Indemnity means where a person is victim of loss, compensation to him is to be provided or to save him from the loss caused by different causes.The contract of indemnity means a promise or statement of liability to pay compensation for a loss or for wrong in a transaction.Indemnity is the obligation, undertaken by one party to cover the loss or debt incurred by another. It is similar to a contingent contract, a part of general contract, and is of special nature.
The indemnity-holder can enjoy different rights under the contract of indemnity by acting prudently, with a good intention, care and with the authority or according to the direction of the indemnifier. However, the Contract Acts of both Nepal and India have not made any clear-cut provision in respect of duties of the indemnity holder with the indemnifier. But the rights of the indemnifier are the duties of the indemnity-holder. Hence, the following things can be presented as the duties of the indemnity-holder are:
i) To act prudently.
ii) To act carefully and not negligently.
iii) To act with good intention and
iv) To follow the direction or to act with the authority of the indemnifier.
Source : Ramesh Prasad Yadav