1. 1-1

2. Group Members
Rashid aqeel
 Zohaib Ali
 Khalid Hussain
 Tausif Irfan
 Rashid Iftikhar
 Aroosha Shoib

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3. Outline of Presentation
Definition
Parties
Documentation of Guarantee
Types of Guarantees
Benifits of Guarantees
Comparison of Guarantee and Indemnity
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4. Aroosha Shoaib
1-4

5. Gurantee
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It is undertaking by a guarantor at the request
of a party.
Gurantor in the event of default by the principal
in fullfilment of his obligation to make payment
to the benificiary within limits of specified sum
of money within specified period of time.
Gurantees are generally given by Banks,
Insurance companies and other guarantors.
Gurantees are usually limeted with respect to
amount and time.
Gurantee is provided in shape of cash and
other assets.
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6. Parties involve in Gurantee
1. The Beneficiary
2. The Principal
3. Guarantor
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7. The Benificiary
He is the person who wants to receive a
compensatory sum of money incase the
tenderer fails to perform his obligations or
fails to perform the contract in accordance
with its terms or to secure repayment of
any payment or advances made by him if
the principal fails to perform the contract.
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8. The Principal
He is the party tendering the contract or He is
the party to whom the contract has been
awarded.
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9. Guarantor
Guarantor is a party who will meet his commitment in
terms of the guarantee, without becoming involved in
possible disputes between beneficiary and principal.
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10. The Instructrating Party
The new rules recognise the existing widespread
practice whereby an instructing party may forward to the
guarantor instructions received from or on behalf of the
principal and counter-guarantee such instructions.
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11. The Instructrating Party
The new rules recognise the existing widespread
practice whereby an instructing party may forward to the
guarantor instructions received from or on behalf of the
principal and counter-guarantee such instructions.
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12. Who provide Guarantee
Guarantees are generally given by
banks, insurance companies and
other guarantors.
These guarantees are given in the form
of tender bonds, performance
guarantees and repayment guarantees

13. Why Gurantee Needed
1. To provide an assurance of the intention of the
principal to sign the contract.
2.To safegaurd against the principal failing to
meet his obligations under such a contract
3.To protect interest of a party awarding the
contract (beneficiary) in respect of the repayment
of payments and advances made by him in the
even of principal not fulfilling the contract terms.
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14. Rashid Aqeel
1-14

15. Contracts of Gurantee
1st contract is in between Principal and
Guarantor
2nd contract is in between Beneficiary and
Guarantor
At the same time principal can get one
letter of guarantee.

16. Essential elements of
Gurantee
1. Time must be defined
2. Amount of Gurantee is defined
3. Single beneficiary will be specified.

18. Amendement in Gurantee
Amendement in guarantee can't be made
without prior permission of both
beneficiary and Principal.
If it is amended without prior permission
than it can be revocked by either party.

19. Expirey of Guarantee
Bank guarantee expires when – the validity
period has ended or the BG is returned for
cancellation or the entire amount of BG is
paid by the bank or the bank is released
from its obligations.

20. Documents for Gurantee
>Hypothecation / Pledge agreement for
collateral security formalities connected
with registration charges where necessary.

21. Vetting
Scruitiny/ Examine of documents for
protection of legal interest is called
vetting.
Contradidtory clause
No any clause must come which is agains
the bank's benefits.

22. Counter Gurantee/Indemnity
from Principal
Binding principal legaly to follow all terms and
conditions established in Contract of
gurantee.
If principal fail to follow these conditions than
this contract of gurantee can be revocked
and some penalty can be charged to
applicant borrower/principal.

23. Revocation of Contract of
Guarantee
1. Contract of gurantee can be revocked in
performance of counter guarantee.
2. If contract is amended without consent of principal
and beneficiary than either party can revoc the
contract.
3. In case of miss representation by the principal in
process of generating guarantee.
4. In case of miss representation by the benefiaciary
in sales transaction.

24. .
Rashid Iftikhar
MBK-11-27
24

25. Types of guarantee
1.Conditional and Unconditional
Guarantees.
2.Fixed and Fluctuating Guarantees.
3.Financial Guarantees.
4.Performance / Non-financial
guarantees.
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26. Cnoditional Gurantee
In case of conditional guarantees, the right to
claim payment is conditional on external factors
besides the beneficiary’s demand for payment.
For example – If a guarantee states the clause
that this guarantee is payable only on a
particular ruling of a court
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27. UnCnoditional Gurantee
An unconditional / demand guarantee on the
other hand, is payable on first demand by the
beneficiary. Generally, banks prefer to issue
unconditional guarantees so that they can avoid
their obligation to pay being contingent on
external factors. Because, these unconditional
guarantees will afford them certainty about their
obligation.
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29. Fixed and flexible Gurantee
Under a fixed guarantee, the bank;s liability can
be ascertained at the time of issuance.
On the other hand, in case of fluctuating
guarantee, the bank’s liability can fluctuate
subject to a fixed maximum amount.
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30. ,
Khalid Hussain
MBK- 11-24
30

31. Financial Gurantees
A guarantee to ensure strictness to a financial
commitment is a financial guarantee.
1.Disputed income tax / Customs & excise
duties : Banks will issue guarantee to guard
against non-payment of tax / duty amount.
2.Customs / Excise guarantee for clearance
of goods : To guard against non-payment of
duty amount after final assessment by the
competent authority.
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32. Cont.....
3.Insurance premium guarantee : To guard against
non-payment of premium on demand from the
insurance company.
4.Guarantee for grant of facilities to another
company : To guard against non-payment of dues by
the company to whom such facilities are granted.
5.Deferred payment Guarantee : To guard against
non-payment of bill of exchange / loan instalment on the
due date.
6.Bill of lading / Shipping guarantee : Indemnifies the
transporter against all adverse consequences resulting
from the delivery of goods without surrender of the
transport document.
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33. Performance/ Non Financial
A guarantee to ensure adherence to a commitment
to perform a certain act as per stipulated conditions
is a performance guanrantee.
1.Advance payment guarantee / Prepayment
bond : To guard against non-delivery of
goods/services for which advance has been
received from the buyer.
2.Performance guarantee / Retention bond : to
guard against non-performance of contracted
obligations by the seller of the goods or the
provider of the services.
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34. Tausif Irfan
MBK-11-25
35

35. Benifits of Insurance
Benefits to the parties:
Benefits to the bank : It gets commission income.
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36. Cont........
2. Benefits to the principal / Instructing party :
(a) It enables better liquidity by deferring payment
and making it contingent on non-performance.
(b) Cheaper than fund-based facilities except where
it involves credit substitution.
3. Benefits to the beneficiary : Certiainty of
payment, in the event of non-performance,
guaranteed by the bank.
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37. ,
Zohaib Ali
MBK-11-23