Supreme Court: In an Insolvency and Bankruptcy case, the bench of Indira Banerjee* and JK Maheshwari, JJ has explained the difference between Contract of Indemnity and Contract of Guarantee and has explained that:
the contract of indemnity is 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. In a contract of indemnity, a promisee acting within the scope of his authority is entitled to recover from the promisor all damages and all costs which he may incur.
a contract of guarantee, on the other hand, is a promise whereby the promisor promises to discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety. The person in respect of whose default, the guarantee is given is the principal debtor and the person to whom the guarantee is given is the creditor. Anything done or any promise made for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee. On the other hand, the bailment of goods as security for payment of a debt or performance of a promise is a pledge.
The Court explained the distinction between the two forms of contracts in this case:
[Maitreya Doshi v. Anand Rathi Global Finance Limited, 2022 SCC OnLine SC 1276, decided on 22.09.2022]
*Judgment by: Justice Indira Banerjee
For Appellant: Senior Advocate KK Vishwanathan
For Respondent: Advocate Prateek Sakseria