Definition
A written commitment by a bank (guarantor bank) to pay a specified sum to the beneficiary if the principal debtor (on whose behalf the guarantee is issued) fails to fulfill their obligation. Bank guarantees are commonly used in corporate transactions, government contracts, and as collateral. Invocation of a bank guarantee triggers payment regardless of underlying disputes — courts rarely grant stay orders on BG encashment.
Related Terms
Letter of CreditGuarantee
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Defined by Advocate Subodh Bajpai, Senior Partner, Unified Chambers and Associates