s k majumdar (Asst.manager(Internal audit)) 11 September 2009

Encashment of BG by PSU/Govt. organisation

Dear sir

A nIndian limited Co. issued on 1.1.07 Performance bank Guarantee through Bank of India to a PSU client for Rs.50 lakhs.The valid claim period of the BG was expired on 1.1.08.The hard copy of the BG still lying with the client and was not taken back by the limited co.

Can the BG be encashed by the PSU even after the claim period is over.What is the max. time period the BG will be available for encashment in respect of the PSU/Govt. organisation.What is the legal statute in this regard if the performance of the equipment is not satisfactory and also the legal provisionsif the performance of the equipment is satisfactory

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3 Replies

DD Sathe (Contract Management) 13 September 2009

BG can not be encashed after expiry as bank will not entertain the claim. There is no separate period for PSU's-defined expiry will be applicable.

If performance is not satisfactory warranty provision will apply.

If performance is satisfactory-expect another order!

Sabir Bose (Service) 18 September 2009

If performance is not satisfactory, of course, BG can be encashed within the expiry time. However, in the instant case, BG cannot be encashed. Only LD can be imposed, if there is provision in the contract.

M.S.Bhalerao (advocate) 27 October 2010

Read the BG clauses carefully. After the expiry of guarantee period, there is a cushion period somtimes provided in the BG document. BG can be encashed till this period is not over. make sure whether you have authorised renewal.