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Why good drafting of a bank guarantee is crucial?

In case of a bank guarantee or standby letter of credit, the chances of unjustified claim is very high because to claim under the instrument, very less number of documents are required and the banks have to examine those ‘on the face’ and if the documents are found complying, the bank has to pay whether or not the claim is actually true or not. Only if there is proof of fraud, or proof of money laundering or there is a court stay order, the bank is allowed to stop payment. Otherwise the bank is bound to pay. So, it is very important and crucial to draft the text of the instrument in such a way that the bank and the applicant is protected from unjustified claim demands.

Mandatory Information to be included in a bank Guarantee/ SBLC

Mandatory Information as per International Chamber of Commerce (ICC)

These information must be included in the instrument text, whether or not the instrument is subject to any of the ICC rules (URDG 758/ ISP 98/ UCPDC 600) or without any rule -

1. The name and address of the applicant.
2. The name and address of the beneficiary.
3. The name and address of the guarantor.
4. A reference number or other information identifying the underlying relationship.
5. A reference number or other information identifying the guarantee.
6. The amount or maximum amount of the guarantee and the currency in which it is payable.
7. The expiry date and/or the expiry event of the guarantee.
8. The terms for demanding payment.
9. Whether a demand or other document shall be presented in paper and/or electronic form.
10. The language of any document specified in the guarantee; and
11. The party liable for payment of any charges.

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