Bank Guarantee : Important Tools Of Commercial Transaction
2440 Words10 Pages
This Term Paper has been submitted by:
Avantika Sharma
ID No: 214087
On 21st January, 2015
Commercial Law Project
During the Winter Semester – 2014-15
Bank Guarantee: Important tools of Commercial Transaction
Chopperscam, the word used to address one of the biggest defence scam of the past decade. Some ministers and defence personnels were accused of accepting bribes from an Italian Company, Finmeccannica’s, in lieu of lobbying for the company to get them a 560 million-euro helicopter deal, from the Indian government. India scrapped off the contract after allegations of bribery emerged in Italy against executives at the Finmeccanica 's AgustaWestland unit. The loss due to this deal would have put India in a tight position, had it…show more content… The main purpose of bank guarantee is to provide incentive to creditor to take risks. It protects the beneficiary in case of non-performance without requirement of any legal actions. When a bank guarantees on behalf of its client, it assures the other party of financial stability of the client, which would enable both parties to carry out their business without fear of any delay or non-performance. It also allows the party, at whose instance, it was given, to earn interest on the amount while it is kept safe and secure in the bank as a guarantee. Generally, a bank guarantee is used in international trade, where parties do not know each other or law in each other’s country as it saves them from any risk in case of non-performance or legal disputes.
The bank guarantees are broadly divided into two categories; Financial Guarantees and performance guarantees. A guarantee which is issued in lieu of monetary consideration is called a financial bank guarantee whereas a guarantee, which is issued in respect of performance of a contractual obligation is known as a performance bank guarantee.
A financial bank guarantee assures repayment of money, in the event of non-completion of the contract by the client. The National Highways Authority of India v Ganga Enterprises and Anr. Is the case which explains the