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CS Professional · Drafting, Pleadings and Appearances · Commercial Contract Management

Under an indemnity from Orion Pharma, Tanvi is sued by a distributor. Without Orion's orders against it, and in a way a prudent person would act even without any indemnity, Tanvi settles the suit by paying Rs 3,00,000 under a compromise. Orion had not authorised the compromise. Which statement is correct under Section 125(3)?

Tanvi can recover the Rs 3,00,000. Section 125(3) allows recovery of sums paid under a compromise if it was not contrary to the promisor's orders and was prudent without any indemnity, or if authorised. Orion's authorisation is only an alternative ground, so its absence does not bar recovery.

  1. ATanvi cannot recover, because only damages ordered by a court are recoverable
  2. BTanvi can recover the Rs 3,00,000, since the compromise was not contrary to Orion's orders and was one a prudent person would make without any indemnityCorrect
  3. CTanvi can recover only if Orion had authorised the compromise in writing
  4. DTanvi can recover only half, as compromise sums are always shared

Explanation

Section 125(3) lets the promisee recover all sums paid under a compromise of such a suit if the compromise was not contrary to the promisor's orders and was one a prudent promisee would make without any indemnity, or if the promisor authorised it. Authorisation is an alternative, not a requirement. Option C wrongly makes authorisation compulsory.

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