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11 NLS Bus. L. Rev. 1 (2025)

handle is hein.journals/nlsblr2025 and id is 1 raw text is: Peer-reviewed and edited - Pending pagination and layout DOI: 10.55496/OSEE6555 THE REVIVAL OF 'ACTUAL DAMINIFICATION' RULE: DECONSTRUCTING THE JUDICIAL APPROACH IN INDIA AND ENGLAND ON DETERMINING COMMENCEMENT OF LIABILITY IN CONTRACTS OF INDEMNITY - Arunabha Banerjee I. Introduction Indemnity is a contract of recompense wherein the indemnity holder can claim the contracted amount from the indemnifier if the holder has suffered a loss either due to the conduct of the indemnifier or any third person.1 The payment of the contracted amount may either depend on the actual losses incurred and proved by the holder (based on the maxim 'you must be damnified before you can claim to be indemnified'), or become payable upon the liability of the holder becoming absolute by the happening of an event. While the conventional interpretation of indemnity in common law only allowed indemnity claims supported by proof of actual loss, the rigours of common law were gradually mitigated through a series of judicial pronouncements that focused on the equitable rather than the strict legal view of the indemnity. The equitable construct placed a greater emphasis on whether the liability of the holder could be conclusively determined. The underlying rationale for this construct was that the object of an indemnity contract is not just to offer a recompense but also save the holder from loss. As both approaches continue to operate parallelly, evidenced by the cases dealt with in the following sections of this article, it becomes important for a student or practitioner of law to understand the point at which the liability of the indemnifier commences. While the literal interpretation of Section 124 read with Section 125 (rights of the indemnity holder) of the Indian Contract Act, 1872, emphasises on the requirement of actual loss (damages, costs or settlement sum as mentioned in Section 125)2 to sustain a successful claim by the holder, judicial interpretation suggests that the claim may arise simply based on existence of liability without proof of any actual loss to the holder. This article will explore these authorities and identify a rule that can be used as a definitive principle to determine the commencement of liability of the indemnifier against the holder. Part I of the article will introduce the topic and explain the approach adopted in formulating an effective rule to determine the point at which the liability of the indemnifier against the holder 1 Indian Contract Act 1872, s. 124; See also Halsbury's Laws ofIndia (2nd edn, 2015) vol 9, para 95.173. 2 Wayne Courtney, 'Indemnities and the Indian Contract Act 1872' (2015) 27(1) National Law School of India Review <https://repository.nls.ac.in/nlsir/vol27/iss1/10> accessed 4 March 2025.