Contract Performance Guarantee Template for India

The Contract Performance Guarantee is a critical financial security instrument commonly used in Indian business transactions where one party seeks assurance of another party's performance under a contract. This document is typically required in situations involving substantial contract values, long-term commitments, or significant performance risks. It provides a mechanism for the beneficiary to claim financial compensation directly from a bank if the principal fails to fulfill their contractual obligations. The guarantee must comply with Indian contract law, banking regulations, and Reserve Bank of India guidelines, making it a legally enforceable instrument in Indian courts. Common scenarios for its use include construction projects, supply contracts, service agreements, and government tenders, where the guarantee typically ranges from 5% to 10% of the contract value.

1. Parties: Identifies the Guarantor (typically a bank), the Beneficiary (party receiving the guarantee), and the Principal (party whose performance is being guaranteed)

2. Background: Brief context about the underlying contract and the requirement for the guarantee

3. Definitions: Key terms used in the guarantee document including 'Guaranteed Amount', 'Underlying Contract', 'Expiry Date'

4. Guarantee and Its Scope: The core guarantee commitment, including the maximum guaranteed amount and the specific obligations covered

5. Duration and Validity: The effective period of the guarantee, including start date, expiry date, and any extension conditions

6. Demand and Payment Terms: Procedure for making a demand under the guarantee, including format, timing, and payment obligations

7. Reduction and Release: Conditions under which the guarantee amount may be reduced and when the guarantee will be released

8. Governing Law and Jurisdiction: Specification of Indian law as governing law and jurisdiction for disputes

9. Notices: Communication procedures and contact details for all parties

10. Execution: Signature blocks and execution formalities