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Essence of Bank Guarantees in Performance of Contractual Obligations

Prof. (Dr.) R.L.Koul

Professor, Amity Law School,

Amity University, NOIDA (UP)

 

Dr. Meenakshi Kaul

Assistant Professor, Symbiosis Law School,

NOIDA (Symbiosis International University, Pune)

 

 

                                                               Abstract

Guarantees have been in use from ancient times. Though different types of guarantees have emerged but with the advent of banking system, the guarantees given by Banks to ensure performance of contractual obligations assumed importance like those of letter of credit. The essence of bank guarantee lies in trade and commerce without any doubt. The liability of bank as guarantor is absolute subject to terms of the guarantee. A banker has nothing to do with the underlying contract. Payment under bank guarantee is to be made merely on demand and without demur except in case of fraud and irretrievable equities as held in judicial decisions.  Once a Banker gives guarantee same is secured by counter guarantee, besides, the tangible security. For crystalizing the liability under bank guarantee by the beneficiary, he has to invoke the guarantee within the stipulated period provided in the contract of guarantee. Usually bankers provide forfeiture clause in guarantee document which became debatable in view of amendment to section 28 of the contract Act. The effect of the amendment among others is taken care in the present research paper with suggestions thereto.

 

Key Words: Bank Guarantee, Letter of Credit, Forfeiture Clause, Fraud, irretrievable equities, Invocation of guarantee

journal of english

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2017-09-29T07:53:52+00:00
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