Page 48 - DMGT407Corporate and Business Laws

Unit 2: Consent, Indemnity and Guarantee Acts

Notes
to the Domestic Tariff Area (DTA) for processing at the first stage itself, exporters have to
provide Bank Guarantee (BG) worth the full value of the duty foregone on the material.
Furnishing bank guarantee entails complying with additional procedure, additional
documentation, additional costs and additional harassment, they say. The sources note
that the solution could have been a simple proviso that the jobber be a reasonably
identifiable unit either an SSI unit or with proof of legitimate existence like a municipal
licence, a lease licence, ownership proof, one-time certificate from any recognised authority
that the jobbing unit exists. Again, they say, as far raw materials being supplied to jobber
this could be on the basis of Legal Undertaking (LUT) by the EOU and on input-output
norms. When contacted, the Joint Secretary in the Ministry of Commerce, in charge of
EOUs, Mr D.K. Mittal, said that there was never a ban on EOU sub-contracting or outsourcing
a part of their export production, especially units in various key sectors need to outsource
work pertaining to fabrication, dyeing and processing. He said the current Exim Policy
(2002-07) while permitting job work has imposed a few restrictions. Thus, the flexibility
available to EOUs and units located within EPZs as well as Special Economic Zones (SEZs)
has been curtailed by stipulating that job work could be awarded only to units registered
within the excise authorities. According to the new procedures, the exporter has to import
raw materials at his unit and carry out the first process on his own. Sub-contracting is
allowed only for subsequent processes and that too only with units that are registered
with the excise department.

Source: thehindubusinessline.com
2.8 Contract of Indemnity

2.8.1 Meaning of Indemnity

Sections 124 and 125 provide for a contract of indemnity. Section 124 provides that a contract of
indemnity is a contract whereby one party promises to save the other from loss caused to him
(the promisee) by the conduct of the promisor himself or by the conduct of any other person.
A contract of insurance is a glaring example of such type of contracts.
A contract of indemnity may arise either by (i) an express promise or (ii) operation of law, e.g.,
the duty of a principal to indemnify an agent from consequences of all lawful acts done by him
as an agent. The contract of indemnity, like any other contract, must have all the essentials of a
valid contract. These are two parties in a contraction of identity indemnifier and indemnified.
The indemnifier promises to make good the loss of the indemnified (i.e., the promisee).

Example: A contracts to indemnify B against the consequences of any proceeding which
C may take against B in respect of a certain sum of ` 200. This is a contract of indemnity.

2.8.2 Rights of the Indemnified (i.e., the Indemnity Holder)

He is entitled to recover from the promisor: (i) All damages which he may be compelled to pay
in any suit in respect of any matter to which the promise to indemnify applies; (ii) All costs of
suit which he may have to pay to such third party, provided in bringing or defending the suit
(a) he acted under the authority of the indemnifier or (b) if he did not act in contravention of
orders of the indemnifier and in such a way as a prudent man would act in his own case; (iii) All
sums which may have been paid under the terms of any compromise of any such suit, if the
compromise was not contrary to the orders of the indemnifier and was one which it would have
been prudent for the promisee to make.

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