Guarantees and Their Enforcement by Banks: A Critical Analysis

Abstract

Guarantees have been prevalent in India from ancient times[1]. During the feudal period, there are instances where the kings/Feudal lords have made individuals captive for nonpayment of debt, indemnity and/or otherwise. Prevalence of Guarantees is seen throughout the historical periods. Before passing of the Indian Contract Act, 1872, the position of India can be understood from the prevalence of laws in presidential towns, provincial towns and other areas governed by Maharajas, Nawabs etc . For presidency towns of Calcutta, Madras & Bombay, the English common law and statute law relating to contracts were introduced as conducive to Indian conditions but same led to many inconveniences. The statute of 1781 and that of 1797 were applied to supersede English law in its application to Hindus and Mohammadas but the inconveniences continued with the result the Indian Contract Bill was introduced in Legislature which received its assent on 25th April, 1872. The referred Act has a separate chapter covering the Indemnity and Guarantee [2] .The Guarantee under the Act is defined as: