BANK GUARANTEE

Targeted heading at payments and services

Unlike sureties, the contract of guarantee is not explicitly governed by law. As such, the following two positions are taken:

·                                 Application of a contract to the charge of a third party (Art. 111 of the Swiss Code of Obligations)

·                                 Presence of an accepted payment order (Art. 466 ff. of the Swiss Code of Obligations)

·                                 In addition, in the case of a contract of guarantee a number of important clauses also apply.

·                                 The guidelines issued by the International Chamber of Commerce aim to ensure uniform application.

The following applies:
The contract of guarantee contains an abstract promise to perform and is a separate obligation independent of the underlying transaction. The guarantee is used to secure the performance of a specific obligation, irrespective of whether the performance is owed or not.

In principle, there are two types of guarantee:

Direct guarantees are used primarily in domestic business. However, an accessory security in the form of a surety is often enough. This is issued directly to the beneficiary in the same way as a direct guarantee.
Guarantees apply whenever the bank's undertaking to provide security is not contingent on the existence, validity and enforceability of the principal obligation. For this reason guarantees are frequently opted for in cross-border transactions, because the beneficiary is able to assert his or her claims rapidly due to the abstract legal nature of the guarantee. Guarantees have the added advantage of being easier to adapt to foreign legal systems and practices, because there are no form requirements. Due to cost and risk considerations, direct guarantees are increasingly being used in foreign business as well.

·                                 View the process as flash animation

Indirect guarantees are mainly issued in connection with export business – in particular when government agencies or public entities are the beneficiaries.
In addition, many countries do not accept foreign banks as guarantors due to legal provisions or other form requirements (e.g. Middle-Eastern countries).
With an indirect guarantee, a second bank (usually a foreign bank with head office in the beneficiary's country of domicile) is involved.

Formal verification

In making a claim under a bank guarantee, the beneficiary is exercising his or her right to demand payment of the guarantee amount (or part thereof). The bank checks whether the claim has been made in accordance with the conditions of the guarantee.

Signature check:
In general, guarantees contain a clause (identification clause) whereby the beneficiary's bank has to confirm his or her signature in the event of a claim. This procedure ensures that the claim is only signed by a person or persons authorized to do so.

Form of claim:
The claim generally has to be submitted in written form. The conditions of the guarantee often permit claims to be made via encrypted telex or SWIFT communications.

Time-limit of claim:
The claim must be received in the specified form, at the latest on the expiry date, by the branch of the bank stipulated in the guarantee.
The beneficiary is responsible for the mailing risk and any other delays (force majeure).

Special aspects

The beneficiary of the guarantee can normally assign his or her conditional claim for payment to a third party, or assignee (assignment of the proceeds but not the drawing right).
Things to note:

·                                 The assignee does not automatically receive the right to invoke the guarantee. Only the beneficiary specified by name in the guarantee document can claim under the guarantee.

·                                 Any change in the beneficiary of the guarantee requires the agreement of all parties involved, i.e. the existing beneficiary, the UBS client and the guaranteeing bank.

·                                 In contrast to the law concerning sureties, the assignment of the guaranteed claim arising from the underlying transaction does not result in the simultaneous transfer of the conditional guarantee claim.

Reasons for expiry

1. Ordinary expiry :
If the beneficiary has not made a claim by the date specified in the expiry clause of the guarantee document, the guarantee will expire. This applies irrespective of whether the guarantee document was returned to the bank or not.

2. Payment of guarantee amount :
In the event of the definitive and final settlement of the guarantee amount due to a claim by the beneficiary, the guarantee will expire.

3. Premature cancellation :
Formal discharge by the beneficiary.

1. Expiry date:
Expiry of the bank guarantee issued by the guaranteeing (foreign) bank to the beneficiary.
Expiry of the counter-liability and counter-guarantee of the initiating (Swiss) bank in favour of the guaranteeing foreign bank (15 to 30 days following the expiry date).

2. Expiry of counter-liability and -guarantee:
Some countries do not allow time-limits for counter-guarantees from the initiating bank. In this case, the obligations of the initiating (Swiss) bank do not expire until the bank is discharged definitively and in full by the guaranteeing (foreign) bank.

3. Payment of guarantee amount:
If a claim is made under the guarantee by the guaranteeing bank or the end-beneficiary, it will expire when the guarantee amount has been definitively paid by the principal's bank.

Notification of a guarantee

Guarantees can, for identification and transmission purposes, be notified to the beneficiary via a third-party bank, normally in the beneficiary's country of domicile. This is primarily done electronically via SWIFT or encrypted telex. The notifying bank does not enter into any direct guarantee obligations.

Guarantee from a third-party bank in your favour:

Naturally, the guarantee notification also functions in the opposite direction to the procedure referred to above. We forward the third-party guarantee with no commitment on our part – merely for identification and transmission purposes – to you as the beneficiary. We will be happy to provide you with advice in the event of uncertainties regarding the content of the guarantee (technical guarantee-related language), the creditworthiness of the bank or the current country risk. You can often avoid problems of this kind by requesting that the foreign company with which you are doing business arrange for this guarantee to be issued by a first-rate bank in Switzerland. We're here to answer your questions.

BANK GUARANTEE PROFORMA FOR FURNISHING 
                            PERFORMANCE SECURITY

                  In   consideration   for   the   President   of   India
        (hereinafter   called   "the   Government")  having   agreed   to
        exempt........................(hereinafter   called   "the   said
        Contractor(s)" from the demand, under the terms and conditions of
        an Agreement dated.................made between..........and.... 
        of   Performance Security for the due  fulfilment  of  the   said
        Contractor(s)  of the terms and conditions contained in the  said
        Agreement,     on    production    of    Bank    Guarantee    for
        Rs....................(Rupees................................  
                   (indicated the name of the Bank) 
        Bank")  at the request of........................contractor(s) do
        hereby undertake topay to the Government an amount not  exceeding
        Rs....................... against any loss or damage caused to or
        suffered  would  be caused to or suffered by  the  Government  by
        reason  of  any  breach of the said Contractor(s) of any  of  the
        terms or conditions contained in the said Agreement. 

        2.    We....................do hereby undertake to pay the amount
        due and payable under this Guarantee without any demur, merely on
        a  demand from the Government stating that the amount claimed  is
        due  by way of loss or damage caused to or would be caused to  or
        suffered  by  the  Government by reason of  breach  by  the  said
        contractor(s)  of any of the terms or conditions contained in the
        said  Agreement  or by reason of the contractor(s)'s  failure  to
        perform  the said Agreement.   Any such demand made on  the  Bank
        shall  be conclusive as regards the amount due and payable by the
        Bank under this guarantee.   However,  our liability  under  this
        guarantee shall be restricted to an amount   not exceeding Rs....

        3.       We undertake to pay the Government any money so demanded
        notwithstanding   any   dispute   or  disputes  raised   by   the
        contractor(s)/supplier(s)  in  any  suit  or  proceeding  pending
        before  any  Court or Tribunal relating thereto  liability  under
        this present being absolute and unequivocal. 

             The  payment so made by us under this Bond shall be a  valid
        discharge  of  our   liability  for payment  thereunder  and  the
        contractor(s)/supplier(s)  shall  have no claim  against  us  for
        making such payment. 

        4.    We,..................further agree that theguarantee herein
        contained shall remain in full force and effect during the period
        that would be taken for the performance of the said Agreement and
        that it shall continue to be enforceable till all the dues of the
        Government  under  or by virtue of the said Agreement  have  been
        fully paid and its claim satisfied or discharged or till.........
        that  the  terms and conditionsof the said  Agreement  have  been
        fully  and  properly  carried out by the said  Contractor(s)  and
        accordingly discharges this Guarantee.   Unless a demand or claim
        under this Guarantee is made on us in writing on or before the...
        guarantee thereafter. 

        5.    We,................further  agree with the Government  that
        the Government shall have the fullest liberty without our consent
        and without affecting in any manner our obligations hereunder  to
        vary  any of the terms and conditions of the said Agreement or to
        extend time of performance by the said Contractor(s) from time to
        time or to postpone for any time or from time to time any of  the
        powers   exercisable   by   the  Government  against   the   said
        Contractor(s)and  to  forbear  or enforce any of  the  terms  and
        conditions  relating  to the said Agreement and we shall  not  be
        relieved  from our liability by reason of any such variation,  or
        extension  being  granted to the said Contracotr(s)  or  for  any
        forbearance, act or omission on the part of the Government or any
        indulgence  by the Government to the said Contractor(s) or by any
        such  matter or thing whatsoever which under the law relating  to
        sureties  would,  but  for  this provision,  have  effect  of  so
        relieving us. 

        6.       Notwithstanding  anything  contained  herein  above  our
        liability under the guarantee is restricted to Rs._____ and shall
        remain in force until________.  Unless a claim or suit under this
        guarantee is filed with us on or before_______.  ALL  OUR  RIGHTS
        UNDER  THE  GUARANTEE  SHALL  BE  FORFEITED and the Bank shall be
        relieved and discharged from all liabailities therein. 

        7.    This Guarantee will not be discharged due to the change  in
        the constitution of the Bank or the Contractor(s)/supplier(s). 

        8.    We,....................lastly  undertake not to revoke this
        Guarantee during its currency except with the previous consent of
        the Government in writing. 

                           Dated the..........date of......1999/2000 
                                        for............................ 
                                     (indicate the name of Bank) 

                                        Signature...................... 
                                   Name of the Officer................. 
                                   (in Block Capitals) 

                                   Designation of 
                                        Code No.  .................... 

                                 Name of the Bank and Branch......... 

Format for Bank Guarantee.       nd Floor, Jeevan Seva Annexe Building, S.V. Road, Santacruz(W), Mumbai

NOTWITHSTANDING ANYTHING CONTAINED HEREIN :

This Deed of Guarantee executed by the __________________ (bank name) a

Scheduled Bank within the meaning of the Reserve Bank of India Act and carrying out

banking business including guarantee business at Mumbai and other places having its

head office at _____________________________(hereinafter referred to as “the Bank”)

in favour of Life Insurance Corporation of India, having its IT department of Central Office

at the 2

400054 and formed under the act of the Parliament LIC act, 1956 (hereinafter referred to

as “the Corporation”) for an amount not exceeding Rs._____________/- (Rupees

_______________________only) at the request of “Vendor Name” (hereinafter referred

to as the “Vendor”).

This Guarantee is issued subject to the condition that the liability of the Bank under this

Guarantee is limited to a maximum of Rs. _______________/- (Rupees

______________________________only) and the Guarantee shall remain in force upto

_________ and cannot be invoked, otherwise than by a written demand or claim under

this guarantee served on the Bank on or before ___________ by the Corporation.

Whereas (Vendors name) having its head office at (address), has undertaken to supply

Computer goods as per the terms and conditions of purchase mentioned in the Tender

document dated ______________

And whereas the Bank ____ (name and address) has agreed to give on behalf of the

vendor a Guarantee :

Therefore, we hereby affirm that we Guarantee and are responsible to you on behalf of

the Vendor, upto a total amount of Rs._______________/- (Rupees

__________________________only) and we undertake to pay you, upon your first written

demand declaring the Vendor to be in default under the terms the Contract, and without

cavil or argument, any sum or sums as specified by you within the limit of

Rs.__________/-. (Rupees ______________________only) as aforesaid, without your

need to prove or to show grounds or reasons for your demand of the sum specified

therein. This Gurantee shall not be affected by any change in the Constitution of the Bank.