The Personal Guarantee Agreement is a crucial document in Indian business and financial transactions, commonly used when banks or financial institutions require additional security for loans or credit facilities. This agreement, governed by Indian law, particularly the Indian Contract Act, 1872, provides creditors with recourse to the personal assets of a guarantor if the principal debtor defaults on their obligations. It's frequently used in corporate borrowing scenarios where directors or promoters personally guarantee company debts, in real estate transactions, and in various business financing arrangements. The document typically includes comprehensive details about the guaranteed obligations, enforcement mechanisms, guarantor's representations, and specific conditions under which the guarantee can be invoked. Recent Indian judicial precedents have emphasized the importance of clear drafting and full disclosure in such agreements to ensure enforceability.
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1. Parties: Identification of the guarantor, creditor, and principal debtor
2. Background: Context of the guarantee, including reference to the primary obligation or facility being guaranteed
3. Definitions: Key terms used throughout the agreement, including 'Guaranteed Obligations', 'Security', and 'Event of Default'
4. Guarantee and Indemnity: Core provisions establishing the guarantee, its scope, and associated indemnity obligations
5. Extent and Limits of Guarantee: Specific details of what is being guaranteed and any limitations on the guarantor's liability
6. Representations and Warranties: Guarantor's confirmations regarding their capacity, authority, and financial status
7. Continuing Security: Provisions establishing the guarantee as continuing security until full discharge
8. Enforcement: Circumstances under which the guarantee can be enforced and the process for enforcement
9. Payments: Payment obligations, including timing, method, and treatment of taxes
10. Costs and Expenses: Allocation of costs related to preparation, enforcement, and preservation of the guarantee
11. Communications: Notice requirements and contact details for all parties
12. Governing Law and Jurisdiction: Confirmation of Indian law as governing law and jurisdiction for disputes
1. Multiple Guarantors: Required when there is more than one guarantor, establishing joint and several liability
2. Security Provisions: Included when specific assets are being pledged as additional security
3. Guarantee Commission: Required when the guarantor is to receive compensation for providing the guarantee
4. Step-In Rights: Optional provisions allowing the guarantor to step into the shoes of the principal debtor in certain circumstances
5. Financial Covenants: Include when ongoing financial requirements are imposed on the guarantor
6. Change of Control: Required when changes in guarantor's ownership/control would affect the guarantee
7. Digital Execution: Include when the agreement may be executed electronically
1. Details of Principal Facility: Detailed description of the primary obligation being guaranteed
2. Guaranteed Sum and Interest Calculations: Specific amounts and calculation methodologies for the guaranteed obligations
3. Form of Demand: Template for making demands under the guarantee
4. Guarantor's Assets Statement: Schedule listing guarantor's major assets and financial position
5. Security Details: Description of any additional security provided with the guarantee
6. Existing Encumbrances: List of existing charges or encumbrances on guarantor's assets
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