aks_aks123 (-) 28 February 2015

Bank guarantee

Dear Sir / Madam

I arranged for and got issued a bank guarantee in the name of a govt department. The bank guarantee was due to expire on 20th Feb 2015.

The government department issued a letter to the bank stating as under -

Sir

Xxx has submitted the following BG as Performance Security in this office against the tender no. 201301, the validity of which is going to expire as mentioned below.

S. No.. BG No. Date Validity Amt

You are requested to extend the same for further three months from the expiry date. it may kindly be noted that this bank guarantee is irrevocable and is reimbursable on demand by this office.

Further, in case the firm is not agreeing for extension of the BG, the same be encahsed and sent a pay order / DD in favor of Director, name of govt dept, at the address mentioned above so that the same be credited into the govt account. It may kindly be treated as "Most Urgent".

Thanking you...

please note as under-

1. the date on the letter is 16th Feb 2015.

2. Letter was received in the bank on 20th feb 2015.

3. copy of letter was received in our office on 27th Feb 2015 (directly from govt department).

4. the bank wrote an email to us on 27th Feb 2015 as under -

----

Dear Sir,

The attached BG xxx APPLICANT xxx, has to be extended immediatly . Please arrange for the extension letter , or else the BG will be Claimed .

With Regards

-----

with reference to above, this is a conditional demand for invocation / extension of BG. The SC and HC in various judgements has made it clear that for invocation a clear and unambigious demand has to be made.

also the extension is being sought from applicant after expiry date and if a refuse it today, the date of recording of my communication to the bank will be today, i.e. 28th Feb 2015, well after the expiry of the BG.

can the bank accept the request and still pass on the funds debitting my account, to the govt department ?

are there similar cases to mine adjudicated by HC or SC?

thanks.

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5 Replies

ADV-JEEVAN PATIL, MUMBAI ( DEEMED/CONVEYANCE OF BUILDING) 28 February 2015

It is at the option of the bank to extend(since expired) upon your communication or credit the amount to Govt. Dept.. Bank as well as Govt. Dept. are part of the Govt. will oblige each other. Moreover, BG given by you also incumbents you to extend or discharge amount against BG.

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aks_aks123 (-) 02 March 2015

but it is not a clear cut instruction for invocation of bank guarantee? it is a conditional letter and for invocation a clear cut instrcution has to be sent invoking bank guarantee...please advise.

(Guest)

Based on your desription, it can be sai d that the cause of action for extension and claim in case BG is not extended arose before the date of expiry of the BG. So, the bank has to accept the request if you don't agree to extend the BG.

However, conclusive opinion can be made only on examination of the terms of your agreement for the contract with the Government office.

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aks_aks123 (-) 02 March 2015

but can a bank guarantee invocation request be conditional? like either you extend or you invoke??

(Guest)

Of course, any one of the two possible action can be sought by the office to be invoked by the bank. The bank has to accept the request for extention with your consent, but if you don't agree for extention, the bank has to honour its guarantee, as the request was received well before expiry of BG. So, there is nothing wrong in the request.