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Bank Guarantee
Bank guarantee is a financial instrument issued by a bank on behalf of its customer (usually a business or individual) to provide a commitment of payment or performance to a third party (often referred to as the beneficiary) in case the customer fails to fulfill their obligations or meet certain conditions. In other words, a bank guarantee serves as a guarantee or assurance from the issuing bank that it will make a specified payment to the beneficiary if the customer (the party obtaining the guarantee) is unable to meet their contractual or financial obligations. This can include situations such as defaulting on a loan, failing to complete a project, or not fulfilling a contractual agreement. It is regarded to be an autonomous liability issued by the guarantor to the creditor, also called as the beneficiary, by the principal debtor. irrespective of any type of contract between any of the three parties, that is the guarantor, the principal debtor of the position of the principal debtor, the guarantor will remain bound to the bank guarantee. the guarantor is assumed to be another principal debtor distinctive of the actual principal debtor and they both are not each others agent or respresentatives. A joint as well as a several liability is created on the part of both the guarantor and principle debtor and are regarded to be mutually exclusive of each other. This is considered to be a paramount different between the guarantee and the bank guarantee, unlike the bank guarantee, a guarantee give rise to incidental obligation.
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Bank guarantee provides some legality such as amount of bank guarantee, time limit of bank guarantee, assignment of the instrument, invocation of bank guarantee, payment, injunction, failure of making payment. The Dubai law does not consider a bank guarantee without any amount as legal. It is expressly provides that a bank guarantee should be of a specific amount is known as amount of bank guarantee. The time limit is not necessary constituent according to the law of Dubai for the bank guarantee, But if the time duration is present in the instrument, then it will on its own get expired on the Valid of such time period. Also under article 418 of the CTL, there is a chance of eliminating the obligation on the part of the guarantee when the case involves includes no renewal of the instrument before the expiry of the guarantee, when the beneficiary has not made of request of payment within the limited time. Assignment of the instrument, In the article 416 enumerates that the instrument will not be valid in the hands of the 3rd party as long as the beneficiary has assigned it to the 3rd party without any prior consent from the guarantor. Invocation of bank guarantee, The beneficiary is the sole party which can invoke the bank guarantee and based on this invocation, the bank has the obligation to pay to the beneficiary irrespective of any default or act by the principal debtor in this regard.
