Performance Guarantee Bond Template for India

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.

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