A multinational corporation submits an unconditional and irrevocable Bid Bond Guarantee issued by its lead bank for a government tender. If the government authority invokes the guarantee alleging a breach, what is the bank's legal obligation under the Indian Contract Act 1872?

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Banking · Ancillary Banking Services

Verified Solution4 OptionsUpdated: October 2026👁️1 View

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The bank is legally bound to pay the beneficiary immediately on demand, despite disputes raised by the client.

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Answer 1

The bank must withhold payment until a competent court issues an explicit order.

Answer 2

The bank is legally bound to pay the beneficiary immediately on demand, despite disputes raised by the client.

Answer 3

The bank must act as a mediator and pay only after the client admits to the breach.

Answer 4

The bank can unilaterally cancel the guarantee if the amount exceeds its standard single-borrower exposure limit.

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