Revisiting The Indemnity V/S Damages Debate

Indemnity clauses are debated deeply and focused upon during negotiation of commercial contracts. Serious consequences can arise due to a poorly negotiated indemnity clause. But the question really is whether there is any reason to seek indemnity instead of resorting to claiming statutory damages under the Indian Contract Act, 1872 ("Contract Act") which is anyways available under law. What is there in an indemnity which is not covered under a remedy for damages? Is indemnity simply an agreement to cover damages suffered by a party? Can damages be contractually limited? How do liquidated damages differ from indemnity? What carve-outs and inclusions are necessary to have a water-tight indemnity or liability provision? This article focuses on answering few of such questions and outlining the negotiating strategies to be borne in mind for an indemnification clause to achieve its end.