Indemnity clauses in commercial contracts

By Uday Walia and Palash Gupta, S&R Associates
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Indemnity clauses are a ubiquitous feature of corporate finance and share acquisition contracts in India. It is important to be aware of the extent of the protection offered by an indemnity clause governed by Indian law, the exclusions that apply and the potential difficulties in enforcing such a clause in an Indian court.

Indemnity clauses offer protection against damages, losses, costs and expenses suffered or incurred by the indemnified party as a result of breach by the indemnifier or the occurrence of certain events. There are significant differences between a contract of indemnity and a claim for damages for breach of contract.

Uday Walia Partner S&R Associates
Uday Walia
Partner
S&R Associates

Incidence and quantum

The liability to pay damages crystallizes when the aggrieved party establishes that there has been a contractual breach. Stipulated or liquidated damages must be a genuine pre-estimate of loss and not so excessive as to be considered to be a penalty. The function of damages in a contract is to compensate an injured party for losses for which they had specifically assumed risk. Remote losses that were not within the reasonable contemplation of parties are not recoverable.

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Uday Walia is a partner and Palash Gupta is an associate at S&R Associates, a New Delhi-based law firm.

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S&R Associates

64 Okhla Industrial Estate Phase III

New Delhi 110 020

India

Tel: +91 11 4069 8000

Fax: +91 11 4069 8001

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