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To Arise A Right Under Bank Guarantee Agreement, Demand Has To Be Made Within Validity Period Of Agreement : Kerala High Court

The High Court has held that the right of a creditor to have the Bank Guarantee invoked is only during the currency of the Bank Guarantee and not during the extended claim period of one year. A bench of Justice N Nagaresh recently the settled the question in a case between the Cochin Port Trust and the Bank of India. The Court explained that the extended claim period, allowed pursuant to the insertion of Exception 3 to Section 28 of the Contract Act, could be claimed only when the bank guarantee was invoked during the validity of the Agreement or the Bank Guarantee. “To arise a right under the Bank Guarantee Agreement, a demand has to be made within the period of validity of the Agreement. Having not made any demand within the validity period of the Bank Guarantee, the petitioner is not entitled to invoke the Guarantee during the claim period after the expiry of the validity period of the Bank Guarantee,” the Court ruled.

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