The Advance Performance Guarantee is a fundamental document in Indian business transactions where substantial advance payments are involved. It serves as a risk mitigation tool for project owners who need to make advance payments to contractors or suppliers. This guarantee, issued by banks or financial institutions, ensures that the advance payment will be properly utilized for the intended purpose and provides a mechanism for recovery if the contractor fails to perform their obligations. The document is structured under Indian law, particularly the Indian Contract Act, 1872, and Banking Regulation Act, 1949, and typically includes details about the guaranteed amount, validity period, conditions for invocation, and reduction mechanisms. The Advance Performance Guarantee is particularly crucial in sectors such as construction, infrastructure, and large-scale procurement, where significant advance payments are common practice.
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1. Parties: Identification of the Guarantor (usually a bank/financial institution), the Principal (contractor/supplier), and the Beneficiary (client)
2. Background: Context of the underlying contract and the requirement for the advance performance guarantee
3. Definitions: Key terms used in the guarantee including 'Guaranteed Sum', 'Underlying Contract', 'Expiry Date', etc.
4. Guarantee and Its Scope: The specific amount being guaranteed and the nature of the guarantee
5. Conditions for Invocation: Circumstances under which the guarantee can be invoked by the beneficiary
6. Duration and Validity: Term of the guarantee, including start date, expiry date, and any extension conditions
7. Payment Terms: Process and timeline for payment upon invocation of the guarantee
8. Reduction and Release: Conditions and process for progressive reduction and final release of the guarantee
9. Governing Law and Jurisdiction: Specification of Indian law as governing law and jurisdiction for disputes
10. Notices: Process and addresses for serving notices under the guarantee
1. Multiple Beneficiaries: Required when the guarantee is issued in favor of multiple parties
2. Assignment: Include when transfer of guarantee rights needs to be addressed
3. Counter Guarantee: Needed when there's a counter-guarantee arrangement with another bank/institution
4. Step-In Rights: Include for large project guarantees where step-in rights might be relevant
5. Force Majeure: Optional section for addressing extraordinary circumstances affecting the guarantee
6. Language: Required when the guarantee might be used in multiple jurisdictions or languages
1. Schedule 1 - Form of Demand: Standard format for making a demand under the guarantee
2. Schedule 2 - Underlying Contract Details: Key details of the contract being guaranteed including project specifics
3. Schedule 3 - Reduction Schedule: Schedule of progressive reductions in the guarantee amount if applicable
4. Schedule 4 - Authority Documents: List of documents evidencing authority of signatories
5. Appendix A - Bank Details: Banking information for payment processing
6. Appendix B - Communication Details: Detailed contact information for all parties
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