Surety Bonds:
In the Budget 2022-23, the government has allowed the use of surety insurance bonds as a substitute for bank guarantees in case of government procurement and also for gold imports.
- Insurance Regulatory and Development Authority of India (IRDAI) has also released final guidelines to ensure orderly development of surety insurance business in India.
- The IRDAI (Surety Insurance Contracts) Guidelines, 2022 will come into effect from 1st April , 2022.
- A surety bond is a legally binding contract entered into by three parties—the principal, the obligee, and the surety.
- The obligee, usually a government entity, requires the principal, typically a business owner or contractor, to obtain a surety bond as a guarantee against future work performance.
- Surety bonds are mainly aimed at infrastructure development, mainly to reduce indirect cost for suppliers and work-contractors thereby diversifying their options and acting as a substitute for bank guarantee.
- Surety bond is provided by the insurance company on behalf of the contractor to the entity which is awarding the project.
- Surety bonds protect the beneficiary against acts or events that impair the underlying obligations of the principal.
- They guarantee the performance of a variety of obligations, from construction or service contracts to licensing and commercial undertakings.
