Lesson No. 11- Aspects of Bank Guarantee

Let us extend our example. Thursday 11/2/2016.

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Now understand the 
1 It is issued for a particular amount for a definite period with a notice period.
2 The format is as per IBA directives and any deviation be approved from legal department at RO/ZO/CO or By a Senior Advocate on our panel.
3 It should always be addressed to an Official (eg Executive Engineer......) although issued in favour of The Governer/The President.
4 It is issued on a Stamp Paper(as required for an Agreement),dated, a round rubber stamp be affixed on all pages,numbered, signed at the end of each page and signed under the rubber stamp at the end, the signatory should be a PA holder and he should put the name and pa number.
5 It should be sent directly to the beneficiary.
*** About Appraisal **
i) Obtain application for BG on the format containing full particulars of purpose, beneficiary details, amount,period,margin amount, other securities and the details of the underlying contract (we do not obtain the contract copy).
ii) The appraisal/sanction is based on the worth ,capacity of the applicant to perform the contracts; past records, the margin and securities that can be provided.
iii) The sanction is by competent authorities ie BM/RM/ZM. ...
iv) Say for PCL the BG is sanctioned on 20% cash/deposit margin ie Rs4.20 lacs and 75% charge on machinery.Thus it is a fully secured BG.
v) For the BG the basic document is Counter Guarantee from PCL. It is an agreement on stamp paper duly executed by the borrower.The important aversions are; Request for issue of BG for the specified amount as per the contract no and details,for specific period in favour of .....It states that the margin and other securities offer. It authorizes Bank to pay the amount mentioned in BG mearly on demand by the beneficiary without even referring to them. They authorise to appropriate the margin, amount from other accounts and encash securities in case the BG is invoked. It also undertakes to pay interest @.... for delayed payment in case of invocation of BG.
Thus in all BG's there are always 3 parties 1 Applicant ie Principal Debtor 2 The Beneficiary ie .3 Bank issuing BG ie Surety(responsible when default is declared by the beneficiary).
There are 3 contracts 
1:Original between Our Client and Beneficiary (PCL and PMC). 
2: Based on contract no one the BG is issued which is a contract between Beneficiary and Bank(PMC and Tilak Rd Br)
3: A Counter Guarantee ,a contact between Bank and Client (Tilak Rd Br and PCL)

Remember all these three are Independent contracts though BG is based on contract no one.
AS SUCH BREACH OF CONTRACT can be INDEPENDENTLY decided by Beneficiary (PMC).
A mere demand by beneficiary and a Banker is liable to pay, that is the word by a banker is that sacrosanct. 
Good bye for the day we will concluded this in next lesson.

Waman Gokhale