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Banking

(Querist) 07 August 2009 This query is : Resolved 
A Pvt Ltd is newly formed company & is subsidiary of B Ltd. A Pvt Ltd is in the process of applying for tender & is required to furnish Bank Gurantee. Since it is newly formed company, its holding co. B Ltd kept FD worth Rs 50 lakh with bank & provided BG on behalfo A Pvt Ltd. BG required was Rs 50 lak so holding co kept 100% margin money in terms of FD & bank put its lien on FD.
Now bank wants counter indemnity for guarantee limit.
So whether bank is right in asking such counter indemnity once 100% margin is kept. What is the available defence against bank for forcing counter indemnity.
Under what circumstances the counter indemnity is asked by bank. Are their any RBI guidelines for such counter indemnity.
Pls advice & guide

Thanks in advance
Y V Vishweshwar Rao (Expert) 07 August 2009
1- For a loan Bank will insist for execution of DP Note & Term loan agrement - loan docuemtns etc

2- For bank Guarantee Facility - the Bank will take documetns like Counter Guarantee / Counter indemnity

3- Accordign to the limits of facility , the Bank will insisit for morgine money and Security

4- In Your Case morgin money is 100 % is kept - that is security/lien for the bank in case the BG is invokded by the beneficiary

5- Primarily there must be a docuemtn in BG Loan accoutn i.e;- Counter Guaratee / Counter Indemnity . The same is agreeement between you and Bank , in case the BG is invokded and Bank made the payment to the benificiary , under this docuement Terms bank is entitled to recovery the amounts paid by it on your behalf .

The Bank is right in asking for execution of Counter Guarantee/ Counter Indemnitee before issuing BG on your behalf to the benfeciary !
Kiran Kumar (Expert) 07 August 2009
i agree with Mr. Rao
S.Suriyanarayanan (Expert) 07 August 2009
Indemnification is the act of making another "whole" by paying any loss another might suffer. The party who pays the loss is called a guarantor. Counter indemnity agreements allow a guarantor to seek reimbursement in the event they have to pay a claim for any part of the guarantee amount they must pay in the event of a default in the primary agreement. Such agreements are governed by contract law and are used in such transactions as bonds and loans, etc.
Since the two companies are separate juristic persons as per law, the bank will insist for counter indemnity so that in the event of the bank encashing the BG for paying the liability of the private limited company, the parent company cannot dispute the encashment by the bank (who is the guarantor to the party who may award the tender). The requirement is as per contract law and I am not aware of any RBI guidelines in this regard.
V.V.RAMDAS (Expert) 09 August 2009
Dear prasant,
Mr Y.V.Rao has nicely explained and nit needs no furthere explanation. Hence I agrre with him.
Prashant (Querist) 11 August 2009
Thanks to all experts for their quick reply

Can the terms & conditions of the counter indemnity be challenged with the banks. Some of the terms & conditions are not acceptable to us & we are in the process of objecting it. So what are our rights in such cases, can we raise & object certain terms & conditions & can we succeed. For all the banks are the terms & conditions are standard or has RBI stipulated the minimum conditions.

Thanks in advance


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