Indemnity

"Indemnity is defined as a mutual contract between two parties where one person promises the other to compensate for the loss against payment of premiums."[1] Indemnity has been explained under Section 124 and 125 of the Indian Contract Act, 1872. It follows the principle of uberrima fides, which means "utmost good faith."

Manmohan Nanda vs. United India Assurance Co. Ltd. and Ors. (2021)[2]

Name of the Parties:
Appellant ' Manmohan Nanda v/s Respondent ' United Assurance Co. Ltd. And Ors.

Judges:
Justice D.Y. Chandrachud and Justice B.V. Nagarathna.

Facts:
The complainant Manmohan, had filed an appeal against the "National Consumer Disputes Redressal Commission (NCDRC)" order, which had denied him to get indemnification for the medical disbursements he had endured in San Fransisco, USA. Manmohan had obtained a foreign medical insurance policy in order to attend his sister-in-law's wedding. He was only diagnosed for diabetes ' type II (mellitus) when examined by the respondent, insurance company.

Manmohan fell ill on the day he reached USA and had to pay USD 2,29,719 for his recovery. The appellant was not provided with the insurance, which was backed by NCDRC on the grounds of "non -disclosure of material facts" as he had not mentioned about his issues regarding hyperlipidemia. Manmohan was not pleased with the decision and thus filed an appeal in the Supreme Court.

Issues:
The questions which the case presented before the judges in this case were:

1. Whether Manmohan had intentionally suppressed the material facts, which led to the respondent having the authority to abolish the medical policy?
2. Whether the judgement passed by NCDRC was the right one?

Pleadings of Parties:
The appellant counsel pleaded that the abolishment of the policy on the grounds of non ' disclosure was not the right option legally. The counsel mentioned that Manmohan was unaware of the fact that he was a patient of hyperlipidemia, on the day he had submitted the required forms of the policy. The counsel pressed on the point that the appellant is only obliged to disclose facts that he has the knowledge of, which was not the case this time around. Another contention pointed out by this counsel was that the policy form had no option to specify that appellant was a victim to that particular disease, and thus persuaded that by no means the complainant could be denied indemnification as per the terms of the signed medical insurance policy.

The respondent counsel on the other hand, were firm on their stand that the unforeseen attack at the airport was down to the insured's history of hyperlipidemia. The respondents focused on the statement of the doctor appointed for this case, who was confident that the complainant was taking the medication for hyperlipidemia. The doctor's opinion helped the counsel stay close-grained on the violation committed by the appellant on grounds of non ' disclosure of material facts, and thus the respondent was not entitled to indemnify the insured anymore.

Ratio of Judges:
The judges provided that the material facts of each case would depend upon the unique circumstances. Also, if a specific question is probed in the form, it is the duty of the insured to fill it up, and the duty of the insurer to ensure that it has been filled up. The judges contended that any prudent insurer ought to measure any probable danger the medical policy could come up with, and then accept the policy, which requires proper structuring of the policy form.

Since the cardiac attack can arise due to the diabetes type ' II, the judges propounded that the insurance policy was purchased in order to keep such illness at bay, and by the abrogation of the policy by the respondent, the major purpose of purchasing the policy stands defeated. Thus, the cancellation of policy on grounds of non ' disclosure is void, and the judges claimed that it was the duty of the respondents to indemnify the complainant for the medical expenses incurred by the respondent, during his treatment in USA.

Judgement:
The appeal of Manmohan was allowed. The judges gave the following orders:

1. The insurer was ordered to indemnify the insured, with an interest of 6% per annum from the date of the petition filed by the appellant before the NCDRC.
2. The insurer was also instructed to pay the respondent ₹ 1,00,000 as a compensation for the litigation costs.

Guarantee

"A Contract of Guarantee is a defined as a contract to perform the promise, or discharge the liability, of a third person in case of a default committed by him. The person who provides the guarantee to the creditor is called surety. The person of whose default the guarantee is given is called the principal debtor. The person to whom the guarantee is given is called the creditor."[3] The Contract of Guarantee is defined under section 126 of the Indian Contract Act, 1872.

Maitreya Doshi Vs. Anand Rathi Global Finance Ltd. and Ors. (2022)[4]

Name of the Parties:
Appellant 'Maitreya Doshi v/s Respondent ' Anand Rathi Global Finance Ltd. and Ors

Judges:
Justice J.K Maheshwari and Justice Indira Banerjee

Facts:
The respondent, Anand Rathi Global Finance Ltd. and Ors (financial distributor) distributed a loan of ₹ 6,00,00,000 to Premier Ltd, in 3 loan-cum-pledge agreements which spread to over 16 months. The appellant, Doshi had pledged his shares, which acted as a security to the loan of Premier Ltd. Premier Ltd was incapable of paying the loan with interest which amounted to over ₹ 7.6 crores to be paid by February, 2020.

The respondent did not receive the repayment in the stipulated time and thus initiated CIRP process against the borrower for default in payment of over ₹ 8.3 crores. A petition was also filed against the appellant, Doshi for dues of the same amount. NCLT agreed with the financial distributor and held Doshi liable. NCLAT too approved the decision of the lower tribunal and rejected the appeal presented by Doshi against the NCLT judgement.

Issues:
The issues that the judges had framed to solve in this case were:

1. Whether the pledging of the shares acted as a contract of guarantee between Doshi and the financial distributor?
2. Whether Doshi is liable to pay the amount demanded by the respondent?

Pleadings of Parties:
The appellant counsel was convinced that no portion of the loan given through the agreement was handed over to the appellant, as Doshi had not employed any amount of the loan for himself, and claimed Pledger and Doshi holdings to be two different entities, and thus should not be treated in the same manner. The counsel stressed on the fact that the agreements only stated that Doshi holdings had the responsibility of proving the shares to the respondent as a pledger and was not a co-borrower as claimed by the respondent. The counsel concluded that Doshi is not a guarantor in this scenario.

The counsel of the respondent on the other hand, claimed Doshi to be a co-borrower. To support their arguments, the counsel provided the judges with documents, which were signed by Doshi, on behalf of Premier as well as Doshi holdings, as he was the director of both the entities. Thus, they claimed that both Premier as well as Doshi Holdings are jointly liable for the non ' repayment of the loan taken, and the financial distributor (respondent) thereby must be eligible to obtain the amount from any of the two borrowers.

Ratio of the Judges:
The judges agreed with the respondent's claims that the Doshi holdings too are borrowers in this case. The documents and the loan agreements push towards the same direction. The judges believed that the Doshi Holdings played a dual role of a borrower and that of a pledger. The court found no precedents of judgements stating a "pledger cannot be a borrower." The judges thus stated that, Doshi holdings acted as a guarantor and is entitled to pay the amount to the financial distributor.

Judgement:
The appeal of Doshi was dismissed. The court ordered that the financial distributor is entitled to claim the amount of ₹ 835,25,398 (loan of ₹ 6 crores with interest) from both, Premier as well as Doshi Holdings. But the same amount cannot be gained from both. If the payment has been made in parts by both the entities, only the remaining portion can be realised from the other entity.

Bailment

"Bailment has been defined under section 148 of the Indian Contract Act 1872 as, the delivery of goods by one person to another for some specific purpose, upon a contract that the delivered goods need to be returned with the completion of the specific purpose." The person who delivers the goods is known as bailor and the person to whom goods are delivered is known as bailee. However, if the owner continues to maintain control over the goods, there is no bailment."[5]

There are two types of bailment:

• Gratuitous Bailment:
  It is defined as a bailment which is carried out without any consideration, it is called Gratuitous Bailment. Generally, in such scenarios, it is the bailor who gets all the benefits.
   
• Non-Gratuitous Bailment:
  It is defined as a bailment which is carried out with an explicit or implied consideration, it is called Non ' Gratuitous Bailment. Here, the bailment contract provides benefits to both, the bailor as well as the bailee.[6]

Amitabha Dasagupta vs. United Bank of India and Ors. (2021)[7]

Name of the Parties:
Appellant: Amitabha Dasgupta v/s Respondent: United Bank of India and Ors.

Judges:
Justice Vineet Saran and Justice M.M. Shantanagoudar.

Facts:
Amitabha, the appellant had opted for the locker services from the United Bank of India's (respondent) Kolkata branch. When the appellant reached the bank to pay the rent for availing the locker services, he found out that the locker was already broken open around 9 months ago, for non-payment of the rent for the usage in previous years.

The appellant argued that, he had already completed the payment of rent for that period, a couple of months before the locker was broken down, which after a bit of review was approved by the respondent bank as well. When the appellant wished to take back the items in his locker, it was found that only a couple of the gold ornaments were in the custody of the bank, with 5 ornaments missing.

The district court ordered the bank to either pay a compensation of ₹ 3 lakhs or provide the appellant with the lost ornaments. When challenged by the bank in the State Consumer Dispute Redressal Commission (SCDRC), the compensation amount came down to as low as ₹ 30,000. The decision was upheld by the National Consumer Dispute Redressal Commission (NCDRC). Unsurprisingly, the appellant felt he was hard done by the decision, and thus decided to approach the Supreme Court with the help of Article 136 of the Indian Constitution.

Issues:
The issues that were put forward in this case are:

1. Whether the banks had a duty of taking care of the items inside the locker?
2. Whether there must be compensation given to the appellant for the items lost? And if given, what must be the amount?
3. Whether the contract of bailment applies in this situation?

Pleadings of the Parties:
The counsel for the appellant mentioned the judges that the amount of compensation provided by the SCDRC and the NCDRC were below the costs of the lost ornaments. The appellant counsel stressed on the fact that it was not possible for the courts to determine the value of the goods lost by the bank, as only the holder of the locker was aware of the goods present in the locker. Thus, the counsel claimed to provide the appellant with a compensation, that could bring about a change in the quality of the service of the bank.

On the other hand, the respondent counsel stressed on the point that the verdicts of the NCDRC and SCDRC must not be interfered with. The counsel further claimed that the compensation for the ornaments lost can be provided to the appellant only after there is appreciation in the evidences by the lower courts.

Ratio of the Judges:
The judges emphasized on the view of all the courts on the globe of the bank being the bailee and the locker holder acting as a bailor in such scenarios. The courts also made it clear that the bailee (respondent) needs to provide compensation to the bailor (appellant), by establishing several precedents, which followed the same path.

The court also declared that the banks need to employ great deal of diligence to operate the locker systems, as provided by the Consumer Protection Act. The judges also declared that the locker system functioning in the nation is not where it needs to be, thus they provided few methods which the banks need to utilize, to keep the lockers safe and secure.

The judges held the bank liable for their negligence of not cross-checking the payment of the rent made by Amitabha, before breaking open his locker. The court also held the bank liable for not taking care of the goods of the bailor, thus failing in fulfilling of the responsibilities of a bailee.

Judgement:
The appeal was disposed of by the judges by imposing a compensation of ₹ 5,00,000 to the appellant, from the respondent for the loss of the ornaments, and failure to fulfil the tasks of a locker services provider. The court also made it clear that the amount must be deducted from the salary of the employees, who were in charge of taking care of the appellant's locker. Additionally, the bank was also ordered to pay the litigation expenses of ₹ 1,00,000 to the appellant.

Pledge

The Contract of pledge is considered as a subset of the bailment contract. "Pledge has been defined under Section 172 of the Indian Contract Act as, the bailment of goods as security for performance of a promise or payment of a debt. The bailor is in this case called the 'pawnor'. Whereas, the bailee is called 'pawnee'." [8]

PTC India Financial Services Ltd vs. Venkateswarlu Kari and Ors. (2022) [9]

Name of the Parties:
Appellant - PTC India Financial Services Limited v/s Respondent - Venkateswarlu Kari and Ors.

Judges:
Justice Sanjiv Khanna and Justice M.R. Shah

Facts:
The appellant, PTC India Financial Services Limited (PIFSL) provided a loan of ₹ 1,25,00,00,000 to NSL Nagapatnam Power and Infratech Limited (NNPIL), which is a subsidiary of Mandava Holdings Private Limited (MHPL). MHPL (Respondent 1) pledged shares of NSL Energy Ventures Private Limited (NEVPL), which was another subsidiary of the former. The pledged shares acted as a security for the loan obtained by NNPIL.

NNPIL later initiated an insolvency proceeding voluntarily. Venkateswarlu Kari (Respondent 1) was appointed as the professional who would look after the interim resolution process. The appellant, PIFSL, undoubtedly was not very pleased about the situation, and therefore invoked the already made pledge, and gave themselves the status of a beneficial owner.

PIFSL then filed an application to Venkateswarlu in order to initiate the process of insolvency resolution. The application was challenged by MHPL. NCLT gave the decision in the favour of MHPL. NCLAT upheld the decision, stating that PIFSL had employed their rights given by the pledge deed, and the shares which were pledged, now stood by their name. PIFSL, being unhappy with this decision, filed an appeal in the apex court.

Issues:
The major issues identified by the Court of Justice were:

1. What is the status of the parties with reference to the invocation of pledge of shares that are dematerialized?
2. What are the rights of pledgor and pledgee during such invocation?

Pleadings of Parties:
MHPL claimed that as the appellant, PIFSL had accorded the status of beneficial owner, MHPL was now not having any authority over the 31,80,678 pledged shares, having taken the position of PIFSL, as a creditor of NNIPL, only to the portion of the value of the shares that were pledged by NEVPL to the present owner, PIFSL.

On the other hand, the appellant PIFSL now claimed an amount of ₹ 1,69,19,17,637 from NNIPL, with the value of the shares pledged by NEVPL not being taken into account, or reduced.

Ratio of the Judges:
The Supreme Court analysed the facts and circumstances of the case and stated a principal that there is an evident distinction between the "actual share" of the shares pledged and "mere transfer" of the shares pledged in the Pawnee's name. The apex court also observed that the pawnor can redeem the shares pledged till the sale has actually been carried out, as provided under section 176 of the Indian Contract Act. Nevertheless, the pledgee has the right to pull the pawnor to the court, sell the pledged shares after providing the pawnor with a notification, or retain the shares pledged by the pawnor until the amount is received by the Pawnee.

Judgement:
The two ' bench judges held the appeal valid, thus overruling the judgements of NCLAT and NCLT. The court concluded the case, stating that the "transfer of pledged shares in the name of the nominee does not discharge the debt until the actual sale of the pledged shares."

Agency

"Contract of the agency is defined as a legal relationship, where one person appoints another to perform on the transactions on his behalf. Section 182 of the Indian Contract Act defines 'Agent' as a person who has been employed to do any act for the employer, or to represent the employer in dealings with third person and 'Principal' is defined as the person for whom such act is done, or who employs such an agent, or who is so represented by the agent"[10]

Parkash Devi Vs. Rajinder Kumar and Ors. (2022) [11]

Name of the Parties:
Appellant: Smt. Parkash Devi v/s Respondent: Rajinder Kumar and Ors.

Judges:
Justice Anil Kshetarpal.

Facts:
Rajinder Kumar, the son of late Bishamber Dass had filed a suit for ownership by expelling Prakash Devi from his shop, stating that the rent period has come to an end. Prakash Devi in her written statement mentioned that the shop was owned by her, providing the document of a General Power of Attorney (GPoA) which mentioned that the shop was transferred to the appellant, by the respondent's late father.

In the trial courts, the transfer was held void, stating that the GPoA document had lost its validity, from the point of the death of the person (respondent's late father), and thus the sale deed was claimed to be invalid. The first appellate court agreed with the decision of the subordinate court. Unhappy with the decision, Rajinder decided to approach the High Court for a verdict in his favour.

Issues:
The issues framed by Justice Anil.K are:

1. Whether the shop is now owned by the respondent, Prakash Devi?
2. Whether there is a relationship of tenant and landlord between the opposing parties?
3. Whether the documents like affidavits and GPoA will continue to stay valid for the agent, even after the death of the principal?

Pleadings of the Parties:
The appellant counsel emphasised on Section 202 of the Indian Contract Act, which talks about termination of agency not being allowed, when the agent has an interest in the subject matter of the agency, unless there is an express contract for the same. The counsel stressed on the point that appellant, Prakash Devi had already paid the whole amount, with the interest for procuring the shop. The counsel attested several valid documents including the GPoA, and claimed that the onus was on the respondent to prove that the documents were not valid.

The respondent counsel on the other hand, pushed the argument towards the sale not being completely registered under sections 17 (b) and (c) of the Registration Act. The respondent counsel also stated that the sale agreement was also not permissible as a form of evidence, because the signatures were not correctly stamped as per the rules and regulations laid out by the Indian Stamps Act. The respondent counsel also put forward the point of there being no explanation on transfer of the property, which is part of the will to Prakash Devi, through the sale deed.

Ratio of the Judges:
Justice Anil after listening to the counsel of both the parties, was of the opinion that the arguments put forward by the respondent were ambiguous and indefinite, and failed to provide any concreteness to the evidences presented. The judge was satisfied of the arguments made by the counsel of appellant, and stated that the Section 202 of the ICA would apply in this situation, and thus Prakash Devi had the right to own the shop.

The court of justice also ensured that the agency will not be terminated just because of the principal's death, and thus after witnessing all the evidences and witnesses produced in front of the court, the judge was clear on the stands that Prakash Devi shouldn't be refused from her ownership rights.

Judgement:
The Punjab Haryana High Court held that the appeal must be allowed. The High Court also set aside the judgements of NCLT and NCLAT, stating that there was an error on their part. The judge also dismissed all the costs associated to the case, with disposal of the pending applications.

Partnership

A partnership is defined as a "formal arrangement by two or more parties to manage and operate a business and share its profits." Generally, all the members of the partnership share the profits earned as well as the liabilities incurred.[12]

"A Partnership Agreement is defined as a contract between two or more business partners. Such an agreement establishes the parties' rights, responsibilities and profit and loss distribution. The agreement also sets the general partnership rules, like capital contributions, financial reporting, and withdrawals."[13]

V. Anantha Raju and Ors. Vs. T.M. Narasimhan and Ors. (2021)[14]

Name of the Parties:
Appellant: V. Anantha Raju and Ors. v/s Respondent: T.M. Narasimhan and Ors.

Judges:
Justice B.R Gavai, Justice L. Nageswara Rao and Justice Sanjiv Khanna

Facts:
The case was filed due to the disputes between the partners of the partnership firm named M/s Selwel Combines. The firm was opened by the defendants 1 to 5, who inducted appellant 1 into the firm. The partnership deed which was made in 1992, stated that the appellant 1 would have 50% contribution in the profits gained and loss incurred by the firm. But there was a condition provided which mentioned that if the appellant 1 was not able to produce a capital of ₹ 50,00,000, the extent of the share of profits as well as losses would come down to as low as 10%. The partnership deed was reconstituted again in the year 1995, with appellant 2 (son of appellant 1) and defendants 6 ' 11 as partners of the firm.

The 1995 deed mentioned a 25 % share in the profits and losses for appellant 1 and 2. The defendants later after a dispute, claimed that the appellant 1 and 2 were entitled to only 10% shares in the profits and losses of the firm, as appellant 1 was not able to produce ₹ 50,00,000 as a capital within the stipulated time limit. The appellants unhappy with their partners, filed a suit for claiming an amount of ₹ 5,48,06,729, which was 50 share of the profits the firm had gained. The trial court and the Karnataka High Court did not agree to the claims of the appellant and stated that they were eligible only for 10% of the profits.

Issues:
The three bench judges of the Supreme Court framed the following issues:

1. Whether the appellants have evidences which state that they have 25 % of the shares, each in the partnership firm?
2. Whether the appellants qualify for the claimed relief of ₹5,48,06,729.
3. Whether the suit of the appellants is barred by the limitation act?

Pleadings of the Parties:
The appellant counsel claimed that the condition of capital and shares % was laid out only in the 1992 partnership deed, with no mention of the same in the 1995 deed. To add to this, the counsel also claims that the appellant 1 had paid the amount of capital within the stipulated time. The counsel of the appellants also mentions that despite the dispute regarding the 1992 deed condition, there has to be no impact of the same on the 1995 deed, which clearly establishes that both the appellants are entitled to a share of 25 % in the profits and losses of the partnership firm.

On the other hand, the counsel of the respondents stressed on the fact that the evidences of the appellants in the form of Prosecution Witness (PW 1) itself established the point that there is nothing concrete to demonstrate the induction of the required capital amount. The respondent counsel also claimed that the mention of 25% share to the plaintiffs in the 1995 Deed was a mistake of fact, with 5% each, being the correct value.

The counsel therefore submitted to the court that since there is no sufficient material evidence with the appellants to prove the fact that the payment of the required capital amount was completed within the allotted time, the judgements of the lower courts must not be interfered with, and the appeal made in the supreme court must therefore, be dismissed.

Ratio of the Judges:
The judges after listening to the contentions of the appellants as well as the respondents, made a primary observation stating that even though the partnership deed of 1992 stated that the share of the appellant 1 in the profits and losses of the firm would reduce from 50% to 10% in case he fails to pay the ₹ 50,00,000 within the allotted time, the 1995 deed explicitly confirmed that the two appellants were authorized to 25% shares in the profits and losses of the partnership firm.

The judges also stated that the claims of defendants about the mistake of fact of the 25 % share each, was very illogical as there was no action taken to rectify the same for almost 9 years during the 1995-2004 phase. The courts, thus held that the mistake of fact claim could not be taken into consideration because the respondents failed to provide any valid evidences in support of their claims.

Judgement:
The 3 Judges partly allowed the appeal. The bench held that the trial court and the Karnataka High Court committed a mistake by authorizing the appellants for only 10% of the shares of profits of the firms till 18th of June, 2004. The judges ordered that the two appellants were legally entitled to 50% share in the profits in the above - mentioned phase. But the court also declared that the clauses of 1992 deed, which does not lead to any conflicts to the 1995 deed, would continue to function.

End-Notes:

1. What is indemnity? definition of indemnity, indemnity meaning. The Economic Times. (n.d.). Retrieved November 17, 2022, from https://economictimes.indiatimes.com/definition/indemnity
2. Manmohan Nanda vs. United India Assurance Co. Ltd. and Ors. (06.12.2021 - SC): MANU/SC/1194/2021
3. A. Pandey, (2021, December 29). Everything you need to know about contract of guarantee. iPleaders. Retrieved November 18, 2022, from https://blog.ipleaders.in/everything-need-know-contract-guarantee/
4. Maitreya Doshi vs. Anand Rathi Global Finance Ltd. and Ors. (22.09.2022 - SC): MANU/SC/1216/2022
5. What is the Contract of Bailment? (2019, March 20). iPleaders. Retrieved November 21, 2022, from https://blog.ipleaders.in/what-is-the-contract-of-bailment/
6. Types / Kinds / Classification of Bailment. (n.d.). SRD Law Notes. Retrieved November 21, 2022, from https://www.srdlawnotes.com/2017/05/types-kinds-classification-of-bailment.html
7. Amitabha Dasgupta vs. United Bank of India and Ors. (19.02.2021 - SC): MANU/SC/0100/2021
8. Garg, R. (2022, May 4). Contract of bailment and pledge. iPleaders. Retrieved November 21, 2022, from https://blog.ipleaders.in/contract-of-bailment-and-pledge/
9. PTC India Financial Services Limited vs. Venkateswarlu Kari and Ors. (12.05.2022 - SC): MANU/SC/0629/2022
10. Femi Jebrina. Contract of Agency Retrieved November 21, 2022, from https://www.indiafilings.com/learn/contract-of-agency/
11. Parkash Devi vs. Rajinder Kumar and Ors. (05.07.2022 - PHHC): MANU/PH/1089/2022
12. Kopp, C. M. (2022, September 12). Partnership: Definition, how it works, taxation, and types. Investopedia. Retrieved November 22, 2022, from https://www.investopedia.com/terms/p/partnership.asp
13. Create your free partnership agreement. LawDepot. (2022, May 24). Retrieved November 22, 2022, from https://www.lawdepot.com/contracts/partnership-agreement/?loc=US#.Y3yx3nZBy3A
14. V. Anantha Raju and Ors. vs. T.M. Narasimhan and Ors. (26.10.2021 - SC): MANU/SC/0980/2021

Award Winning Article Is Written By: Mr.Pratyush Mailapur, Gujarat National Law University

Authentication No: JL355127074685-4-0723