Legal Framework for Risk Allocation
Statutory Basis of Indemnity
Under Section 124 of the Contract Act, 1872, a contract of indemnity is defined as 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 Enterprise IT, this typically covers Intellectual Property (IP) infringements and data breaches.
| Clause Type | Statutory Authority | Enforceability Limit |
|---|---|---|
| Indemnity | Section 124, Contract Act 1872 | Actual loss proven; subject to mitigation. |
| Liquidated Damages | Section 74, Contract Act 1872 | Reasonable compensation; not exceeding the penalty. |
| Liability Caps | Section 73, Contract Act 1872 | Excludes remote and indirect losses. |
| Data Liability | Section 66, ICT Act 2006 | Criminal liability for unauthorized access. |
Structuring Limitation of Liability (LoL)
For cross-border IT contracts, the 'Liability Cap' must be carefully calibrated. While Section 73 of the Contract Act, 1872 allows parties to claim compensation for loss or damage caused by breach, it explicitly excludes compensation for any remote and indirect loss or damage sustained by reason of the breach.
Key Drafting Considerations
- Carve-outs: Ensure that gross negligence, willful misconduct, and IP indemnity are excluded from the general liability cap.
- Liquidated Damages vs. Penalty: Under Section 74 of the Contract Act, 1872, the court will only award 'reasonable compensation' regardless of whether a specific sum is named as a penalty.
- Foreign Exchange Compliance: Any indemnity payment to a foreign entity must comply with Section 18 of the Foreign Exchange Regulation Act, 1947 regarding the transfer of securities or settlement of claims.
Consult Barrister Liton Asaduzzaman Sarkar
For bespoke drafting of cross-border Master Service Agreements (MSA) and SLA risk mitigation.
Schedule Scoping SessionFrequently Asked Questions
Are 'Indirect Losses' recoverable under Bangladesh Law?
Generally, no. Pursuant to Section 73 of the Contract Act 1872, compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Can a liability cap be set at zero?
While parties have freedom of contract, an absolute exclusion of liability for fundamental breach may be challenged as being against public policy under Section 23 of the Contract Act 1872.
How does the ICT Act 2006 affect IT indemnities?
Section 66 of the ICT Act 2006 provides for penalties for 'hacking' and unauthorized access. Contracts should include indemnities for losses arising from statutory violations of this Act by the service provider.
◆ Related Statutory Guides & Practice Insights
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