UNDERSTANDING BANK GUARANTEE:

A Bank Guarantee can be defined as a contract between a bank as guarantor and a beneficiary in which the bank commits itself to pay a certain sum under certain, specified conditions on a simple written demand of the beneficiary. In other words Bank Guarantee is an instrument issued by a Bank in which the Bank agrees to stand guarantee against the non-performance of some action/performance of a party. A Bank guarantee is thus a promise from a bank that the liabilities of a debtor will be met in the event that you fail to fulfill your contractual obligations. The quantum of guarantee is called the ‘guarantee amount’. The guarantee is issued upon receipt of a request from ‘applicant’ for some purpose/transaction in favour of a ‘Beneficiary’. The ‘issuing bank’ will pay the guarantee amount to the ‘beneficiary’ of the guarantee upon receipt of the ‘claim’ from the beneficiary. This results in ‘invocation’ of the Guarantee.
Some of the types of Bank Guarantees
Performance Guarantee
Bid Bond Guarantee
Financial Guarantee
Advance Payment Guarantee
Foreign Bank Guarantee
Deferred Payment Guarantee

Suggested format of Bank Guarantee

We________________________________ issue in favour of _____________________ hereinafter ‘called as
We the Bank __________ do hereby undertake to pay Rs——————–against loss or damage caused to or suffered by the said by reason of any breach by

We the Bank of India do hereby undertake to pay the amounts due and payable under this guarantee without any demur, merely on demand however, our liability under this guarantee shall be restricted to an amount not exceeding Rs.———————

We the Bank of India further agree that the guarantee herein contained shall remain in full force and effect till released by the said Authority We the Bank lastly undertake not to revoke this guarantee during its currency except with pervious consent of the Authority in writing.

Notwithstanding anything contained herein. before, our liability under his guarantee is restricted to Rs.—————————–Only) and our guarantee should remain in full force until and unless a suit or an action in writing under the guarantee is filed against us on and after this date all rights under the said guarantee shall be forfeited and we shall be released and discharged from liabilities there under.

DATED __________ AT ———————- FOR BANK

Notwithstanding anything contained herein before
1. Our liability under this Bank guarantee shall not exceed Rs.___________ (Rupees ______________)
2. This bank Guarantee shall be valid upto ___________
3. We are liable to pay the guarantee amount or any part thereof under this Bank Guarantee only and only. If ______ serve upon us a written claim or demand on or before _______.
1. All claims under this guarantee shall be payable at New Delhi.
2. This Guarantee will be returned to us as soon as the purpose for which its is issued is fulfilled.
3. The BG confirmation No.__________ is an integral part of the BG No._______________________________