There are two types of Bank Guarantees
1. Perofrmance Guarantee
The performance Guarantee means, the Guaranteeing party will give guarantee for execution of a particular happening of the incident/transaction or any other thing which is good in the eye of law. for example a) construction of a Building/dam/bridge, b) Supply and erection of machinery . Here the liability of the person is to perform the incident/job/transaction not the financial liability.
2. Financial Gurantee
In Financial guarantee what ever may be the underlying happening of the incident/transaction, if on account of non happening of the incident it ends with financial liability on the person who guarantees.
All the terms/covenants of the Bank Guarantees have to be accepted by all the parties to the guaranees ie.,
1. Applicant 2. Beneficiary of the Bank Guarantee ( In whose favour the Bank Guarantee is issed) and 3. Banker who executes the bank guarantee.
Normally the bankers do not execute the Performance Guarantee. Beccaue they are not experts in executing the particular/various types of jobs/transactions etc. In General most of the guarantees ends with financial liability only.
On the assumption that it is Performance Guarantee ending with financial liability I opine like :
a) The covenants/Terms are enumarated in the Bank Guarantee executed by the Bank reveals that how that particular guarantee to be invoked. Generally they are 1. By sending a letter in Regd with ack due 2. Servicing a invoking letter on the Bank in person or any other means as agreed.
2) The invoking letter may be a simple letter addressed to the bank will be that of stating " as the some/many of the terms and conditons of the original underlying contract/agreement have not been fulfilled we are invoking the guarantee". Finally the beneficiary may request the banker to send the invoked amount by means of Draft/RTGS/EFT to his account.
Normal condition/ covenant in the Bank Guarantee is that - by mere asking the amount bank has to make payment of the invoked amount.
Therefore Banks are required to make payment by mere invokation letter. Some times the bankers needs a certificate/declaration that the invoked amount is final and the liability under the said bank guarantee is satisfied. They may also ask to send back the original bank guarantee issued by them for their records.