Indemnity
An indemnity is a contractual promise by one party to compensate the other for specified losses, typically covering third-party claims arising from the indemnifying party’s acts, breaches or IP infringement.
In plain English
Indemnities shift risk directly rather than relying on ordinary damages rules. Because the obligation is contractual, the indemnified party generally does not need to prove the usual tests of remoteness or mitigation that limit a normal breach-of-contract claim. That is what makes indemnities powerful — and dangerous when given too broadly.
Why it matters
An uncapped indemnity can dwarf the contract value. A vendor on a ₹20 lakh contract carrying an uncapped IP indemnity can face a claim many multiples of what it earned. Whether the indemnity sits inside or outside the liability cap is one of the highest-stakes drafting questions in any commercial agreement.
Example
"Supplier shall indemnify Customer against all losses arising from any third-party claim that the Deliverables infringe that third party’s intellectual property rights." If the liability cap does not expressly cover this clause, the exposure is unlimited.
Under Indian law
Sections 124 and 125 of the Indian Contract Act, 1872 deal with contracts of indemnity. Indian courts have held that indemnity can extend beyond the narrow statutory wording, and well-drafted commercial indemnities routinely cover losses that are not third-party claims.
How LexVio handles it
LexVio flags indemnity clauses that sit outside the liability cap and highlights uncapped or one-sided indemnities as clause-level risks.
LexVio — AI Contract ReviewCommon questions
What is the difference between indemnity and damages?
Damages compensate for loss caused by breach, subject to remoteness and mitigation rules. An indemnity is a primary promise to cover defined losses, so it generally avoids those limiting doctrines and can be claimed without proving breach.
Should an indemnity be capped?
Commercially, yes for most categories. IP infringement and confidentiality indemnities are frequently carved out of the cap; broad general indemnities should sit within it. Check whether your cap clause expressly names the indemnity.
Is indemnity recognised under Indian law?
Yes. Sections 124–125 of the Indian Contract Act, 1872 address contracts of indemnity, and Indian courts have permitted commercial indemnities broader than the literal statutory definition.