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A Bank Guarantee can be defined as a contract between a bank as guarantor and a beneficiary in which the bank commits itself to pay a certain sum under certain, specified conditions on a simple written demand of the beneficiary. In other words Bank Guarantee is an instrument issued by a Bank in which the Bank agrees to stand guarantee against the non-performance of some action/performance of a party. A Bank guarantee is thus a promise from a bank that the liabilities of a debtor will be met in the event that you fail to fulfill your contractual obligations.

The quantum of guarantee is called the ‘guarantee amount’. The guarantee is issued upon receipt of a request from ‘applicant’ for some purpose/transaction in favour of a ‘Beneficiary’. The ‘issuing bank’ will pay the guarantee amount to the ‘beneficiary’ of the guarantee upon receipt of the ‘claim’ from the beneficiary. This results in ‘invocation’ of the Guarantee.

Some of the types of Bank Guarantees

Performance Guarantee

Bid Bond Guarantee

Financial Guarantee

Advance Payment Guarantee

Foreign Bank Guarantee

Deferred Payment Guarantee

Suggested Bank Guarantee Format

We________________________________ issue in favour of _____________________ hereinafter ‘called as
We the Bank __________ do hereby undertake to pay Rs——————–against loss or damage caused to or suffered by the said by reason of any breach by

We the Bank ( name of the bank issuing the Bank Guarantee)  do hereby undertake to pay the amounts due and payable under this bank guarantee without any demur, merely on demand, however, our liability under this bank guarantee shall be restricted to an amount not exceeding Rs.———————

We the Bank  further agree that the guarantee herein contained shall remain in full force and effect till released by the said Authority We the Bank lastly undertake not to revoke this guarantee during its currency except with previous consent of the Authority in writing.

Notwithstanding anything contained herein. before, our liability under this bank guarantee is restricted to Rs.—————————–Only) and our bank guarantee should remain in full force until and unless a suit or an action in writing under the guarantee is filed against us on and after this date all rights under the said guarantee shall be forfeited and we shall be released and discharged from liabilities thereunder.

DATED __________ AT ———————- FOR BANK

Notwithstanding anything contained herein before

1. Our liability under this Bank guarantee shall not exceed Rs.___________ (Rupees ______________)
2. This bank Guarantee shall be valid upto ___________
3. We are liable to pay the guarantee amount or any part thereof under this Bank Guarantee only and only. If ______ serve upon us a written claim or demand on or before _______.
1. All claims under this guarantee shall be payable at New Delhi.
2. This Guarantee will be returned to us as soon as the purpose for which its is issued is fulfilled.
3. The Bank Guarantee confirmation No.__________ shall be mentioned in the records.

Bank Guarantee format drafted by our Online Indian lawyer with tips on the law and important points related to it. 

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