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Bhalchandra R (DYM)     04 October 2013

Bank guaratee clauses

Respected Sirs,

We have to give bank guarantee to our customer to receive advance payment. We would like to know the consequences/meanings of following clauses of bank guarantee.

          "Any payment made hereunder shall be made free and clear of and without deduction for, or on account of, any present or future Taxes, deductions or withholdings of any nature whatsoever and by whomsoever imposed, and where any withholding on a payment is required by any Applicable Law, the Guarantor shall comply with such withholding obligations and shall pay such additional amount in respect of such payment such that the Owner receives the full amount due hereunder as if no such withholding had occurred."

          "The Guarantor agrees that the Guarantee does not limit the number of claims that may be made by the Owner against the Guarantor on or before ______ (claim date), provided however that the liability of the Guarantor pursuant to payment under the claim would get reduced to the extent of the payment being made and the total liability under this Guarantee shall not exceed the Guaranteed Amount. Any payment made hereunder shall be made subject to deductions and withholdings as required by any applicable law, if any."

Is it advisable to include arbitration clause in Bank Guarantee.

Please advice.



 2 Replies

Kolla Gangadhar (Practicing Advocate since 1986)     05 October 2013

It is advisable to have Arbitration clause in Bank guarantee and liability of Bank guarantee of guarantor is not limited but under Indian Contract Act, when guarantor will be discharged is clearly mentioned.

Bhalchandra R (DYM)     08 October 2013

We have to give bank guarantee to our customer. Our Banker is not ready to put following clause. Please advice. This Guarantee shall be governed by, and construed in accordance with, the laws of India. The Guarantor irrevocably agrees that any legal action, suit or proceeding arising out of or relating to this Guarantee shall be adjudicated in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and the seat of arbitration shall be at Hyderabad.

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