Classification of Clauses as Onerous/Non Onerous

Test of onerous clauses:

A clause can be considered to be onerous in the event the following cannot be established with certainty:

1. Amount of monies to be paid under the guarantee (“Amount Test”);

2. Time period within which the cause of action should have arisen (Expiry Date) and [Time period within which the claim
can be made] (Claim Period) (“Time Test”);
3. Place and manner of invocation (including actual receipt of the invocation notice) and identity of the Beneficiary
(important to address operational and reputational risk for non-payment by bank) (“Operational Test”);
4. Bank’s ability to recover the money from the applicant and recourse available to legal remedies (“Legal Remedies Test”);

NWC Clause:

The standard NWC clause prescribes the following 3 conditions precedent for liability of the bank to arise:

1. Limitation of liability to guaranteed amounts i.e. Amount Test;

2. Expiry Date and claim period of 12 months i.e. Time Test;
3. Demand to be made at indicated branch in the manner stipulated in the guarantee text – partially includes the
Operational Test.

The following table sets out an analysis (post application of the onerous clauses test) of the indicative onerous clauses

Sr. Clause With NWC Test Class Without Test Applied Class Rationale
No Applied NWC
1. Auto Renewal Onerous Does not DOWAR Onerous Does not DOWAR The risks in agreeing to an
satisfy the satisfy the auto renewal clause are:
Time Test Time Test 1. No right to refuse
renewal;
2. Risk of credit
deterioration or credit
worthiness of the applicant.

To be in line with Guidelines

for such continuing
guarantees may be
 approved by the Committee
of Executive Directors
(COED) and CAAM.

Indemnity for auto renewal

clause/ Omnibus indemnity
should be obtained as a
mitigant
2. Nonstandard NWC Onerous Does not DOONC Onerous Does not DOONC The detailed deviation
or no NWC satisfy the satisfy the matrix with respect to NWC
Amount Amount clauses is annexed hereto
Test/Time Test/Time as Annexure.
Test/ Test/
Operational Operational
test test
3. A clause reflecting Not Satisfies the DOW Onerous Does not DOWAR The risk in agreeing to such
that the liability onerous Time Test satisfy the clauses without NWC clause
under the guarantee Time Test is that there is no
shall be subsisting or determined expiry date of
enforceable till all the the obligations of the Bank
dues to the which are solely dependent
beneficiary remain on factors outside the
unpaid and until the Bank’s control.
guarantor is
discharged by the Omnibus indemnity to be
beneficiary. obtained along with
Business Head approval
where the concerned BG is
without NWC.
4. The guarantor is Onerous Does not DOONC Onerous Does not DOONC The risks in agreeing to this
liable as principal satisfy the satisfy the clause are:
debtor/ obligor under Amount Amount Test 1. Increase in potential
the contract. Test and and Time liability of the Bank in terms
Time Test. Test. of the underlying contract;
2. Increase in tenure of the
liability.
 The business teams should
at first instance negotiate
with the applicant to replace
the word ‘contract’ with
‘guarantee’ In case the
applicant and beneficiary do
not agree to such
modification, Omnibus
Indemnity should be –
obtained as a mitigant along
with Senior Client
Banker/Zonal Head
approval.

Where the beneficiary

agrees to replace ‘contract’
with ‘this guarantee’, it shall
be tagged as not onerous
clause.
5. The guarantor is Not None of the DOW Not None of the 4 DOW
holding the onerous 4 Tests Onerous Tests apply
guaranteed amount apply
in trust for the
beneficiary.
6. The guarantee or the Onerous Does not DOONC Onerous Does not DOONC Assignment of bank
proceeds are meet the meet the guarantee should be subject
assignable without Operational Operational to consent of the guarantor
the bank’s consent. Test as Test. and standard clause to be
identity of incorporated as per Trade
Beneficiary Services PAC. 12314.
not included
in the NWC If not accepted for consent
clause of the guarantor, BG can be
issued with approval from
Senior Client Banker/ ZH
keeping in view amongst
others, the risk associated
 with assignee being a
sanctioned entity.

Indemnity for assignment

clause/ Omnibus Indemnity
to be obtained.
7. The guarantee can Not Meets the DOOMI Not onerous Meets the DOOMI The bank has a well laid out
be invoked by fax or onerous Operational Operational process for dealing with
e-mail. Test Test such invocation and
accordingly, this can be
classified as not onerous.

For issuance of BG with Fax/

E-mail invocation clause,
Fax Number/ group mail ID
of the invocation branch
should be obtained from
branch and included in the
BG text.

Fax or email indemnity/

Omnibus indemnity must
be obtained.
8. Once the written Onerous Does not DOWAR Onerous Does not DOWAR This clause poses an
demand is posted, it meet the meet the operational risk as the
shall be deemed to Operational Operational invocation letter might not
have been duly Test as Test actually be received at the
invoked or received actual relevant branch.
at the counters of the receipt of
guarantor within 7 invocation This could result in the bank
days whether is not being made liable to pay
received by the included in default interest from the
guarantor or not. the NWC date of the deemed receipt
clause of invocation.

This clause can also be

interpreted to potentially
lead to cross default under
 the clauses contained in
various other agreements
(particularly borrowing
agreements) which are
binding on the bank.

Omnibus indemnity to be
obtained.

Senior Client Banker/Zonal

Head approval required for
issuance of bank
guarantees with such
clauses.
9. The guarantor Not Amount DOW Not onerous Amount DOW Waiver of surety ship rights
waives the rights onerous Test, Time Test, Time has been classified as non-
under Section 133, Test and Test and onerous and accordingly
135 and 141 of the Operational Operational does not require any
Indian Contract Act*. Test do not Test do not additional approval.
apply. Legal apply. Legal
(*Refer the details of
Remedies Remedies Omnibus indemnity must
rights available
Test does Test does get be obtained
under the said
get affected affected to
sections given below
to some some extent
this table)
extent (ability to get
(ability to discharged
get upon
discharged variance of
upon underlying
variance of agreement),
underlying however, not
agreement), ever relied
however, upon. We
not ever may draw
relied upon. comfort from
We may the fact that
draw applicant
comfort would have
 from the provided the
fact that format of the
applicant BG to the
would have Bank and
provided would have
the format no case to
of the BG to challenge the
the Bank payment in
and would terms of the
have no said BG.
case to
challenge
the
payment in
terms of the
said BG.
10. Guarantee issued in Not None of the DOWAR Not None of the 4 DOWAR
favor of Customs Onerous 4 Tests /PMDO Onerous Tests apply /PMDO
authorities with a apply W W
clause that the (since in (since in
guarantee is favor of favor of
subjected to Section custom) custom)
142 of the Customs
Act.
11. The guarantor Not None of the DOW Not None of the 4 DOW
confirms that there is Onerous 4 Tests Onerous Tests apply
no court / apply
administrative order
or arbitral award or
bankruptcy/
liquidation
proceedings pending
that may Impair or
restrain the
guarantor from
honoring the Bank
Guarantee.
 12. The Bank Guarantee Onerous Does not DOONC Onerous Does not DOONC Such clauses should not be
will be honored on meet the meet the permitted and any deviation
invocation Legal Legal from this should be subject
irrespective of any Remedies Remedies to the approval of an
court/ tribunal/ Test Test Executive Director and
arbitral awards or Senior Group Head - CLG.
restrained orders.
Omnibus indemnity to be
obtained
13. Upon issuance, the Not None of the DOW Not None of the 4 DOW
Bank Guarantee will Onerous 4 tests apply Onerous tests apply
come into force only provided provided
after a particular date that the that the
or event such as Bank is put Bank is put
receipt of payment, to notice of to notice of
execution of any such date such date or
document or or event. event
completion of any
obligation.
14. Waiver of Onerous Does not DOONC Onerous Does not DOONC In the event we agree for
subrogation rights: meet the meet the such waiver and the
1. Till payment of Legal Legal applicant is referred to
guaranteed Remedies Remedies insolvency regime under
amounts; or Test Test IBC,
2. Till payment of i. we may have an arguable
monies under the case that such referral is not
underlying a recovery action but a
contract. revival process for the
applicant;
ii. right of a creditor to refer
a corporate debtor to IBC
cannot be restricted
contractually.1

1
Held by NCLAT in the case of Export-Import Bank of India & Anr. v. Astonfield Solar (Gujarat) Pvt. Ltd. & Anr., Company Appeal (AT)
(Insolvency) No. 754 of 2018, that the restriction on shareholders to exercise voting right cannot be taken away by deed of pledge which in
effect restricted the shareholder to pass resolution to initiate the CIRP application against the corporate debtor itself.
 Omnibus indemnity should
be obtained along with
approval of Business Head
and an official in the grade
of CMII and above from Risk
team
15. Obligation on Bank to Not Amount DOW Not Amount DOW Omnibus indemnity should
pay on invocation Onerous Test, Time Onerous Test, Time be obtained
irrespective of any Test and Test and
unenforceability, Operational Operational
illegality and Test do not Test do not
invalidity of any apply. Legal apply. Legal
obligation under the Remedies Remedies
underlying contract Test does Test does get
or the guarantee. get affected affected to
to some some extent
extent (legal (legal
recourse in recourse in
the event of the event of
an an
unenforcea unenforceabl
ble e contract).
contract).
16. Waiver of legal Not Amount DOW Not Amount DOW Omnibus indemnity should
rights, defenses and Onerous Test, Time Onerous Test, Time be obtained
pleas, exceptions Test and Test and
and objections Operational Operational
Test do not Test do not
apply. Legal apply. Legal
Remedies Remedies
Test does Test does get
get affected affected to
to some some extent,
extent, however, we
however, will have a
we will have defense
a defense /protection
 /protection under the
under the Contract Act
Contract Act (Section 28).
(Section
28).
17. Governing law of the Not None of the DOW Not onerous None of the 4 DOW TSU should refer to the
Bank Onerous 4 Tests so long as Tests apply pointers and the legal
Guarantee/SBLC to so long as apply the legal opinions uploaded on the
be a law other than the legal opinion DMS to ensure requisite
local laws/Indian opinion uploaded changes are made in the BG
Law/laws which are uploaded on DMS is text as suggested by foreign
deemed favorable by on DMS is favorable. counsels, if any.
ICICI Bank and the favorable.
jurisdiction of the If the required law is not in
courts to settle the the favorable list maintained
dispute are the by CLG on the DMS, cases
courts/tribunals should be referred to CLG
other than the local on case to case basis.
courts/Indian
courts/laws which Foreign law indemnity/
are deemed Omnibus indemnity to be
favorable by ICICI obtained.
Bank.
18. Bank Guarantees Not None of the DOW Not None of the 4 DOW
/SBLCs favoring Onerous 4 Tests Onerous Tests apply
Courts /Tribunals apply
/Regulatory
Authorities/Arbitral
Panel as beneficiary.
19. Clauses in BG/SBLC Not to Does not Not Not to form Does not Not Not to be accepted.
which require form part satisfy the Applica part of the satisfy the Applica
collateral of the BG Time Test ble BG Time Test ble This requires additional
posting/acceleration approval from ALCO apart
based on an external from sanctioning forum,
rating downgrade of minimum COED.
ICICI Bank-
 20. Bank Guarantees Not None of the DOW Not None of the 4 DOW This should be notified to us
with auto reduction Onerous 4 Tests Onerous Tests apply and the BG to contain a
clause apply provision to that effect.

* Waiver of rights under Section 133, 135 and 141 of the Indian Contract Act

1. Section 133 - Discharge of surety by variance in terms of contract.

“Any variance, made without the surety’s consent, in the terms of the contract between the principal 1[debtor] and the creditor,
discharges the surety as to transactions subsequent to the variance."

2. Section 135 - Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor.

“A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give
time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.”

3. Section 141 - Surety’s right to benefit of creditor’s securities.

“A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the
contract of surety-ship is entered into, whether the surety knows of the existence of such security or not; and if the creditor
loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the
security”

ANNEXURE

The standard NWC clause (NWC A/ NWC B) prescribes the following 3 conditions precedent for liability of the bank to arise:

1. Limitation of liability to guaranteed amounts i.e. Amount Test;

2. Expiry Date and claim period of 12 months i.e. Time Test;
3. Demand to be made at indicated branch in the manner stipulated in the guarantee text.
A. In the absence of NWC or non-standard NWC, the guaranteed amount may not be capped and / or the place of presentation of
invocation may not be agreed.

AND

B. If the NWC present in the bank guarantee text doesn’t provide for a condition precedent for accrual of bank’s liability, it attracts
the provisions of exception 3 to section 28 of the Indian Contract Act, whereby bank guarantee providing for a claim period of
less than 12 months is rendered void or illegal to that extent.

Bank guarantees with such diluted NWC or no NWC clause may be issued subject to:

1. Ensuring that the liability of ICICI Bank is capped and ensuring that the place of presentation of invocation letter/demand
is specified.
2. Omnibus indemnity should be obtained
3. In case where the time test is not satisfied (scenario B), Approval/ claim period indemnity as per below matrix to be
obtained (refer table below)

Note:
If the guarantee text contains all the ingredients of standard NWC and there is no contrary clause in the BG text such as the
guarantee will be
a) Renewed automatically till all the liabilities of the contractor under the contract is cleared
b) Valid till duly discharged in writing by the beneficiary
c) Valid till all the dues of the contractor to the beneficiary are paid, etc.
Such Guarantees can be issued without NWC clause. The issuance of such guarantees will not be covered under the earmarked
guarantee limits for onerous clauses.

When the above or similar contrary clauses are in the text, the clause similar to NWC should be couched in “Notwithstanding
anything contained herein above/ elsewhere in this guarantee”.
In cases wherein the Time Test is not being satisfied, Zonal Head-CoBG approval and Claim period indemnity should be sought.
The detailed deviation matrix with respect to NWC clauses (on claim period / expiry date) is as below.

Approval Right to reject invocation

Approving
NWC clause Claim period required Documentation arises basis expiry of
Authority
(Yes/No) Guarantee/claim period

If invocation is after ‘Expiry

NWC Ai No separate claim period No NA NA
Date’

No separate claim period If invocation is after ‘Expiry

No NA NA
(same as Expiry Date) Date’

Separate claim period less If invocation is after the

Zonal Head- Claim period
NWC Bii than one year post Expiry Yes claim period
CoBG indemnity
Date

Separate claim period for a If invocation is after the

No NA NA
year post Expiry claim period

Zonal Head- Claim period If invocation is after ‘Expiry

No separate claim period Yes
CoBG indemnity Date’
Any other
Separate claim period less Zonal Head- Claim period If invocation is after the
modified Yes
than one year CoBG indemnity claim period
NWC*
Separate claim period for a If invocation is after the
NA NA
year No claim period

Zonal Head- Claim period If invocation is after ‘Expiry

No separate claim period Yes
Deletion of CoBG indemnity Date’
NWC* Separate claim period less Zonal Head- Claim period If invocation is after the
Yes
than one year CoBG indemnity claim period
 Separate claim period for a If invocation is after the
No NA NA
year claim period

*Subject to liability under BG being certain and the period within which BG can be invoked being certain. Further, Scrutinizer to
ensure that there are no other contrary clauses in the BG text which renders the liability or the period of validity to be uncertain.

i
We reproduce herewith the NWC A for ready reference:
“The liability of the Guarantor under this Guarantee shall not exceed Rs ________ (Rupees ____________only) (the “Guaranteed
Amounts”).
This Guarantee shall be valid up to________ (the “Expiry Date”).
Notwithstanding anything to the contrary contained herein, no obligation of the Guarantor to pay any amount under this
Guarantee shall arise prior to the fulfillment of the following conditions precedent:
(a) written claim/demand(s) in terms of this Guarantee of an aggregate amount less than or equal to the Guaranteed
Amounts is/are made by the Beneficiary hereunder; and
(b) such written claim/demand(s) is/are delivered to the Guarantor on or before the Expiry Date at the ICICI Bank branch
located at __________.”
ii
We reproduce herewith the NWC B for ready reference:
“The liability of the Guarantor under this Guarantee shall not exceed Rs ________ (Rupees ____________only) (the “Guaranteed
Amounts”).
This Guarantee shall be valid up to________ (the “Expiry Date”).

Notwithstanding anything to the contrary contained herein, no obligation of the Guarantor to pay any amount under this
Guarantee shall arise prior to the fulfillment of the following conditions precedent:
(a) written claim/demand(s) in terms of this Guarantee of an aggregate amount less than or equal to the Guaranteed
Amounts is/are made by the Beneficiary hereunder; and
(b) such written claim/demand(s) is/are delivered to the Guarantor on or before [……………………] at the ICICI Bank
branch located at __________.”