Bank guarantees are contractual undertakings generally arranged by banks in order to pay, or to repay a certain sum in case of some default in performance by the principal debtor of a contract with the creditor so as to facilitate the fine flow of trade and commerce in internal and international trade. The purpose of a bank guarantee is to secure all obligations of the contractor under a contract in such a way that it ensures that the owner is compensated in case of non performance without the need of prior legal actions. In lieu of cash deposits it has become a worldwide common practice to accept bank guarantee. The bank guarantees are preferred to other categories of guarantees due to the financial credibility enjoyed by the banking companies in the relevant market, as well as due to easiness to capitalize them.
This paper would analyze the different types of bank guarantee, i.e., conditional and unconditional bank guarantee and would also highlight the differences between general guarantee as defined under Section 126 of the Indian Contract Act, 1872 and a bank guarantee. It would also delve into the discussion about the conditions under which the courts would grant injunctions restraining a bank from enforcing a bank guarantee. Alongside, this paper would also bring to light the significant difference between the Indian law and the common law in relation to the way they deal with injunction of bank guarantee.
CONDITIONAL AND UNCONDITIONAL GUARANTEES
Bank guarantees can be of two types: conditional and unconditional performance guarantees. Under a conditional guarantee, the surety happens to be liable when the party claiming the guarantee proves the breach of terms of the underlying contract or proves the breach of the te...
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...d. Therefore, the bank may ask the beneficiary to approach the court for injunction.
K.G White, Bankers Guarantees and the Problem of Unfair Calling in JOURNAL OF MARITIME LAW AND COMMERCE 124 (1980).
supra note 6.
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Uttar Pradesh Co-op Federation Ltd v Singh Consultants and Engineers Pvt. Ltd, (1988) 1 SCC 174.
Id.
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(1984) 1 All ER 351, (1984) 1 WLR 392
Itek Corporation v. The First National Bank of Boston etc. (566 Fed Supp. 1210) 17.
Id.
Potton Homes v. Coleman Contractors 1984 28 Build LR 19.
UP Co-operative Federation Ltd v. Singh Consultants and Engineers Ltd. 1988 AIR 2239.
United States v. Cruikshank. 92 U.S. 542. U.S. Supreme Court. 1857 Online. Find Law. 30 Mar. 2005
[8] Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co. of Australia Ltd (1919) 26 CLR 110
National Labor Relations Board v. Jones & Laughlin Steel Corp. 301 U.S. 1; 57 S. Ct. 615; 81 L. Ed. 893; 1937 U.S.
R v Secretary of State for Transport, ex parte Factortame Ltd and others [1999] All ER (D) 1173.
The first scenario is that Bo Broker Company will accept a non-interest bearing or unsecured negotiable note that is payable over the life of the related
Banking supervision regards two major points which are safety and soundness. This has to do with consumer protection laws, safety and soundness of a bank often gets measured by an examiner. The examiner has to perform an examination review on banks performances which is based off the banks management, financial condition, and its commands with regulations. This helps protect consumer’s rights towards consumer’s protection laws, also helps ensure consumers they are safe with their banks.
SEC.2005. “Complaint: SEC v. L. Dennis Kozlowski, Mark H. Swartz, and Mark A. Belnick”. 2/16/2005.
Mooney, Richard. "Banker of America." The Boston Globe 4 Apr. 1999: L1 "Powerful house of Morgan Changes with the Times." The San Diego Union-Tribune 24 Feb. 1986: 18 Sinclair, Andrew. Corsair: The Life of J. Pierpont Morgan. Toronto: Little, Brown and Company, 1981.
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