Parties Involved

• Claimant/Plaintiff– Gajanan Moreshwar Parelkar.
• Defendant– Moreshwar Madan Mantri.
• Sitting Judges– Justice M. C. Chagla.
• Other(s)– Mr. Keshavdas M. (a materials supplier) & the Bombay Municipal Corporation (hereafter referred to as the ‘BMC’).

FACTS

            In 1934, the plaintiff (Mr. Gajanan Moreshwar Parelkar) and the BMC had a lease agreement for a period of 999 years, whereby BMC gave the plaintiff a particular piece of land in exchange for the lease amount. The defendant (Mr. Moreshwar Madan Mantri) then asked the plaintiff to transfer the benefit of that lease to him. This would consequently allow the defendant to start construction work on that land right away. The plaintiff agreed and transferred the benefit of lease to the defendant for the same. The defendant started construction and hired a Mr. Keshavdas Mohandas as a materials supplier. Now, a few things developed thereafter, which forms the critical and focal point of the case at large:

1. Mr. Keshavdas supplied the materials, but the defendant did not pay for those materials. Subsequently, INR 5000 was due to Mr. Keshavdas accordingly. The defendant requested the plaintiff to mortgage the land (girvi rakhna) with Mr. Keshavdas, for one year, so that the INR 5000 will get paid off. Thus, the plaintiff did so on.
2. Later, Mr. Keshavdas supplied materials again. Again, the defendant didn’t pay up the money. INR 5000 was again due to Mr. Keshavdas. Defendant again requests the plaintiff to mortgage the land (girvi rakhna) with Mr. Keshavdas, for one year, so that the INR 5000 will get paid off. The Plaintiff did so yet again.
3. It is highly crucial to clearly remember, that by mortgaging this land, the plaintiff (Gajanan Moreshwar) is at risk, because Mr. Keshavdas may simply refuse to return the deed to the land. But, since he is doing it at the request of the Defendant, there is an implied promise that the defendant will indemnify the plaintiff for any loss.
4. However, when the second mortgage occurs, the defendant signs a contract that he will indemnify the Plaintiff against all claims from Mr. Keshavdas and he will also pay off all mortgages and charges against the land. The promise is no longer implied. Since there is a contract, it is now an express promise.

     Now, the Plaintiff asks the Defendant to secure his release, against all claims from Mr. Keshavdas Mohandas, by paying off the INR 10,000 (5000+5000) and recovering the official deed to the land. The Defendant refused to pay & argued that the Plaintiff had not suffered an actual loss and therefore could not claim any money from the Defendant. Hence, the matter was raised and heard before the Indian Court of Law.

 KEY ISSUE(S) RAISED

1. Whether there needs to be an actual loss, to claim money from the indemnifier?
2. Whether this suit of indemnity was premature, as the plaintiff had not incurred any loss yet?
3. Additionally, & incidentally, whether the plaint automatically corresponds / discloses any cause of action?

 DECISION HELD

   The fact that the Court of equity held that if his liability had become absolute then he was entitled either to get the indemnifier to pay off the claim or to pay into Court sufficient money which would constitute a fund for paying off the claim whenever it was made. Ultimately, these facts therein led to the judgement that the plaintiff(s) couldn’t sue the defendants in anticipation that the proceeds realized by the sale of the mortgaged property would be insufficient and there would be some deficit left. The court construed the note as an indemnity. The court also provided the plaintiff(s) to choose repudiation of the mortgage wholly and recover the full amount from the defendant, but the plaintiff(s) opted for the recovery from the mortgaged property. Thus, there being no actual clue to the apprehension that the recovery from the sale of mortgaged property shall be insufficient the said decree couldn’t be awarded. The council didn’t accept M. Madan’s stance that G. Moreshwar had suffered no loss and thus couldn’t claim anything under Sections 124 and 125 of The Indian Contract Act, 1872. The Council held that an indemnity holder has rights apart from those mentioned within the Sections above. If the indemnity holder has incurred a liability and therefore the liability is absolute, he can address the indemnifier to require care of the liability and pay it off. Thus, G Moreshwar was entitled to be indemnified by M Madan against all liability under the mortgage and deed of charge.

 The court held in the favour of the plaintiff stating that Sections 124 and 125 of the Indian contract Act, 1872 are not exhaustive of the law of indemnity and the courts would apply equitable principles as are applied in courts of England. The court did not accept the defendant’s stance that the plaintiff has not suffered any loss and thus couldn’t claim. And held that indemnity holder has rights apart from those mentioned within the sections.

CRITICAL ANALYSIS

        Perhaps one of the most crucial and critical consequences from this historic case was that Contract of Indemnity was recognised as the kind of contract wherein a promisor agrees to do good for all the losses and costs incurred or to be incurred by the promisee in the broadest of terms possible, through the execution of such cases of contract[s]. Though quite a number of clauses are made within the Indian Contract Act, 1872 associated with indemnity, Sections 124 and 125 have their significance in legal suits when the indemnified turns to the indemnifier demanding the liability to be paid off.

Since Section 124 applies when the promisee has got to bear the losses with regard to some specific act of the promisor or a 3rd party and Section 125 considers the case mature for legal suit only if promisee has actually procured the losses, both of them apply heavily, elaborately and extensively within this and many other case(s) of indemnification. However, they occasionally let down and may even pronounce injustice within certain cases where the promisee is deemed fully liable after the deadlines of payment have already been crossed but the liability can’t be affixed over the promisor till the dues / damages are actually incurred. Similarly, when the payment to the concerned party isn’t made within the timeframe specified by the indemnifier, liability of the indemnified is clear, but any legal suit moved against the indemnifier appears to be premature inconsiderately & irrationally. Here, if the promisee is not solvent or capable to pay at that point, then what?

             Having said all of that though, such cases’ consideration of comparable cases in various courts becomes necessary to deliver justice to promisee who files the case as a plaintiff. The examples within the country and abroad through application of Common English Law were of the identical view till in 1914 Court of Equity was of the opinion that “A Contract of indemnity would serve little purpose if the indemnity holder was made liable within the first instance”. Furthermore, this proposition of applying equitable principles became universally applicable within the present context but not all decisions were being delivered properly, considering the rather innumerable judgments that have trusted and relied on the facts of this very quintessential case, the instantiated evidence here and simply the larger and broader applications of the Sections 124 and 125 of the contract act(s) & laws represented via this case.

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