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Under Section 125 of the Indian Contract Act, an indemnity-holder is entitled to recover from the indemnifier all of the following EXCEPT:
ACosts he may be compelled to pay in defending such a suit (if he did not contravene the promisor's orders)
BDamages he may be compelled to pay in any suit covered by the indemnity
CSums paid under a prudent compromise of any such suit
DPunitive damages awarded against him for criminal conduct unrelated to the indemnity
Answer & Solution
Correct answer: B. Damages he may be compelled to pay in any suit covered by the indemnity
1. Section 125 lists three categories of recoverable amounts: damages paid, costs in defending the suit, and sums under compromise.
2. Each recoverable category is tied to a 'matter to which the contract of indemnity applies'.
3. Punitive damages unrelated to the indemnified matter fall outside Section 125's scope.
_Source: ICMAI BoS CMA Foundation Paper 1 (Business Laws), Module 2 §2.7 (Indemnity/Guarantee/Pledge/Agent), p. 91-99_