LAHORE (13 Nov, 2019): Upon the decision to allow former premier Nawaz Sharif to go abroad for his medical treatment, the government has set condition that the party should deposit Rs7 billion as indemnity bond.
What is indemnity bond?
An indemnity bond basically is a bond that is intended to repay the holder for any actual or claimed loss caused by the issuer’s conduct or another person’s conduct. It is an agreement executed agreeing to indemnify the loss that may occur in future on account of the act favored to the executants.
It acts as coverage for loss of an obligee when a principal fails to perform according to the standards agreed upon between the obligee and the principal, as per USLegal.com
ECL Ordinance and example of Indemnity Bond
The Exit Control List (ECL) was introduced through an ordinance called Exit from Pakistan (Control) Ordinance in 1981. Under the Section 2 of the ordinance, federal government can include or exclude anyone from the ECL.
According to ECL Rules 2010, people referred by the government, terrorist, elements charged with corruption, money laundering or causing loss to the national exchequer can be put on the ECL.
Indemnity gets basically recovered from the person who takes the responsibility of the concerned person. Instead of submitting bank guarantee, property or any sort of surety, the obligee takes full responsibility.
For example: If Shehbaz Sharif deposits Rs7 billion as indemnity bond for the Nawaz Sharif, and if Nawaz Sharif does not return or any malpractice occurs, then Shehbaz Sharif will pay the loss to the issuer.
Under an indemnity clause one party or both the parties commit to compensate the other or each other for any loss, injury or liability that arises out of the contract.
An example of an indemnity clause: “The subcontractor agrees to indemnify and hold harmless the contractor against loss or threatened loss or expense by reason of the liability or potential liability of the contractor for or arising out of any claims for damages.”
Another instance is, during the time of foreclosure, if the house is sold to pay off the loan and there is negative equity, then the indemnity bond pays the difference.
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