The Performance Guarantee Bond is a crucial document in Indian business transactions, particularly in sectors involving significant project values or government contracts. It is required when a party (principal debtor) needs to provide security for their performance obligations under a primary contract. The document, governed by Indian contract and banking laws, creates a three-party relationship where a financial institution guarantees payment of a specified sum to the beneficiary if the principal debtor fails to perform their contractual obligations. The guarantee typically covers 5-10% of the contract value and remains valid throughout the contract period plus a claim period. Performance Guarantee Bonds are especially common in construction and infrastructure projects, government tenders, and large commercial contracts where project completion assurance is crucial.
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1. Parties: Identifies the Guarantor (usually a bank or financial institution), the Beneficiary (party receiving the guarantee), and the Principal Debtor (party whose performance is being guaranteed)
2. Background: Describes the underlying contract or obligation that is being guaranteed and establishes the context for the guarantee
3. Definitions: Defines key terms used throughout the document including 'Guaranteed Obligations', 'Guarantee Amount', and other relevant terms
4. Guarantee and Its Scope: Details the specific obligations being guaranteed and the extent of the guarantor's liability
5. Guarantee Amount: Specifies the maximum amount of the guarantee and any conditions for its reduction or increase
6. Duration and Validity: Specifies the commencement date and expiry date of the guarantee
7. Conditions for Invocation: Sets out the circumstances and process under which the guarantee can be called upon
8. Payment Terms: Specifies how and when payment must be made following a valid demand
9. Representations and Warranties: Standard declarations by the guarantor regarding their capacity and authority to issue the guarantee
10. Governing Law and Jurisdiction: Specifies that Indian law governs the guarantee and designates the courts having jurisdiction
1. Multiple Guarantors Clause: Required when there is more than one guarantor, specifying joint and several liability
2. Counter-Indemnity: Used when the guarantor requires indemnification from the principal debtor
3. Assignment Restrictions: Included when there are specific restrictions on transferring or assigning the guarantee
4. Demand Certificate Format: Required when specific format is needed for making demands under the guarantee
5. Force Majeure: Optional clause dealing with circumstances beyond control that might affect the guarantee
6. Dispute Resolution: Alternative dispute resolution mechanisms if preferred over court jurisdiction
1. Schedule 1 - Form of Demand: Template for making a demand under the guarantee
2. Schedule 2 - Underlying Contract: Copy or key details of the contract being guaranteed
3. Schedule 3 - Special Conditions: Any specific conditions or requirements particular to this guarantee
4. Schedule 4 - Authorization Documents: Corporate authorizations and board resolutions authorizing the guarantee
5. Appendix A - Communications Details: Contact information and notice details for all parties
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