Performance Bank Guarantees (PBGs) are essential financial instruments in Indian business transactions, particularly in project-based contracts and large-scale commercial arrangements. They are used when one party (usually a contractor or service provider) needs to provide financial security to another party (the beneficiary) regarding their performance obligations. The guarantee amount typically ranges from 5-10% of the contract value, though this can vary based on project requirements. The document must comply with Indian banking laws, Reserve Bank of India guidelines, and the Indian Contract Act, 1872. It includes crucial details such as the guaranteed amount, validity period, conditions for invocation, and claim procedures. PBGs are particularly important in government contracts and large commercial projects where they serve as a risk mitigation tool for project owners.
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1. Parties: Details of the Bank (Guarantor), the Principal/Applicant (Contractor), and the Beneficiary
2. Background: Context of the underlying contract and reason for the bank guarantee
3. Definitions: Key terms used in the guarantee including 'Guaranteed Amount', 'Expiry Date', and 'Underlying Contract'
4. Guarantee and Its Amount: The specific amount being guaranteed and the bank's unconditional undertaking to pay
5. Duration and Validity: Period of guarantee, including start date and expiry date
6. Conditions for Invocation: Terms and process for the beneficiary to invoke the guarantee
7. Bank's Obligation: Scope and nature of the bank's commitment, including payment terms
8. Reduction and Release: Conditions under which the guarantee amount may be reduced or the guarantee released
9. Non-Assignment: Prohibition on transfer or assignment of the guarantee
10. Governing Law and Jurisdiction: Applicable law and courts having jurisdiction
11. Notices: Communication methods and addresses for notices between parties
1. Claim Period: Additional period after expiry during which claims can be made, included when required by the beneficiary
2. Partial Claims: Provisions for making multiple partial claims, included when the guarantee may be invoked in parts
3. Auto-Extension: Mechanism for automatic extension of the guarantee period, used in long-term projects
4. Counter-Guarantee: Terms of counter-guarantee from the principal, included when required by the bank
5. Force Majeure: Provisions for extraordinary events, included in high-value or international guarantees
6. Amendment Procedures: Process for modifying guarantee terms, included in complex or long-term guarantees
1. Schedule 1 - Form of Demand: Prescribed format for making a demand under the guarantee
2. Schedule 2 - Underlying Contract Details: Key details of the contract being guaranteed including project specifics
3. Schedule 3 - Supporting Documents: List of documents required to be submitted with guarantee invocation
4. Appendix A - Bank's Internal Approval: Bank's internal sanctions and approvals (for bank's records)
5. Appendix B - Principal's Counter-Indemnity: Indemnity provided by the principal to the bank
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