(i)In terms of Section 26 of FERA, 1973, persons resident in India cannot, except with the general or special permission of the Central Government or Reserve Bank, give a guarantee in respect of any debt or other obligation or liability (a) of a person resident in India, and due or owing to a person resident outside India; or (b) of a person resident outside India. Reserve Bank has by its Notification No. FERA.132/93-RB dated 26th April 1993 granted general permission to shipping agents to give, in respect of any debt or other obligation or liability of their foreign shipping principals, guarantees in favour of Income-tax, Customs, Port Trust and other Central and State Government authorities in India, subject to such instructions as may be issued by Reserve Bank from time to time. Shipping agents should abide by the following instructions while giving such guarantees.

(a) The guarantee should be covered by counter-guarantee of overseas shipping principal to the effect that the latter will reimburse the amounts which the shipping agent may have to pay on behalf of the shipowner under the guarantee. In lieu of specific counter-guarantees, the shipping agents may also obtain a general undertaking from the shipping principal in the form of a letter addressed to the agent providing the following clause:

"This is to clarify that you, as our shipping agents, have the full authority to give guarantees in respect of any of our debts or other obligations or liability in favour of any officer or other authority appointed or constituted under the Income-tax Act, the Customs Act, the Major Ports Act or any other Central or State Act in force in India. You may pay the dues payable to any of those authorities out of our funds representing genuine freight collections and lying with you or at your power or disposal. If any shortfall arises, we will fully reimburse you by making adequate remittance in this regard in foreign exchange through banking channel."

NOTE: In case of tramp agencies, shipping agents may obtain, if they so desire, such letters of undertaking from the master of the ship instead of overseas principals.

(b) Amounts paid by shipping agents should be recovered out of the funds remitted from abroad by the overseas shipping principal through normal banking channels and/or from the latters surplus freight/passage fare collections in India.

(ii) Reserve Bank has likewise granted general permission to authorised dealers vide the above Notification to give guarantees in favour of persons resident in India in respect of any debt or other obligation or liability of a person resident outside India subject to such instructions as may be issued by Reserve Bank from time to time. Authorised dealers may accordingly give on behalf of their overseas Head Office/branches/correspondents or a bank of international repute guarantees/performance bonds in favour of residents of India in connection with genuine transactions involving debt, liability or obligation of non-residents provided the bond/guarantee is covered by a counter guarantee of the overseas Head Office/branch/correspondent or a bank of international repute. Authorised dealers may make rupee payments to the resident beneficiaries immediately when the guarantee is invoked and simultaneously arrange to obtain the reimbursement from the overseas bank concerned which had issued the counter guarantee. Authorised dealers are well advised that they should ensure that counter guarantees are properly evaluated and their own guarantees against such guarantees are not issued in routine manner. Before issuing a guarantee against the counter guarantee from an overseas Head Office/branch/ correspondent/bank of international repute, authorised dealers should satisfy themselves that the obligations under the counter guarantee, when invoked, would be honoured by the overseas bank promptly. If the authorised dealer desires to issue guarantee with the condition that payment will be made provided reimbursement has been received from the overseas bank which had issued the counter guarantee, this fact should be made clearly known to the beneficiary in the guarantee document itself. Cases where payments are not received by the authorised dealers when the guarantees of overseas banks are invoked, should be reported to Reserve Bank indicating the steps being taken by the bank to recover the amount due under the guarantee.

NOTE: Authorised dealers may issue guarantees in favour of overseas organisations issuing travellers cheques in respect of blank travellers cheques stocked for sale by them or on behalf of their constituent who are full-fledged money changers holding valid licences from Reserve Bank, subject to suitable counter guarantee being obtained from the latter. In the event of the guarantee being invoked authorised dealers may effect remittance but should send a separate report thereon furnishing full details to the Chief General Manager, Exchange Control Department, (Forex Market Division), Reserve Bank of India, Central Office, Mumbai 400 001.