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commonman (employee)     10 August 2011

When can bank guarantee be encashed by employer?

I have deposited money in a bank and given bank guarantee to the company I am working at. The bank guarantee letter states that if the employee leaves the company before the period mentioned in the bank guarantee the amount will be transferred to the comapany's account immediately.

My questions are -

1.can the company terminate the employee and encash the bank guarantee?


2. In case the company relieves the employee from service before the period mentioned in the bank guarantee, can the bank guarantee be revoked and amount returned to the employee by the bank?


3. Is there any option available to the employee to revoke the bank guarantee - where the company is forcefully asking the employee to resign from service?

 2 Replies


Dear Commonman,


1). Bank Guarantee cannot be encashed by the employer in case the employee is terminated by the employer.  Bank Guarantee can be encashed only on breach of employment conditions on the part of the employee, i.e., on resignation within the bond period provided the bank guarantee is also valid on that date. Expired Bank Guarantee cannot be encashed.


2) If the employer relieves the employee on termination (not on resignation), the Bank  Guarantee cannot be encashed. In that cash, the employee should take care to get the Bank Guarantee cancelled immediately after termination by the company. In that case the employee shall hold his lien on the guarantee amount available in his bank account and can get the amount released in his favour.


3) If the company forces the employee to resign, the employee must start taking up the case formally why he is being forced to resign. Instead of resorting to verbal discussions, ask the the employer in writing to issue proper instructions with reason in writing for the employee to submit his resignation. Any such formal correspondence can help employee to save his Bank Guarantee amount, if he is forced to resign.

1 Like

Joyal Laj   12 December 2020

Dear Sir,

My friend is going through a similar situation. The company is forcing him to resign and he is not ready to resign without giving the proper reason. But they haven't given the termination mail also. 

He contacted the bank and tried to cancel the bank guarantee. The bank said they are responsible to give the amount in the bank guarantee even if the company has terminated him as this point is also mentioned in the bank guarantee. 

What can he do in this case? 

Yours faithfully,

Joyal Laj

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