Application of Indemnity Contracts to Banks :
As far as a banker is concerned, the law relating to indemnities is of grat importance. In the course of baking business, there are times when coustomers approach the banks for issue of duplicate demand drafs, deposit receipts and so on. Although banks do take due care and precaution in the matter of issuing duplicate instruments, instances are not wanting where claims are made against the banks by persons who are affected by such issuance. It is therefore prudent to take required indemnity from those persons at whose instance duplicate demand drafts/ deposit receipts are issued.
Let us take the example of issue of duplicate deposit receipt. In the first instance at the timeof receiving the deposit, banks issue deposit receipt in he name of the depositor or depositors. Deposit receipts are required to be tendered by the depositor either for raising loan on it or for encashment either prematurely or on the date of maturity.
Posssession of the deposit receipt is the only proof of a person having a deposit subject of course to verification of the specimen signatue and other proof.
Suppose the depositor reports loss of receipts or its misplacement, banker proceeds to issue a duplicate one as per the system in place. Although baker takes all the necessary care and precaution to ensure that the person requesting for issue of duplicate receipt is the one entitled to deposit, there may still be chances of misrepresentation. If the true owner were to produce the original deposit receipt, banker will be in trouble. To obviate such instances (few and far between, of course), banks do insist upon an indemnity form the person in whose favour such duplicate receipt is issued.
Same is the case in the matter of issue of duplicate demand drafts. By the act of issuing duplicate demand drafts, banks are likely to be exposed to claims by the interested persons and rightful owners. Therefore as prudence calls for it, indemnity bond is insisted upon from the persons at whose request the duplicate instruments are issued. Indemnities are required since the bank has to protect itself from any subsequent claim made by a person who may have for value received these instruments. In some cases over and above the indmnity banks ask for surey. Ths is usually done in cases where the amount involved is quite sbstantial or the customer is not well-known enough to the banker since the customer must have had only one or two dealings with the banker.
In the indemnity taken by the bank, the customer undertakes to protect the bank from any loss or damage and also for costs incurred. In most of the States, these indemnities are stamped as an agreement. If they are witnessed, they would be treated as an indemnity bond thereby being liable for ad valorem stamp duty.
Whenever bank issues bank guarantee, apart from margin and security, counter guarantee may be insisted upon. The customer who requests the banker for issue of bank guarantee has to execute counter guarantee in favour of the bank. It may be noted that counter guarantee is in the nature of indemnity in favour of the bank.
Let us have a look at the indemnity letter executed by a customer for issue of duplicate drafts. Some lines in this letter of indemnity may run as under:
“In consideration of your issuing to me/us a fresh/duplicate draft in lieu of the above mentioned draft which has been irretrievably lost or mislaid, I/We hereby agree and undertake to hold you harmless and keep you fully indemnified from and against all losses, costs or damages which you may sustain or incur by reason of your issuing this fresh/ duplicate draft or by reason of your issuing this fresh/duplicate draft or by reason of the original draft being at any time found and presented for payment.
I/we hereby agree and undertake to hold you harmless and to keep you fully indemnified against all claims and damages which may be made in respect hereof by any person or persons claiming to be the holders of the draft or in any way interested therein.
I/we agree and undertake to pay and make good any such losses, damages or expenses upon demand being made. I/we further agree and undertake to return to you the original draft should it be found by me/us or again come into/my possession at any time hereafter.”