Indemnity bond and guarantee formats
An indemnity bond is a promise to make good a loss caused to another (Section 124, Indian Contract Act, 1872). A guarantee is a promise to perform or pay if a third person defaults (Section 126). Both are commonly executed on stamp paper as required by the State stamp law.
Key points
- Indemnity: Sections 124–125; guarantee: Sections 126–147, Indian Contract Act, 1872.
- A guarantee involves three parties (creditor, principal debtor, surety); an indemnity involves two.
- Stamp duty under the State stamp law.
The law: old and new provisions
| Subject | Law now | Before 1 July 2024 |
|---|---|---|
| Indemnity and guarantee | Sections 124–147 Indian Contract Act, 1872 | — |
Which court or authority
Executed between the parties; often required by banks, courts and authorities.
What the document should contain
- Parties and recitals
- The loss or obligation covered
- Extent and duration of liability
- Signatures and witnesses
Documents to attach
- Identity proof
- Documents of the underlying transaction
Procedure
- Draft and stamp
- Execute before witnesses or a notary as required
Common mistakes
- Undefined scope of liability
Frequently asked questions
What is the difference between indemnity and guarantee?
Indemnity is a two-party promise to compensate for loss; guarantee is a three-party promise to discharge a third person’s liability if they default.