What types of contracts does AMLEGALS handle?

AMLEGALS provides comprehensive contract advisory across 43+ contract types including Technology contracts (SaaS, AI/ML, Cloud Services), Data Privacy agreements (DPAs, DPDPA compliance), Commercial contracts (MSAs, Supply, Distribution), IP & Licensing, Employment agreements, and International Trade contracts.

What is the TCL Framework for contracts?

The TCL Framework is AMLEGALS proprietary approach that examines every contract through three lenses: Technical (understanding the operational realities), Commercial (aligning business objectives), and Legal (ensuring compliance and risk mitigation). This integrated approach ensures contracts that work in practice, not just on paper.

Does AMLEGALS handle DPDPA-compliant contracts?

Yes, AMLEGALS specializes in DPDPA-compliant contracts including Data Processing Agreements, Cross-Border Transfer Mechanisms, Data Sharing Agreements, and Consent Management frameworks. Our Vibe Data Privacy™ framework ensures comprehensive compliance with the Digital Personal Data Protection Act, 2023.

Can AMLEGALS help with AI and technology contracts?

Yes, AMLEGALS has dedicated expertise in AI/ML Contracts, AI Governance agreements, AI Training Data Licensing, SaaS Agreements, Cloud Services agreements, and System Integration contracts. We address emerging issues like algorithmic accountability, model ownership, and AI liability allocation.

What is the difference between guarantee and indemnity?

A guarantee is a secondary liability - the guarantor's obligation arises only if the principal debtor defaults. An indemnity is a primary obligation - the indemnifier promises to hold the beneficiary harmless regardless of the principal debtor's default. This distinction affects: when liability arises, what must be proved to enforce, and whether statutory protections for sureties apply.

When is a guarantor discharged?

Under the Indian Contract Act, a surety is discharged by: variance in terms of the principal contract without consent, release of the principal debtor, actions by creditor impairing surety's eventual remedy against the debtor, and loss of security held by the creditor. Modern guarantee agreements typically include waivers of some (but not all) of these discharge events. Understanding which protections can be waived is essential.

What is a continuing guarantee?

A continuing guarantee extends to a series of transactions rather than a single obligation. It remains in force until revoked by the guarantor. Revocation affects only future transactions - the guarantor remains liable for obligations already incurred. Continuing guarantees are common in banking relationships, where they cover fluctuating credit facilities.

What are subrogation rights?

After a guarantor pays the creditor, subrogation rights allow the guarantor to step into the creditor's shoes and pursue the principal debtor. This includes access to any securities the creditor held. Subrogation is a valuable right - guarantors should understand and preserve it. Waivers of subrogation (sometimes sought by creditors) should be carefully considered.

Guarantee Agreements | Corporate Guarantees India

Overview

A guarantee creates secondary liability - the guarantor promises to perform the principal debtor's obligation if the debtor fails to do so. This seemingly simple concept carries significant legal and commercial implications. For creditors, guarantees provide additional recourse beyond the primary obligor. For guarantors, they create contingent liabilities that may crystallize when least expected. The guarantee agreement must clearly define when and how this secondary liability arises.

Guarantees take various forms serving different purposes. Corporate parent guarantees support subsidiary obligations. Bank guarantees provide payment security in commercial transactions. Personal guarantees from founders or directors give lenders additional comfort. Performance guarantees back contractual performance obligations. Each type has distinct characteristics, but all share the fundamental structure of undertaking to answer for another's default.

Indian law provides significant protections to guarantors that cannot be easily contracted away. The surety is discharged if the creditor makes material variations to the principal contract without consent. Extension of time to the debtor releases the surety unless consent is obtained or rights are reserved. The creditor's conduct in dealing with securities can affect guarantor obligations. Guarantee agreements must be drafted with awareness of these statutory protections and their limits.

Key Considerations

Scope of Guarantee

Which obligations are guaranteed, caps on liability, and whether the guarantee extends to future obligations.

Conditions to Enforcement

What must occur before the creditor can call on the guarantee - demand requirements, cure periods, and prior recourse obligations.

Continuing Guarantee

Whether the guarantee covers only existing or also future obligations, and revocation mechanisms.

Discharge Events

Circumstances in which the guarantor is released, including variations, extensions, and release of securities.

Subrogation Rights

Guarantor's rights against the principal debtor after honoring the guarantee.

Limitation and Caps

Maximum liability exposure and mechanisms for limiting guarantor risk.

Applying the TCL Framework

Technical

Understanding the underlying transaction and obligations
Assessing principal debtor creditworthiness
Evaluating guarantor capacity and exposure
Reviewing other credit support and security
Understanding transaction documentation

Commercial

Sizing guarantee relative to transaction risk
Negotiating caps and limitations on exposure
Structuring fees for guarantee provision
Addressing multiple guarantor contribution
Managing guarantee release conditions

Legal

Drafting to address statutory discharge provisions
Creating effective continuing guarantee provisions
Structuring enforcement and demand provisions
Addressing joint and several liability
Ensuring proper execution and authority

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"A guarantee is not just a signature - it is a binding promise to pay if another defaults. The comfort guarantees provide to creditors is matched by the risk they create for guarantors. Both sides must understand precisely what circumstances trigger the guarantee and what limits apply."

Anandaday Misshra

Founder & Managing Partner

Common Pitfalls

Unlimited Exposure

Personal guarantees without caps that expose individuals to liability far exceeding their means.

Discharge Unawareness

Not understanding that creditor actions (variations, extensions) can discharge the guarantee.

Authority Gaps

Corporate guarantees executed without proper board authorization or beyond corporate powers.

Subrogation Waiver

Waiving subrogation rights without understanding the impact on recovery from the principal debtor.

Continuing Guarantee Confusion

Not understanding that continuing guarantees cover future obligations unless properly revoked.

Legal Framework

Guarantees in India are governed by Sections 126-147 of the Indian Contract Act, 1872. Key statutory provisions include: the surety's liability is co-extensive with the principal debtor (Section 128), variance of contract terms without surety consent discharges the surety (Section 133), and the surety is entitled to the creditor's securities (Section 141). These provisions create significant guarantor protections. RBI guidelines affect bank guarantee issuance. Corporate guarantees may require compliance with Companies Act provisions on related party transactions and corporate benefit.

Practical Guidance

Clearly define the scope and caps on guarantee obligations.
Understand and preserve rights regarding variations and extensions.
Ensure proper corporate authorization for corporate guarantees.
Obtain independent legal advice before signing personal guarantees.
Build in notification requirements for material events.
Maintain awareness of subrogation and contribution rights.

Frequently Asked Questions

Related Practice Areas

Banking & Finance Corporate Commercial Contracts

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