GUARANTEE GIVING OF A GUARANTEE MEANS: ENTERING INTO A CONTRACT TO - - PowerPoint PPT Presentation

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GUARANTEE GIVING OF A GUARANTEE MEANS: ENTERING INTO A CONTRACT TO PERFORM THE PROMISE OF DISCHARGE THE LIABILITY OF THIRD PERSON IN CASE OF HIS DEFAULT.

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EXCHANGE CONTROL REGULATIONS UNDER FEMA 1999 NO PERSON RESIDENT IN INDIA IS PERMITTED, EXCEPT WITH THE GENERAL OR SPECIAL PERMISSION OF THE CENTRAL GOVERNMENT OR THE RESERVE BANK, TO GIVE A GUARANTEE IN RESPECT OF ANY DEBT OR OTHER OBLIGATION OR LIABILITY OF A PERSON RESIDENT IN INDIA AND DUE OR OWING TO A PERSON RESIDENT OUTSIDE INDIA.

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PARTICULARS PURPOSE AND PERIOD: A GUARANTEE SHOULD BE FOR A SPECIFIED PURPOSE AND FOR A DEFINITE PERIOD, NORMALLY NOT EXCEEDING ONE YEAR.

• THE GUARANTEE SHOULD ALSO MENTION THE

ADDITIONAL PERIOD DURING WHICH A CLAIM , IF ANY ARISES.

• THE VALIDITY PERIOD OF A GUARANTEE AND THE CLAIM

PERIOD TOGETHER ARE KNOWN AS SPECIFIED PERIOD. AMOUNT: THE AMOUNT OF GUARANTEE SHOULD IN NO CASE, EXCEED THE VALUE OF THE IMPORTS AGAINST WHICH IT IS GIVEN.

CONT….

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PARTICULARS SECURITY: GUARANTEE SHOULD BE ADEQUATELY

• SECURED. THE SECURITY MAY BE IN THE FORM OF A

CASH MARGIN OF 100% WHERE NECESSARY, TITLE DEED DEPOSITED OR THE EARMARKING OF THE CASH CREDIT LIMIT OF THE PRINCIPAL DEBTOR, IF HE HAS ANY.

• WHEN THE PRINCIPAL DEBTOR IS A LIMITED COMPANY,

THE GUARANTEE IS REQUIRED TO BE COVERED BY A RESOLUTION OF THE BOARD OF DIRECTORS.

• IN CASE OF A GUARANTEE FOR CLEARANCE OF

IMPORTED GOODS WITHOUT PRODUCTION OF THE SHIPPING DOCUMENTS, A PROFORMA INVOICE AND A DECLARATION SHOULD BE OBTAINED FROM THE CUSTOMER.

CONT….

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PARTICULARS COMMISSION: UNDER THE FEDAI RULES, COMMISSION FOR THE ISSUE OF A GUARANTEE OR FOR AN EXTENSION IS TO BE RECOVERED IN ADVANCE AT THE RATE OF 1/8% ON THE GUARANTEE AMOUNT FOR THE FULL SPECIFIED PERIOD. INDEMNITY: BY GIVING A GUARANTEE, THE BANKER INCURS A CONTINGENT LIABILITY WHICH MAY BECOME ACTUAL, IN THE EVENT OF DEFAULT ON THE PART OF

• CUSTOMER. HENCE THE BANKER SHOULD OBTAIN A

COUNTERVAILING INDEMNITY FROM THE CUSTOMER. ACCOUNTING: THE GUARANTEE SHOULD, BE ACCOUNTED FOR THROUGH CONTRA ACCOUNTS.

CONT….

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PARTICULARS REDEMPTION: ON THE EXPIRY OF THE PERIOD OF A GUARANTEE, THE GUARANTEE DULY CANCELLED BY BENEFICIARY SHOULD BE CALLED BACK. INVOCATION: IF A GUARANTEE IS INVOKED, THE BANKER HAS TO HONOUR IT BY MAKING PAYMENT OF THE GUARANTEE AMOUNT TO THE BENEFICIARY OUT OF THE SECURITY HELD, IF NOT, BY MAKING A DEBIT TO THE CUSTOMER’S ACCOUNT.

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DEFERRED PAYMENT IMPORT GUARANTEE NATURE: A GUARANTEE AGAINST THE IMPORT OF GOODS UNDER DEFERRED PAYMENT ARRANGEMENT, MAY BE GIVEN ONLY WITH THE PRIOR PERMISSION OF THE RESERVE BANK. RBI APPROVAL: AN APPLICATION FOR THE RESERVE BANK'S APPROVAL SHOULD BE MADE THROUGH THE BANKER AND SHOULD BE SUPPORTED BY THE DOCUMENTS. SECURITY: EXCEPT IN THE CASE OF A FIRST CLASS CUSTOMER, A DEFERRED PAYMENT GUARANTEE SHOULD BE BACKED BY ADEQUATE TANGIBLE SECURITIES OR BY A COUNTER-GUARANTEE.

CONT….

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DEFERRED PAYMENT IMPORT GUARANTEE REMITTANCES OF INSTALMENTS: ONCE THE RESERVE BANK’S APPROVAL HAS BEEN OBTAINED, THE INSTALMENTS DUE UNDER THE GUARANTEE MAY BE REMITTED TO THE OVERSEAS SUPPLIER IN ACCORDANCE WITH THE SCHEDULE OF PAYMENTS APPROVED BY THE RESERVE BANK. EXCHANGE COVER: THE INSTALMENT PAYMENTS INCLUDING THE INTEREST PAYABLE ON THEM SHOULD BE COVERED BY A SALE OF FORWARD EXCHANGE ON A ROLE-OVER BASIS.

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EXPORT GUARANTEES FINANCIAL: EXPORT GUARANTEES, MAY BE FINANCIAL OR PERFORMANCE GUARANTEES. BEFORE ISSUING SUCH GUARANTEE THE AUTHORIZED DEALER SHOULD SATISFY HIMSELF WITH THE BONAFIDES OF THE APPLICANT AND HIS ABILITY TO PERFORM THE CONTRACT. AUTHORIZED DEALERS MAY ISSUE COUNTER- GUARANTEE IN FAVOUR OF THEIR BRANCHES / CORRESPONDENTS ABROAD. WHEN THE BOND / GUARANTEE IS INVOKED, AUTHORIZED DEALER MAY MAKE THE PAYMENT.

CONT….

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EXPORT GUARANTEES PERFORMANCE: EXPORT PERFORMANCE GUARANTEE IS A GUARANTEE OF BOND EXECUTED BY A BANKER IN FAVOUR OF A FOREIGN BUYER, GOVERNMENT etc, COVERING THE DUE EXECUTION OF AN EXPORT ORDER BY AN INDIAN EXPORTER.

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DEFERRED PAYMENT EXPORT GUARANTEE A DEFERRED PAYMENT EXPORT GUARANTEE IS A PERFORMANCE GUARANTEE OR BOND WHICH A BANKER FURNISH TO AN OVERSEAS BUYER ON ACCOUNT OF AN INDIAN EXPORTER WHEN THE TOTAL PAYMENT TO BE MADE AGAINST THE EXPORT BY THE FOREIGN BUYER IS SPREAD OVER A NUMBER OF YEARS. A BANKER MAY FURNISH, WITHOUT PRIOR PERMISSION OF THE RESERVE BANK, A BID BOND / TENDER GUARANTEE, OR AN ADVANCE PAYMENT PERFORMANCE GUARANTEE ONLY IN CASES WHERE HE HAS BEEN PERMITTED TO APPROVE, WITHOUT REFERENCE TO THE WORKING GROUP.

CONT….

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DEFERRED PAYMENT EXPORT GUARANTEE IN ALL OTHER CASES OF DEFERRED PAYMENT EXPORT CONTRACT OR TURNKEY PROJECTS, THE BOND OR GUARANTEE MAY BE ISSUED ONLY AFTER THE APPROVAL FORM THE EXIM BANK. GUARANTEE ON BEHALF OF A FIRM OR COMPANY IN INDIA, WHICH WISHES TO RENDER CONSULTANCY / TECHNICAL SERVICES ABROAD, MAY BE ISSUED WITH THE PRIOR APPROVAL OF THE RESERVE BANK. A BOND OR GUARANTEE IN RESPECT OF A CONSTRUCTION CONTRACT TO BE EXECUTED ABROAD MAY BE GIVEN BY A BANKER PROVIDED THE COMPANY HAS OBTAINED APPROVAL FROM EXIM BANK.

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TYPES OF GUARANTEES AN EXPORT CONTRACT MAY RUN INTO VARIOUS STAGES: ACCEPTANCE OF CONTRACT BY THE EXPORTER. ACTUAL SUPPLY / ERECTION OF THE MACHINERY. PROPER FUNCTIONING OF THE MACHINERY FOR A MINIMUM PERIOD. TYPES OF GUARANTEES TO COVER THESE ASPECTS.

• BID BOND GUARANTEE.
• PERFORMANCE GUARANTEE.
• ADVANCE PAYMENT GUARANTEE.
• RETENTION MONEY GUARANTEE.