New Upcoming Legal Jobs Free Workshop March 11 at 5 PM. Register here

    Question

    The government is going to make relevant changes in the

    Insolvency and Bankruptcy Code (IBC) to consider insurers as financial creditors in case of default of infra projects ro make surety bonds more attractive.What is the primary purpose of a surety bond issued by a general insurance company?
    A To guarantee the insurer's financial stability Correct Answer Incorrect Answer
    B To secure a loan for the principal Correct Answer Incorrect Answer
    C To ensure the principal fulfills their obligations Correct Answer Incorrect Answer
    D To provide insurance coverage for the obligee Correct Answer Incorrect Answer
    E To facilitate mergers and acquisitions Correct Answer Incorrect Answer

    Solution

    To make surety bond business more attractive, the government is going to make relevant changes in the Insolvency and Bankruptcy Code (IBC) to consider insurers as financial creditor in case of default of infra projects. The surety bond issued by a general insurance company is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).    The surety is a company that provides the financial guarantee to the obligee (usually a government entity) that the principal (business owner) will fulfil their obligations. The Ministry of Corporate Affairs is looking into concerns raised by the insurers that they should have resort  to recovery on par with the banks as forwarded by the Department of Financial Services under the finance ministry.  Thus, relevant changes would be made in IBC to provide financial creditor status to the insurer under the resolution process.

    Practice Next

    Relevant for Exams: