Warranty bond foreign surety company federal -legality

2.3.1 Bid bonds and performance bonds or guarantees for exports

i. In terms of Notification No.FEMA.8/2000-RB dated May 3, 2000, Authorised Dealer banks have the permission to give performance bond or guarantee in favour of overseas buyers on account of bona fide exports from India.

ii. Prior approval of RBI should be obtained by the Authorised Dealer banks for issue of performance bonds/ guarantees in respect of caution-listed exporters. Before issuing any such guarantees, they should satisfy themselves with the bona fides of the applicant and his capacity to perform the contract and also that the value of the bid/ guarantee as a percentage of the value of the contract/ tender is reasonable and according to the normal practice in international trade, and that the terms of the contract are in accordance with the Foreign Exchange Management regulations.

iii. Authorised Dealer banks, should also, subject to what has been stated above, issue counter-guarantees in favour of their branches/ correspondents abroad in cover of guarantees required to be issued by the latter on behalf of Indian exporters, in cases where guarantees of only resident banks are acceptable to overseas buyers in accordance with local laws/ regulations.

iv. If and when the bond/ guarantee is invoked, Authorised Dealer banks may make payments due thereunder to non-resident beneficiaries.

Sir,

This is Import supply and services of tank at rolled plant. In Europe ,warranty bond is used in construction business and in case of dispute  it is settled by insurance company.

My query-

In case if bank guarantee, it is permitted by Rbi to AD Bank , as u have mentioned. But her, insurance company .they are notorious in raiding dispute . In BG, it is settled without demur and bank is involved.so indian importer may be exposed to insurance co,s tricks. Kindly guide whether warranty bond is legally acceptable and inevitable in India.

Rgds

Jayanta

Belur Math,W Bengal

23.6.21