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Things to Know About Bank Guarantee In UAE

It is a comfort offered by the issuing bank to the beneficiary in whose favour the guarantee is issued to cover damages if the principal debtor fails to comply with the agreement's conditions. In general, it is provided when one or both parties require significant business commitment and assurances that the other will fulfill the contract's contractual duties. In any foreign business, it is the most regularly used collateral.

Due to the UAE's popularity among overseas investors, bank guarantees are widely used. The Commercial Lawyers in Dubai have discussed the different features of bank guarantees and the UAE law that governs them. "An undertaking made by the bank to settle the customer's debt to a third party in accordance with the conditions agreed upon and indicated in the guarantee, which may be any given point in time or limitless," according to Federal Law number 18 of 1992 on Commercial Transactions Law.

Let's Understand the Concept of Bank Guarantee

Regardless of the person for whom the guarantee is offered, a bank guarantee is considered a business operation. As a result, it is governed by the Commercial Transactions Law. Furthermore, it addresses several topics of Civil Transactions Law (Federal Law Number 5 of 1985).

Each participant to the bank guarantee has its own set of rights and responsibilities. The issuing bank or guarantor has duties that are distinct from those of the principal debtor. Importantly, any guarantee offered by the bank is wholly different from the parties' contract or agreement.

Regardless of the beneficiary's status or the separate arrangement between the major debtors and the beneficiary, the bank or guarantor is obligated to indemnify him. Because the bank guarantee creates joint and separate liabilities, the guarantor and the principal debtor have different obligations to the beneficiary.

As a result, a bank guarantee stands out among the other guarantees stated in the Commercial Transactions Law, which have the tendency to establish contingent obligations based on the occurrence of a specific event.

Framework of a Bank Guarantee

A bank guarantee must be in a specific format and include the following information, according to the Commercial Transactions Law:

  • It must be of a certain size and quantity. A bank guarantee without a precise sum or a vague number is not enforceable;
  • The time restriction on the guarantee is not need to be mentioned. It is important to note, however, that if the guarantee has a time limit, it will be considered expired once that period has passed. This is in accordance with Article 418 of the Law, which states that unless the guarantor expressly agrees to renew the guarantee prior to its expiration and the beneficiary requests payment, the guarantor should be allowed to discharge its liability to the beneficiary after the bank guarantee has expired.
  • Since the time limit is ostensibly not stated on the guarantee, it will be presumed expired according to UAE legislation, which is 10 years from the date of issue.

The Commercial Transactions Law confirms that the Beneficiary is not permitted to assign his rights under the bank guarantee to any third party without the guarantor's prior written consent. Alternatively, while finishing the bank guarantee, the beneficiary might be provided the right of assignment, requiring the guarantor's prior consent to allow the beneficiary to transfer the bank guarantee's rights.

The right transferred under the bank guarantee permits the assignee to act in the beneficiary's place and to have all of the beneficiary's rights. As a result of the transfer, the parties will be accountable to the assignee, and the original beneficiary will no longer have any rights or claims against the guarantor or principal debtor.

What is the Maximum Bank Guarantee Amount in the UAE?

Under UAE law, a bank guarantee cannot be for an unspecified sum and must include a set value for which the guarantee is being given.

Is there a Time Limit on Bank Guarantees in the UAE?

Under UAE law, there is no necessity to include a time restriction in the Bank Guarantee. If a time restriction is provided, on the other hand, a Guarantee will automatically expire when the time limit is reached. However, if the Bank Guarantee does not specify a time limit, the general limitation periods or time bars that are specified will apply. Because UAE law does not specify a specific limitation time for Bank Guarantees, the normal limitation period of 10 years will apply.

Invoking the Bank Guarantee

Despite the fact that the issuance of a Bank Guarantee creates joint and several liabilities for the Guarantor and the Principal Debtor, the Guarantor is only liable to pay the Beneficiary upon the Beneficiary's invocation of the Bank Guarantee, not upon the Principal Debtor's default, act, or oversight. A Bank Guarantee should, in general, be unlimited; however, if it is subject to any requirements, such as the beneficiary's submission of documents, such conditions should be clearly stated in the bank guarantee. If such conditions are not met or the appropriate documents are not supplied, the Beneficiary will be unable to exercise the Bank Guarantee. It is the Guarantor's responsibility to show that the Bank Guarantee is subject to such requirements.

If the beneficiary invokes the guarantee in line with the terms of the guarantee, the guarantor is obligated to make the payment unless the guarantor is prohibited by a court order. It is important to note, however, that the guarantor has no time constraint to make payments after the bank guarantee is invoked. This is usually spelled out in the relevant paperwork and agreed to by the parties. The parties are able to specify when the guarantor will make payments following the invocation of the bank guarantee at the time of issuing or signing the guarantee under the law.

Conclusion

As a result, if you are a business owner or a salaried employee in the UAE, knowing about the Bank Guarantee might be quite advantageous. We hope you found this blog to be informative and inspiring. Please visit our website for more information on this and other related topics.

In Dubai and UAE, Dhanguard has a skilled team that can assist you and provide you with hassle-free bank guarantee services.

Frequently Asked Questions

A bank guarantee is a loan product but is less than a cash loan. Banks charges a specific commission fee that is generally a percentage of the amount of the transaction.

There is no prescribed amount for Bank guarantee.

Bank guarantees are beneficial and helpful not only for business owners but for banks also. Different from a loan, they does not require instant monetary coverage.

UAE Law does not offer a limitation period precisely for Bank Guarantees, so the general limitation period of ten years will be applicable for Bank Guarantees.

Dhanguard has an expert team who assists you and provide you with a hassle free service related to bank guarantee.

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