It is a comfort offered by the issuing bank to the beneficiary in whose favor 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.
Because the UAE is the most popular destination for overseas investors, bank guarantees are widely used. The Commercial Lawyers in Dubai have discussed the different features of bank guarantees as well as the UAE law that governs them.
Under Article 411 of Federal Law number 18 of 1992 on Commercial Transactions Law, a bank guarantee is defined as "an undertaking issued by the bank to settle the customer's debt to a third party in accordance with the conditions agreed upon and mentioned in the guarantee, which may be any given point in time or unlimited."
Thus in this blog we will cover all the intrinsic details pertaining to the Bank Guarantee in UAE which you should be familiar with. So without any further ado, let’s learn!
The natural or legal person (client) who submits a payment request to the bank and gets the payment amount
The person who initiates the bank guarantee (the borrower)
A financial organization (bank, insurance company) that agrees to make a payment to the individual named in the agreement as soon as a payment request is received.
Bank guarantees are advantageous not just to business owners, but also to banks. They do not demand immediate monetary coverage, unlike a Loan Furthermore, such payments on guarantees may be postponed for a period of time or become unnecessary altogether. A commission fee is payable mandatorily and in full for the supply of such guarantees.
Depending on the characteristics of a transaction, the following types of bank guarantees are distinguished-
Serves as a guarantee that all services, jobs, or goods deliveries will be completed completely and on schedule.
ADVANCE PAYMENT GUARANTEE
Ensures that the advance payment is refunded if the transaction's terms are not met in terms of time or volume.
Ensures that the delivered items or rendered services are paid on time
TENDER GUARANTEE (TENDER BOND)
Ensures payment requirements are met if a subsequent tenderer refuses to cooperate (cancels an application, fails to sign a contract, etc.)
TAX AND CUSTOMS GUARANTEE
Ensure that commitments to the tax and customs authorities are met.
Under UAE legislation, a Bank Guarantee cannot be for an unspecified sum and must state the specific amount for which the Bank Guarantee is being granted. The provision of a time limit in the Bank Guarantee is not required under UAE law. However, if a Bank Guarantee is included, it will automatically expire when the limit is reached.
The Guarantor shall be discharged from liability vis-à-vis the Beneficiary upon the expiration of the validity period of the Bank Guarantee unless it has been expressly agreed to renew the said term of the Bank Guarantee prior to its expiry and provided no request for payment has been received from Beneficiary during the validity period of the Bank Guarantee.
If the Bank Guarantee does not include a time limit, the normal limitation periods (time bars) imposed by UAE law will apply. Because UAE law does not provide for a specific limitation time for Bank Guarantees, the standard limitation period of ten (10) years will apply to Bank Guarantees.
A bank guarantee must be in a specific format and include the following information, according to the Commercial Transactions Law:
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.
Thus we can conclude with the fact that being well informed about the Bank Guarantee can be extremely beneficial for you if you are a Business owner or a Salaried Employee residing in UAE. We hope this blog provided you with incite full information. For more information on other related aspects, feel free to check out our Website as well.
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.
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