An indemnity bond is a promise to make good any loss the bank suffers if the statement you make to it turns out to be false. Banks ask for one whenever their records cannot be matched to what you say — a lost passbook or fixed deposit receipt, a name that does not tally, a duplicate document, or a claim by the legal heirs of a deceased depositor. The obligation is governed by Sections 124 and 125 of the Indian Contract Act 1872, which define a contract of indemnity and the indemnity-holder's right to recover.
When a bank asks for one
- A passbook, fixed deposit receipt, cheque book or demand draft that has been lost, and the bank will not act without protection.
- A name mismatch between the account records and the identity proof, or a change of name after marriage.
- A request for a duplicate document where the original was never surrendered.
- A deceased depositor claim by the legal heirs, where the bank releases money without a court order.
- Succession matters where the nominee and the heirs are different persons.
- A change of address or signature the bank cannot verify from its own files.
Clauses the bond must carry
- The recital of facts. Why the bond is given, naming the account, the deposit or the document concerned. A bond without a clear recital is rejected.
- The indemnity clause. The signatory agrees to indemnify and keep indemnified the bank, its officers, successors and assigns against all claims, losses, costs and expenses.
- On demand, and unconditional. The bank asks for payment on demand, without having to prove that it suffered a loss first.
- The amount. The value of the deposit or document, or an open-ended undertaking for name and address matters.
- Reliance clause. The bank may act on the bond without further enquiry into the truth of the statements.
- Continuing liability. The obligation survives the signatory and binds his estate and legal representatives.
- Sureties. For larger amounts, one or two sureties who guarantee the undertaking.
- Execution. Signature of the signatory and sureties, witnesses, and notarisation where the bank requires it, with place and date.
What the signatory is undertaking
Signing an indemnity bond is not a formality. You take on a live, continuing liability: if a third person later appears with a valid claim to the money or the document, or if the bank is made to pay twice, you must reimburse the bank, and usually its legal costs as well. The bond is enforceable on demand and the bank need not show negligence to recover. Where sureties are added, their property stands behind the undertaking too. Read the amount, the scope and the survival clause before signing, and keep a copy.
The death and succession angle
When the account holder has died, the bank's first question is who is entitled to the money. In practice it accepts one of these:
- Nominee. Where a nomination was registered, the bank pays the nominee on the death certificate, and the heirs settle entitlement among themselves.
- Legal heirs against an indemnity bond. Banks release small deposits to the heirs on a death certificate, an affidavit of heirship, an indemnity bond, and no-objection letters from the other heirs, without insisting on a court order.
- Succession certificate. For larger or disputed amounts, the bank asks for a succession certificate granted under the Indian Succession Act 1925. A petition is filed before the District Judge under Section 372, the court issues notice, and the certificate is granted under Section 373; by Section 381 it carries the authority the holder needs to collect the debt.
- Probate or letters of administration. Where there is a will, the executor produces a probate, or the claimant obtains letters of administration under Section 276 of the Act.
Banking practice on how large an amount may be paid on an indemnity bond without a succession certificate is set by the bank's own policy and by the protections the Banking Regulation Act 1949 gives to banks making such payments, so the figure varies from bank to bank and from time to time. Our banking and finance practice drafts the heirship affidavit, the indemnity bond and the succession petition, and the regular formats are set out under banking and recovery formats.
Documents to attach
- Death certificate, for a deceased depositor claim.
- Identity and address proof of the claimant and of the sureties.
- The passbook, deposit receipt or account details, where available.
- The affidavit of heirship and no-objection letters signed by the other heirs.
- The succession certificate, probate or letters of administration, where the bank insists on one.
Common mistakes
- Submitting the bond without the sureties the bank asked for, which delays release by weeks.
- Leaving the recital vague, so the branch cannot link the bond to the account.
- Failing to notarise or witness the bond where the bank's format requires it.
- Assuming the bank will pay on an affidavit alone; the succession certificate is often unavoidable for higher amounts.
- Not keeping a copy of what was signed, which becomes a problem if the bank later invokes it.
Common questions
Is an indemnity bond the same as a bank guarantee?
No. A bank guarantee is issued by the bank in favour of a third party. An indemnity bond is given by you to the bank, protecting it against loss from your request.
Can the bank demand repayment even if I did nothing wrong?
Yes. The bond is an indemnity, so it operates if a valid claim surfaces, whether or not you were at fault. That is why the amount and scope must be read carefully before signing.
When can a bank avoid asking for a succession certificate?
Where the amount falls within its policy limit for payment against an indemnity bond and affidavit of heirship, and where there is no dispute among the heirs. Above that range, or where the heirs disagree, the bank insists on a succession certificate.
Does the indemnity end after some years?
Only if the bond itself fixes a period. Most bank formats are open-ended, so the liability continues until the risk of a competing claim is over.
FileX Advocates & Legal Consultants, Kolkata, drafts and files these matters before the Calcutta High Court, City Civil and Sessions courts, magistrate, family, consumer and tribunal forums. Call +91 7439811422 or WhatsApp us for a free first consultation.