The Financial Performance Guarantee is a crucial document in Indian commercial transactions where significant financial commitments need to be secured. It is commonly used in projects, contracts, and business arrangements where one party seeks assurance of another party's financial performance. The guarantee, governed by Indian law and banking regulations, provides a mechanism for risk mitigation by involving a financially sound guarantor (typically a bank or financial institution) who commits to compensate the beneficiary in case of the principal's default. This document type is essential in large-scale projects, international trade, and infrastructure development, where it helps facilitate business transactions by providing financial security. The document must comply with RBI guidelines, the Indian Contract Act, and other relevant banking regulations, making it a robust instrument for commercial security.
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1. Parties: Identifies the Guarantor (typically a bank or financial institution), the Principal (party whose performance is being guaranteed), and the Beneficiary
2. Background: Context of the underlying transaction and reason for the guarantee
3. Definitions: Key terms used throughout the guarantee document
4. Scope of Guarantee: Specific financial obligations being guaranteed and the maximum liability amount
5. Duration and Validity: Term of the guarantee, including commencement and expiry dates
6. Conditions for Invocation: Circumstances under which the guarantee can be called upon and the process for making a claim
7. Payment Terms: Timeline and method for payment upon invocation of the guarantee
8. Guarantor's Rights and Obligations: Legal rights, responsibilities, and limitations of the guarantor's liability
9. Representations and Warranties: Legal statements and assurances made by all parties
10. Governing Law and Jurisdiction: Confirmation of Indian law application and jurisdiction for disputes
11. Notices: Communication procedures and contact details for all parties
1. Counter Guarantee: Required when there is a back-to-back guarantee arrangement with another financial institution
2. Step-in Rights: Included when the guarantor has the right to take over the principal's obligations
3. Assignment Provisions: Needed if the guarantee rights may be transferred or assigned
4. Multiple Beneficiaries: Required when the guarantee is issued in favor of multiple parties
5. Partial Claims Provisions: Included when partial claims against the guarantee are permitted
6. Currency Provisions: Required for cross-border guarantees involving foreign currency
7. Force Majeure: Optional clause for events beyond parties' control affecting guarantee obligations
1. Schedule 1 - Form of Demand: Standard format for making a claim under the guarantee
2. Schedule 2 - Underlying Contract Details: Summary of the principal contract being guaranteed
3. Schedule 3 - Performance Metrics: Specific performance indicators that trigger guarantee liability
4. Schedule 4 - Fee Structure: Details of guarantee fees, charges, and payment schedule
5. Schedule 5 - Required Documents: List of documents needed for guarantee invocation
6. Appendix A - Power of Attorney: Authorization documents for signatories
7. Appendix B - Board Resolutions: Corporate authorizations for entering into the guarantee
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