Document background
The Advance Performance Guarantee is a fundamental document in Indian business transactions where substantial advance payments are involved. It serves as a risk mitigation tool for project owners who need to make advance payments to contractors or suppliers. This guarantee, issued by banks or financial institutions, ensures that the advance payment will be properly utilized for the intended purpose and provides a mechanism for recovery if the contractor fails to perform their obligations. The document is structured under Indian law, particularly the Indian Contract Act, 1872, and Banking Regulation Act, 1949, and typically includes details about the guaranteed amount, validity period, conditions for invocation, and reduction mechanisms. The Advance Performance Guarantee is particularly crucial in sectors such as construction, infrastructure, and large-scale procurement, where significant advance payments are common practice.
