Let me explain something about the Not Withstanding Clause (NWC).
Sec 28 of the Indian Contract Act 1872 basically says that agreements in restraint of legal proceedings are void. That is, in case of BGs, banks can't put the NWC which restricts/extinguishes the rights of the beneficiary to make a claim. One of my colleagues explained it as "rights may get extinguished, but remedies (to courts) remain".
The Banking Laws (Amendment) Act, 2012 has been passed by the Parliament and, under section 17 of the Amendment Act, provisions of section 28 of the Indian Contract Act, 1872 have been amended and following Exception 3 has been inserted in the said Act:
Exception 3. ------- "This section shall not render illegal a contract in writing by which any bank or financial institution stipulate a term in a guarantee or any agreement making a provision for guarantee for extinguishment of the rights or discharge of any party thereto from any liability under or in respect of such guarantee or agreement on the expiry of a specified period which is not less than one year from the date of occurring or non-occurring of a specified event for extinguishment or discharge of such party from the said liability."
However, since it has confused most banks, IBA had referred the matter to Hon’ble Justice S.H.Kapadia, former Chief Justice of India. Shri. Kapadia vide his opinion, has stated that it is not necessary to make any changes in the existing format wherein the Bank are adding the clause as stated above. There are also cases in SC on similar matters where final judgementis pending.
Hope the above onformatioon helps.