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The Payment and Performance Guarantee is a fundamental security instrument widely used in Indian business transactions, particularly in sectors involving substantial contract values or critical performance obligations. This document becomes essential when a party (the beneficiary) requires security for both payment obligations and performance commitments from another party (the principal). The guarantee is typically issued by a bank or financial institution, who acts as the guarantor, providing assurance of payment up to a specified amount and guaranteeing the performance of contractual obligations. It is commonly required in tender processes, construction contracts, supply agreements, and major service contracts. The document must comply with Indian Contract Act, 1872, Banking Regulation Act, 1949, and relevant RBI guidelines, making it a robust legal instrument within the Indian jurisdiction. The guarantee can be invoked under specified conditions, providing the beneficiary with a direct claim against the guarantor without first having to exhaust remedies against the principal.

1. Parties: Identifies the Guarantor (typically a bank or financial institution), the Principal (party whose obligations are being guaranteed), and the Beneficiary

2. Background: Sets out the context of the underlying contract or agreement and the reason for providing the guarantee

3. Definitions: Defines key terms used throughout the guarantee document

4. Guarantee Amount: Specifies the maximum amount guaranteed and any conditions affecting this amount

5. Scope of Guarantee: Details both payment and performance obligations covered under the guarantee

6. Duration and Validity: Specifies the commencement date and expiry date of the guarantee

7. Conditions for Invocation: Lists circumstances under which the guarantee can be called upon

8. Demand Procedure: Outlines the process and requirements for making a claim under the guarantee

9. Payment Terms: Specifies the timeline and method of payment upon valid invocation

10. Representations and Warranties: Standard declarations by the Guarantor regarding their authority and capacity

11. Governing Law and Jurisdiction: Specifies Indian law as governing law and designates jurisdiction for disputes

12. Notices: Details how formal communications between parties should be made and addressed