When Is Indemnity Bond Required in Property?
| Situation | Who Gives the Bond | Who Is Protected |
|---|---|---|
| Lost original title deed | Seller (and their family/legal heirs) | Buyer and buyer's bank — against anyone claiming with original deed |
| Minor title defect | Seller | Buyer — against any future third-party claim arising from the defect |
| Under-construction delay | Builder | Buyer — against losses if project is delayed beyond promised date |
| Society dues dispute | Seller | Buyer — against any outstanding dues claimed by society after sale |
| NRI seller | NRI seller | Buyer's bank — against tax or FEMA non-compliance claims |
Indemnity Bond for Lost Property Documents
If the original sale deed or title document is lost, banks typically require two things before giving a loan or processing a resale: (1) a police complaint (FIR) for lost documents, and (2) an indemnity bond from the seller (along with family members and legal heirs) indemnifying the buyer and the bank against anyone who may appear with the original document claiming ownership or mortgage.
Banks may insist on surety: For lost document cases, some banks require not just an indemnity bond from the seller but also a third-party surety — someone of financial standing who guarantees the bond. This protects the bank if the seller defaults on the indemnity obligation. Get the bank's specific requirements in writing before proceeding with a lost-document property.
Related Terms
Frequently Asked Questions
An indemnity bond is a legal document where one party (indemnifier) promises to compensate another (indemnified) for losses from a specific situation. In property, it is used when original documents are lost, when there is a minor title defect, or to protect a buyer or bank against future claims. It is executed on non-judicial stamp paper and governed by the Indian Contract Act 1872.
Indemnity bonds are required when: (1) Original title deed or sale deed is lost — seller gives bond protecting buyer and bank, (2) Minor title defect exists — seller indemnifies buyer against future claims, (3) Property has potential encumbrance risk — seller protects buyer, (4) NRI seller case — indemnifying bank against FEMA or tax non-compliance, (5) Society dues dispute — seller protects buyer from inherited claims.
Yes — but with additional requirements. Banks typically require: (1) Police FIR for lost documents, (2) Newspaper public notice (in some banks), (3) Indemnity bond from seller and legal heirs — often with a surety, (4) Notarised affidavit from seller. Some banks also search CERSAI to confirm the documents are not pledged elsewhere. Approval is at the bank's discretion.
Yes. Under Sections 124–125 of the Indian Contract Act, the indemnifier must compensate the indemnified party for all actual losses suffered. However, only actual financial losses are recoverable — an indemnity bond doesn't prevent the loss from occurring. It provides a legal avenue to claim compensation after the loss. The indemnifier must have the financial capacity to pay — a bond from an insolvent seller has limited practical value.
Affidavit is a sworn statement of existing facts — declaring what is true now. Indemnity bond is a promise to compensate for future losses — it is a contractual obligation about what will happen if something goes wrong. Both use stamp paper and notarisation. In property, you often need both — affidavit declaring the document is lost, and indemnity bond promising to compensate if the lost document causes future problems.