Clauses in bank guarantee


Respected Sir,

We have to give bank guarantee to get advance payment from customer. Customer has given his format of bank guarantee. There are following two clauses which none of our bank is accepting. 

1]In the event of Force Majeure as stated in contract, the validity of the Guarantee shall be extended to the corresponding period of force majeure.

2]We the Bank do hereby undertake to pay the Beneficiary any and all monies payable under this guarantee without any demur, or protest & without recourse to the Principal merely on Beneficiary’s first written demand stating that the amount(s) claimed is due by way of loss or damage caused to or would be caused to or suffered by the Beneficiary, by reason of any breach by the said Principal of any of the terms or conditions contained in the said Contract.

Please advice whether above clauses should be accepted or not. If accepted then what will be implications in future on us or our bank who will be issuing BG on behalf of us.

 
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Advocate

As per the 1st Clause in case of Force Majeure Period the duration of the BG shall be extended by the period which were affected by the force majeure i.e by flood, earth quake, fire, storm, perils which are an Act of God or war like situation.

 

As per 2nd Clause the beneficiary of the BG shall be entitiled to invoke the encashment of BG incase of the breach of the terms and conditions by the principal party. Thus, Principal party and/or the bank shall not have any legal right to oppose the encashment of the BG, if any by the benficiary. The 2nd clasue needs to be modified otehrwise you won't have the legal re-course to challenge the encashment of BG, in case of any dispute.

 

Regards

Adv. Rohit Dalmia

9324538481

Mumbai

 
Reply   
 


Chief Manager(Law)

In a bank guarantee two things should be made clear and certain: a) the amount to be paid to the beneficiary on invocation of the Bank guarantee b) The period of Bank guarantee. A non obstante clause is inserted to ensure the above. RBI has issued a master circular on Bank Guarantees available in its website.

 
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