Bank guarantee - valid for

In case there is no mention of the validity period in the Guarantee Deed, then the validity period of 6 months after the completion date of the underlying contract (for which BG was issued. The BG is not valid for 33 years.
 

Banks are supposed to issue in a format of BG prescribed by RBI/IBA wherein a restrictive clause is compulsory stating the exact date till which the liability stands, and after that date, even after a day BG can not be invoked.  This is a news for me to hear BG liability is 33 years, please kindly furnish any such reference.  If Guarantee is a contract without restrictive clause, the liability may be just 3 years.  Banks are not supposed to issue BG for longer periods.  You may log in to RBI-Guarantees Master circular to find latest.

Please refer to this case: Bombay high Court decision

Union Of India (Uoi) Through ... vs Bhagwati Cottons Ltd., G.P.B. ... on 22 February, 2008

Check page no. 3 & 7 - text highlighted

While banks issue bank guarantee, they have to stipulate the period of guarantee and normally, the gurantee fee for the said period also would be collected from the customer.  Bank also take a counter-guarantee from the customer making him liable for the amount of guarantee with provision to proceed on the secured assets.  You check up as to whether any period is mentioned in the counter guarantee.  It is foolish and negligent on the part of the banker to issue BG without limitation period for the liability.

Mr. Raju has stated the exact process .The bank issues the B/g in consideration of counter guarntee furnished by applicant and the B/G clearly mention the last date to cover the guarntee

Thank you all for the reply. I also agree that at the time of issue of Bank Gurantee the period of validity clearly stated by the Bank.

But my query was a little different, let me claerly state : a Public Limited Company enters into an commercial agreement with a government company, after the Public Limited Company didnot complied with the obligations under the agreement, so there was a dispute. Now during this dispute the term of the agreement expired. And the Company stopped renewing the Bank Gurantee.

Now the Government Company wants to encash the bank guarantee refering the judgement i have attached above saying it is valid for 30 years.

Now what is the stand of the Limited Company here?

Mr. Nihar,  I could not download judgment and a message is coming that I can not download the file, I will be helpful if you can somehow send mail to me, or place some extract.  I can quote High Court of Punjab or National Forum Judgment stating that Bank guarantee can not be invoked even after a day of presentation.  In the judgment I have gone through, due to curfew and bundh, there is a late delivery of the BG to the Bank and Bank refused to honour the same and judgment has come in favour of the Bank, that when a stipulated period was mentioned, it is the duty of the dept., to ensure encashment/invoking within time.   So please in the interest of others, please somehow mail or keep extract judgment as it helps several members.

pls check if this can be downloaded now

all bank guarantees (BGs) come under sec 126 of the indian contract act. firstly, banks do not need a counter guarantee from the BG applicant. it is absolutely the bank's discretion whether it wants to issue the BG or not on behalf of the applicant. secondly, there is something called a 'not withstanding clause (nwc)' which comes at the last of a BG, which generally goes like this: "not withstanding anything contained herein above, bank's liability under this BG is restricted to Rs....; the BG shall expire on ____ (expiry date); the last date for making a claim under this BG is ______ (claim date); and if the bank does not receive a claim in writing on or before the claim date, all the liabilities of the bank under this BG shall stand extinguished, whether this BG in original is returned or not."  thirdly, banks refuse invocation of a BG if they do not receive claim on or before due date. the 30 yr thing is the limitation period governing guarantees (all guarantees - BGs and otherwise), in which it is stated that a beneficiary (if pvt entity) can file suit for recovery within 3 years, and a beneficiary (if govt entity) can file such suit for recovery within 30 years. whether this limitation period, and/or the amended sec 28, makes the nwc meaningless, i am not very sure. generally, banks reverse the liability in their books after the expiry date of the BG, but do not release security (margin or counter guarantee or others) unless the BG in original, or a letter from the beneficiary (stating that they have no claim against the BG) is received by the bank.

hope this helps.

The problem faced by the BG applicants are that departments never return original Bank guarantee document or a letter of no claim for years together, and even for doing this normal routine work, they demand 10% of BG as ..... and when their Head office (govt.,) located at long distances, it is becoming a problem for applicants to go to that office or paying ........

Banks though reversing the contra entry, and though there is no liability, are not releasing Guarantee margin deposits even for decades stating the original BG is not being returned by Govt., dept., and there is  no response for notices given to that dept., stating that because of restrictive clause, there is no liability for the bank and hence original BG may be returned.

This is the existing problem and if members can throw light on justification of keeping deposit as security for decades when there is no liability in their BG register/records/accounts and even when Govt., dept are not responding for several notices to return original BG due to restrictive clause.   This procedure being followed seems strange. and members please provide solution as it helps lot of innocent applicants.  There are several cases pending at consumer forums on this problem and unfortunately no body is sure of exact procedure to fight out with Banks to get refund of deposit even when there is no past, present or future liability.

Sir, you have raised an important issue and stated the facts. Govt depts do not respond to letters from BG applicants or the Bank. But there is one way, whcih banks now increasingly practice, by which margin can be released even if original BG or no claim letter is not received from the beneficiary (Govt as well as others). Banks these days are releasing margins if the BG applicant executes an Indemnity favouring the Bank (the Bank I work in does this). In a nutshell, the Indemnity basically says that "the BG applicant is aware that the Bank has right to retain margins, but the Bank is releasing the margins on the basis of BG applicant's request. If at anytime the Bank faces any kind of loss on any grounds on this BG no....., the BG applicant as an indemnifier shall reimburse the loss/costs etc". I believe this practice is as practical as it gets and should be adopted by all Banks.