A Performance Letter of Guarantee is a crucial financial instrument commonly used in Indian business transactions, particularly in construction, infrastructure, and large-scale projects. This document is issued by a bank when a client (principal) needs to provide performance security to their project owner (beneficiary). The guarantee typically covers 5-10% of the contract value and remains valid throughout the project duration plus a claim period. Under Indian law, these guarantees are governed by the Indian Contract Act, 1872, Banking Regulation Act, 1949, and relevant RBI guidelines. The document specifies the maximum guarantee amount, validity period, conditions for invocation, and payment terms. Performance Letters of Guarantee are essential in scenarios where the beneficiary requires assurance that the principal will fulfill their contractual obligations, with the bank providing financial backing to this commitment.
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1. Letter Header: Bank's letterhead, reference number, date, and addressee details
2. Subject Line: Clear identification of the document as a Performance Bank Guarantee with reference to the underlying contract
3. Introduction: Identification of all parties: Guarantor (Bank), Principal (Contractor/Applicant), and Beneficiary
4. Underlying Contract Reference: Details of the main contract/agreement for which the guarantee is being issued
5. Guarantee Amount: The maximum guaranteed sum, expressed in both figures and words
6. Guarantee Duration: Validity period of the guarantee, including start date and expiry date
7. Invocation Conditions: Specific conditions under which the guarantee can be invoked by the beneficiary
8. Payment Terms: Timeline and process for payment upon valid invocation of the guarantee
9. Reduction Clause: Terms for progressive reduction of guarantee amount, if applicable
10. Expiry Conditions: Conditions for expiry or termination of the guarantee
11. Governing Law: Statement of applicable law (Indian Law) and jurisdiction
1. Extension Clause: Used when there's a possibility of extending the guarantee validity period
2. Assignment Restriction: Include when the guarantee needs to be non-transferable
3. Claim Period: Additional period after expiry during which claims can be made, if required
4. Force Majeure Clause: Include for long-term guarantees or in specific high-risk scenarios
5. Multiple Bank Provisions: Required when the guarantee is issued jointly by multiple banks
6. Language Precedence: Include when the guarantee is issued in multiple languages
1. Schedule A - Underlying Contract Details: Complete details of the main contract including scope, value, and duration
2. Schedule B - Form of Demand: Prescribed format for making a demand under the guarantee
3. Schedule C - Special Conditions: Any special conditions or requirements specific to the project or parties
4. Appendix 1 - Supporting Documents: List of documents submitted for guarantee issuance
5. Appendix 2 - Authorization Documents: Board resolutions, power of attorney, or other authorization documents
Authors
Relevant legal definitions
Clauses
Relevant Industries
Construction
Infrastructure Development
Manufacturing
Engineering
Energy
Telecommunications
Information Technology
Defense
Public Works
Real Estate Development
Mining
Oil and Gas
Transportation
Utilities
Relevant Teams
Legal
Finance
Treasury
Risk Management
Project Management
Commercial Operations
Procurement
Contract Administration
Corporate Secretariat
Business Development
Relevant Roles
Project Manager
Contract Manager
Financial Director
Chief Financial Officer
Legal Counsel
Risk Manager
Treasury Manager
Bank Relationship Manager
Procurement Manager
Commercial Director
Project Director
Bid Manager
Company Secretary
Finance Controller
Operations Director
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