goes out for signature.