Indemnity Bond explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
An indemnity bond is a written promise by one person to make good the loss that another person may suffer. It is widely used when someone is asked to act on incomplete papers: issuing a duplicate share certificate, releasing a deposit without the original receipt, or transferring an asset where a document is missing. This article gives a specimen bond and explains what each clause does and where the Indian Contract Act, 1872 fits.
An indemnity bond identifies the indemnifier and the party indemnified, the event or document that creates the risk, the loss covered, how claims are notified and defended, and how long the bond lasts. Under section 124 of the Indian Contract Act, 1872, a contract by which one party promises to save the other from loss caused by the conduct of the promisor or of any other person is a contract of indemnity. An indemnity bond is a contract of indemnity in a formal document, usually on stamp paper.
When you need an indemnity bond
You need one when a person or an organisation takes a step that exposes it to a risk and wants a promise of protection from the person who benefits. Common uses:
- A company issues a duplicate share certificate or releases dividend where the original certificate is lost; the member indemnifies the company against any claim from a later holder.
- A bank or depositary releases a deposit or security without a missing receipt or document.
- A buyer or lender completes a transaction on the strength of a document that is lost or irregular.
- A contractor or professional agrees to protect a client against claims arising from the work.
The bond is used primarily in dealings on mortgages, accounts, law, information technology and insurance. For the commercial position, our affidavit and declaration drafting service prepares indemnity bonds and the supporting affidavits.
See also our formats for an undertaking to a court or authority and a bail bond. An indemnity differs from a guarantee. In an indemnity, the promisor promises to save the other from loss; in a contract of guarantee under section 126, the surety promises to perform the promise or discharge the liability of a third person in case of that person's default, and there are three parties: creditor, principal debtor and surety. See the contract of guarantee under section 126.
Specimen indemnity bond
INDEMNITY BOND This Indemnity Bond is executed on at BY , , aged , resident of , (the Indemnifier) IN FAVOUR OF , (the Indemnified Party). RECITALS A. shares of under certificate number / the Indemnifier is entitled to ]. B. The Indemnifier states that the original (the Document) has been and, despite diligent search, cannot be found. C. At the request of the Indemnifier, the Indemnified Party has agreed to (the Act) on the Indemnifier giving this bond. NOW THIS BOND WITNESSETH: 1. Indemnity. The Indemnifier shall indemnify and keep indemnified the Indemnified Party, its officers and successors against all losses, damages, liabilities, claims, demands, costs and expenses that the Indemnified Party may suffer or incur because of or in connection with the Act or any claim by a person asserting a right under the Document. 2. Costs of suits. The Indemnifier shall pay all damages and all costs that the Indemnified Party may be compelled to pay in any suit or proceeding on any matter to which this indemnity applies, and all sums paid under any compromise of such a suit made with the Indemnifier's written approval. 3. Notice of claims. The Indemnified Party shall give the Indemnifier written notice of any claim within of receiving it, with copies of the papers. 4. Conduct of defence. The Indemnifier may, at its cost, conduct the defence of the claim, and the Indemnified Party shall give reasonable assistance. The Indemnified Party shall not compromise a claim without the Indemnifier's consent, which shall not be unreasonably withheld. 5. Return of the Document. If the Document is found, the Indemnifier shall return it to the Indemnified Party for cancellation. 6. Declaration. The Indemnifier declares that the particulars in the recitals are true, that the Document has not been transferred, pledged or charged, and that it holds no information inconsistent with this bond. 7. Duration. This bond remains in force until and for any claim notified before that date. 8. Governing law and jurisdiction. This bond is governed by the laws of India and the courts at have jurisdiction. IN WITNESS WHEREOF the Indemnifier has signed this bond on the date first written above. Witnesses: 1. 2.
Clause-by-clause explanation
| Clause | What it does | Drafting tip |
|---|---|---|
| Parties | Identify indemnifier and indemnified party | Use full legal names and identity particulars |
| Recitals | Record the facts and the document at risk | Describe the document exactly: number, date, parties |
| 1 Indemnity | The core promise to save from loss | Name the events covered and the persons protected |
| 2 Costs of suits | Covers damages, costs and compromise sums | Mirrors the rights in section 125 |
| 3 Notice | Brings claims to the indemnifier's attention | Give a clear period and mode |
| 4 Defence | Lets the indemnifier control the defence | Prevent compromise without consent |
| 5 Return | Handles the document if found | Provide for cancellation |
| 6 Declaration | Facts stated are true | The indemnifier is accountable for these facts |
| 7 Duration | Sets the life of the bond | Tie it to a date or a written discharge |
| 8 Law and forum | Governing law and courts | Match the place of the transaction |
The law behind it
Section 124. 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. See section 124, contract of indemnity defined.
Section 125. The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor: all damages he may be compelled to pay in any suit in respect of any matter to which the promise applies; all costs he may be compelled to pay in such a suit if, in bringing or defending it, he did not contravene the orders of the promisor and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suit; and all sums paid under any compromise of the suit, if the compromise was not contrary to the orders of the promisor and was one a prudent person would make, or if the promisor authorised it. See section 125, rights of the indemnity-holder. Clauses 2 to 4 of the specimen are drafted to fit these rights.
Stamp duty, registration and execution
A bond of this kind is chargeable with stamp duty according to the Stamp Act and Schedule of the State where it is executed; many States specify the instrument by its description. See our articles on stamp duty on an indemnity bond, the Schedule I entry covering bonds and indemnity bonds and the State-wise overview. No amount is quoted here. An indemnity bond is not ordinarily compulsorily registrable. Execution: the indemnifier signs on stamp paper of the right description, witnesses attest, and, if the Indemnified Party requires it, the signature is notarised or the bond is accompanied by an affidavit and an identity proof. Keep the original with the indemnified party.
Common mistakes
- Using one indemnity for unrelated risks without describing the document or event.
- Not stating who bears costs of suits and compromise sums.
- No notice or defence clause, so the indemnifier hears of a claim too late to defend.
- Executing on the wrong class of stamp paper.
- Omitting the declaration that the document was lost and not transferred.
- Leaving the duration open without a discharge mechanism.
- Describing a guarantee as an indemnity, or the reverse.
- Not recording the police complaint or public notice that supports a loss claim.
Need help with an indemnity bond?
An indemnity is only as useful as the facts it records and the claims it covers. Our affidavit and declaration drafting team can prepare the bond, the supporting affidavit and the public notice where needed.
Key takeaways
- An indemnity bond is a contract of indemnity under section 124 of the Indian Contract Act, 1872.
- Name the document or event, the loss covered, notice, defence and duration.
- Mirror the rights in section 125 for suits, costs and compromise.
- It is not a guarantee, which involves a third person's default.
- Execute on stamp paper as State law requires; no amount is quoted here.
Read next
- Undertaking format to court or authority
- Specimen deed of guarantee: bank and performance
- Affidavit: definition, types and format
- Section 124: contract of indemnity defined
Disclaimer: This specimen is a general model for information. Every document must be adapted to its facts and to the law, rules and forms in force when it is signed or filed; stamp duty, registration and court fees depend on the State and the forum. This article is general information, not legal advice; check the official text before acting.