TITLE

Gajanan Moreshwar Parelkar vs Moreshwar Madan Mantri 

CITATION

(1942) 44 BOMLR 703

CORUM DETAILS

Hon’ble SB of HIGH COURT OF BOMBAY

Authored by Hon’ J. Shri M.C Chagla

DATE OF JUDGEMENT

01.04.1942

BRIEF FACTS OF THE CASE

A. Plaintiff’s Case: In the year 1934 a plot of land containing the number 226A in the Dadar

Matunga estate was leased for a period of 999 years for the city of Bombay by the plaintiff

and the Municipal Corporation. The plaintiff agreed to transfer the leased land to defendant

and thereupon started to erect a building. The materials were supplied by Keshvadas

Mohandas. Defendant owed Keshvadas Rs. 5000 and the plaintiff mortgaged at the

defendant's request a part of property worth of Rs 5000 on 14 th January,1937 and due on

14th January 1938 to repay the amount and take back the mortgaged property. Again, the

defendant failed to pay to Keshvadas of Rs. 5000 and again of the request of defendant, the
 plaintiff again mortgaged a property worth Rs. 5000 to keshvadas on 23 rd March 1937 and

due date was 14th January 1938.

The defendants gave in writing to the plaintiff that he would be responsible for discharging

the mortgages that were given by the Plaintiffs. The defendant wrote to Bombay municipal

corporation for transfer of land from plaintiff to defendant and the corporation successfully

sanctioned it. The plaintiff tried to contact defendant to pay the amount to Keshvadas for

the amount he had paid on behalf of the defendant but the defendant was not able to pay

back the money to Keshvadas. The plaintiff in the plaint says that the defendant is in illegal

possession of the ground and enjoying the profits and rents and also defaulted in paying the

rent of the ground to Bombay Municipal Corporation.

The plaintiff submits to the court that he mortgaged the land to Keshvadas on request of the

defendant and because the mortgaged agreement was in the name of the plaintiff and,

therefore the defendant is liable to indemnify the plaintiff and set him free of all charges.

The plaintiff prays to the court that the defendants should be instructed the plaintiff may be

ordered to obtain from the mortgagee a release from all liability under the mortgage deed,

and the defendant may also be ordered to pay equivalent amount in the court so that could

be used to pay off the mortgage and further charges.

B. DEFENDANTS CASE: When the suit was called on, the defendants admitted and agreed

to all the charges and had two contentions namely that “the plaint discloses any cause of

action” and that “the suit was premature”. The defendant contends the points that the

plaintiff has not suffered any actual loss till date so why will the defendant indemnify the

plaintiff when he has not suffered any loss. There was no cause of action for the

submissions made by the plaintiff which can sue in any event the suit is premature. The
 counsel for the defendant relied on S. 124 and 125 of The Indian Contract Act, 1872

(hereafter referred to as “The Act”) which defines the contract of indemnity and rights of

indemnity holder when sued. He raised the point that the plaintiff has not yet suffered and

actual loss so how can his client indemnify for the loss which not yet happened. the counsel

for defendant also argued that until the mortgagee (keshvadas) files a suit against the

plaintiff and the court gives the judgement against the plaintiff then the defendant party

would be liable and, in the case, above, the mortgagee has not yet filed any suit against the

petitioner.

ISSUES [POINTS OF DETERMINATION]

1. Whether the plaint discloses any cause of action? (since plaintiff has neither paid off the

dues nor has been compelled to do so by some legal movement, suit or decision).

2. Whether the suit was premature?

ARGUMENTS ADVANCED

COUNSEL FOR THE PLAINTIFF: K.A. SOMJEE AND SIR JAMSHEDJI KANGA

COUNSEL FOR THE DEFENDANT: S.R. TENDOLKAR AND V.B. REGE

The court contented that if the whole of the law of indemnity was to be incorporated under S. 124

and 125 of The Act, then the claims of the defendants could be applicable, but it’s not the case,

The Act is both an amending and a consolidating Act. The scope of S. 124 is limited as it does not

deal with the cases in which the liability occurs by something which is at the request of the

indemnifier, done by the indemnified, which is the present case. The counsel further contends that

S.124 does not apply in this case as the plaintiff has become liable for something upon the request

of the defendant.
Mr. Tendolkar relied on two judgements.  In Shankar Nimbaji v. Laxman Supdu (1939) 42 Bom.

L.R. 175 it was held in this case that cause of action arises when the loss is suffered and a suit

brought before the actual loss is premature. This case undoubtedly supports the points of the

defendant counsel but if we look in the facts of the case it will be clear that this case will not be

applicable in this present case. The facts are, one Supdu used to deposit money with defendant

number 2, after the death of Supdu, Respondent No. 2 gave Rs. 5000 to respondent No. 1 in

exchange of mortgaged land. The plaintiffs who were the sons of Supdu, demanded the money

back of their father. Respondent No. 2 issued a promissory note of Rs. 5000 to the plaintiffs. The

plaintiffs sued defendant No. 1 for the recovery of Rs. 5000 and interest. On these facts the court

held that plaintiff cannot sue defendants in anticipation that he may suffer loss from the sale of

mortgaged land. The Court considered the promissory note which was given by Respondent No. 2

to the plaintiffs as an indemnity in case there is loss (if any) was caused to them by his

unauthorised meddling with their money. They claimed from defendant No. 2 losses (if any) that

may have to bear in sale of the mortgaged property. This clearly means that the plaintiffs must

have recovered their actual costs and they only made defendant No. 2 as a party to claim for losses.

For this scenario till the property was sold it was not possible to ascertain that the plaintiffs

suffered actual loss so the defendants could be called, so it was necessary for the plaintiffs to suffer

actual loss to maintain a suit of indemnity.

The Hon’ble Justice Chagla said “I am not prepared to read this judgment to mean that in no case

can an indemnity-holder maintain an action against an indemnifier unless he has suffered actual

loss”.

In the second case that was cited by the counsel for the respondents, Mr. Tendolkar is “Chand Bibi

V Santosh Kumar Pal (1933) I.L.R. 60 Cal. 761” When purchasing certain property, the
defendant's father agreed to pay off the mortgage debt incurred by the plaintiff and also promised

to compensate him if the mortgage debt was held liable. The father of the defendant failed to pay

off the mortgage debt and the plaintiff filed an application to enforce the agreement. It was held

that the plaintiff had not yet suffered any damage; as far as the cause of action for compensation

was concerned, the lawsuit was premature. The court in regard to this case said that the learned

Judge who decided this case apparently, he disregarded the fact that he himself decided an earlier

case before the same Court. “Osmal Jamal & Sons, Ltd V Gopal Purshattam (1928) I.L.R. 56 Cal.

262” The plaintiff company agreed to act as a commission agent for the purchase and sale of the

defendant company of “Hessian” and “Gunnies” and charge commission on all such purchases and

the defendant company agreed to indemnify the plaintiff for any losses in connection with such

transactions. The applicant company bought a certain Hessian from one of the Maliram Ramjidas.

The defendant company has not been able to pay for or take delivery of the Hessian. Then Maliram

Ramjidas revoked it at a lower price and claimed the difference from the claimant's company as

damages. The claimant company went into liquidation and the liquidator filed a lawsuit to recover

from the defendant company the amount claimed by Maliram under the indemnity. The defendant

argued that they were not entitled to maintain the claim under indemnity inasmuch as the plaintiff

had not yet paid any amount to Maliram in respect of their liability. It was held negative and

decided in favour of the plaintiff with a direction that the amount should be paid to Maliram

Ramjidas when recovered from the defendant company.

It is very true under English common law that no action suit can be filed until there is an actual

loss. With this type of rule there can be circumstances in which the indemnified has to wait up for

the judgement in his favour till he can approach the indemnifier. So now the Court of equity
stepped in and held that “if his liability had become absolute” then he was entitled to get the

indemnifier cover for the losses suffered.

The counsel for the defendants, Mr. Tendolkar contends that if I want a relief citing what common

law held in English courts this case should have been filed in England, but in the very beginning of

this judgement Hon’ble Judge Justice Chagla said that “Sections 124 and 125 of The Act are not

exhaustive of the law of indemnity” and also Hon’ble Judge contended that “the courts here would

apply the same equitable principles that are followed by the Courts in England”. Therefore, if the

indemnified has incurred a liability which is absolute and not contingent then he is entitled to

recover the losses (if any) from the indemnifier.

It was further argued by the counsel of respondent Mr. Tendolkar that in this case the liability was

not absolute but contingent. He contended that it was not fixed that the mortgagee sold the land

and he suffered loss in that so the plaintiffs would be liable. The counsel for the petitioners

contends that there is a personal covenant by the plaintiff to pay the amount due, therefore the

liability of the plaintiff is absolute and not contingent.

Mr. Tendolkar states that “if this case came up to this court, the court would, under Section 68,

Sub-section (2), of the  Transfer of Property Act, exercise its discretion and stay the suit until the

mortgagee had exhausted all his available remedies against the mortgaged property or the

mortgagee had abandoned his security”. If we go by this then the mortgagee may content himself

with obtaining a personal decree against him and give up his security. Hon’ble Judge Chagla

therefore holds the contention that the plaintiff is entitled to be indemnified by the defendant

against all liability under the mortgage and the deed of further charge.
VERDICT

The defendant is ordered to procure from the mortgagee a release of the plaintiff from all liability

under the deed of mortgage and further charge. The court gave him 3 months for the same. The

court also passed a decree in favour of the plaintiffs for the costs of the suit.

STATUTES INVOLVED

1. The Indian Contract Act, 1872

Section 124: “Contract of indemnity” A contract by which one party promises to save the

other from loss caused to him by the conduct of the promisor himself, or by the conduct of

any other person, is called a “contract of indemnity.”

Section 125: Rights of indemnity-holder when sued. The promisee in a contract of

indemnity, acting within the scope of his authority, is entitled to recover from the promisor

— —The promisee in a contract of indemnity, acting within the scope of his authority, is

entitled to recover from the promisor—

(1) all damages which he may be compelled to pay in any suit in respect of any matter to

which the promise to indemnify applies;

(2) all costs which he may be compelled to pay in any such suit if, in bringing or defending

it, he did not contravene the orders of the promisor, and acted as it would have been

prudent for him to act in the absence of any contract of indemnity, or if the promisor

authorized him to bring or defend the suit;

(3) all sums which he may have paid under the terms of any compromise of any such suit,

if the compromise was not contrary to the orders of the promisor, and was one which it

would have been prudent for the promisee to make in the absence of any contract of

indemnity, or if the promisor authorized him to compromise the suit.

Section 68 Sub- Section (2): Right to sue for mortgage-money- Where a suit is brought

under clause (a) or clause (b) of sub-section (1), the Court may, at its discretion, stay the

suit and all proceedings therein, notwithstanding any contract to the contrary, until the

mortgagee has exhausted all his available remedies against the mortgaged property or what

remains of it, unless the mortgagee abandons his security and, if necessary, re-transfers the

mortgaged property.

CASES REFERRED/CITED

1. Shankar Nimbaji v. Laxman Supdu (1939) 42 Bom. L.R. 175 

2. Chand Bibi v. Santoshkumar Pal (1933) I.L.R. 60 Cal. 761

3. Osmal Jamal & Sons, Ltd. v. Gopal Purshattam (1928) I.L.R. 56 Cal. 262

PRINCIPLE LAID DOWN/RATIO

This being the landmark judgement in the cases related to indemnity, it was held that if the there is

a liability of the indemnified and the liability is absolute and not contingent, then the indemnity

holder gets the entitlement to call upon the indemnifier to cover the losses and save him from all

his liabilities. This case also laid down that it’s not necessary every time for the indemnified to

suffer actual loss, he can still call upon his indemnifier to cover for the losses (if any).
REFERRED IN

1. Borosil Glass Works Limited vs Tata Motors Ltd on 20 January, 20151

2. Indian Companies Act vs Balasore Alloys Limited ARBP-609.2008 on 10 January, 20142

3. Texmaco Ltd. vs State Bank of India And Ors. AIR 1979 Cal 44, (1981) 1 CompLJ 356

Cal

4. Khetarpal Amarnath vs Madhukar Pictures AIR 1956 Bom 106, (1955) 57 BOMLR 1122

ANALYSIS

Contract of Indemnity is that the kind of contract where one-person promisor agrees to form good

for all the losses and costs incurred or to be incurred by the promisee in broad terms through the

execution of such contract. Though quite many 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.

The judgement laid down in this case serves as a landmark judgement in cases of indemnity.

Hon’ble Justice Chagla opined that the Sections 124 & 125 of the Indian Contract Act, 1872

cannot cover all the cases and to decide the cases which fall beyond the scope of these sections,

Common English Law and therefore the Equitable Principles is completely necessary.

1
MANU/ MH/ 0049/ 2015

2
https://indiankanoon.org/doc/152544202/