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Pakistan

Web Desk
November 13, 2019

Nawaz on ECL: What exactly is an indemnity bond?

Pakistan

Web Desk
Wed, Nov 13, 2019

ISLAMABAD: After the federal government asked former prime minister Nawaz Sharif to submit an indemnity bond, the question on everyone's minds is--what is an indemnity bond?

A subcommittee of the cabinet has asked the former prime minister or his brother Shehbaz to submit an indemnity bond worth Rs7 billion if he is to be allowed to leave the country for medical treatment abroad. 

But what exactly is an indemnity bond? And why is the government asking for such a condition?

READ MOREGovt seeks Rs7bn surety bond to allow Nawaz to travel abroad

According to Investopedia.com, indemnity is considered to be "a contractual agreement between two parties whereby one party agrees to pay for potential losses or damages caused by another party".

A surety bond "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," according to USLegal.com, which provides information for legal topics and terms.

Geo News asked several legal experts to describe an indemnity bond and how such an instrument would work in the given scenario.

Legal expert Babar Sattar said indemnity bonds are used to compensate for a loss of person by another. "If a person is doing construction work, for example, the contractor gives a bond because if contractor ends up doing any harm, then the person can cash in that bond to compensate for their loss.

"That is the concept of indemnity bonds in simple terms."

In response to Law Minister Farogh Naseem's mention of ECL law of 1981, whether it was a full explanation of the law, and if the indemnity bonds aligned with the law, Sattar said the law "only gives the right to govt to stop anyone from going abroad 'if it deems fit'.

"The government has to decide whether it was advisable or not for someone to go abroad and then they can implement restrictions on their travel and add their name to the ECL or remove it. They also have rules on the ECL as well.

"However, there's no rule that gives government the authority to let someone go on a conditional basis or explains what those conditions may be. So there's no space in the law for such conditionality and the law minister may perhaps also be aware of this … that's why he is saying this. That's why he insinuated that since there's nothing barring conditions, that's why the government was allowed to do so.

In my personal opinion, however, that argument, too, is wrong. There's a difference between the government and common person. When a government does anything , it can only do whatever the law allows it to do."

As for what was the difference between bail bonds and indemnity bonds, Sattar said indemnity bonds, usually, are a condition in contracts, stating that if there was any kind of harm or damage inadvertently, then there's compensation for that. It's a contract term. But what's relevant here is that what form would it be. In a contract, a person can write who will issue the indemnity bond.

No bank would issue such a bond until and unless you submit a security against that bond, so that if, for example, there's any kind of financial damage in the future, the bank can cancel out its loss.

"The details of the bond the government seeks should be explained by the government itself. It has to describe and tell if the guarantee can be written on paper — stamp paper — and if that was acceptable and then it would be okay.

"A bank would not issue a bond without full cash reimbursement. If the government says submit the bond on personal basis, then it doesn't mean anything because personal guarantee means nothing.

"What would the government do if a person breaches the bond? Nothing. They can file a case and cash the bond money. If the person becomes an absconder, they can seize all the property. The government already has the bail bonds.

"They're just creating a justification because they do want Nawaz to go but there should be a condition."

On the other hand, lawyer Imran Shafiq said one thing was very clear that Nawaz was involved in criminal cases and that there was nothing about indemnity bonds in criminal law … only in civil law.

"There's no such concept here in Pakistan's criminal law. The court has already ruled on the case and approved his bail. If the court did not stop him, then it's unheard of for the government — which, already, has put his name in the ECL — to seek such bonds.

"There's no precedent [of an indemnity bond] in the criminal law. The court, however, approved an eight-week bail for his medical treatment," Shafiq said.