Irdai committee to examine Surety Bonds for road contracts

Surety Bond is a three-party agreement that legally binds together a principal who needs the bond, an obligee who requires the bond and a surety company that sells the bond. (File Photo)

Taking cue from a proposal from the Ministry of Road Transport and Highways, insurance regulator Irdai has formed a panel under G Srinivasan, director, National Insurance Academy, to assess the suitability of the Indian insurance industry or any other sector to offer Surety Bonds for road contracts in the country.

Currently, Surety Bond for contractors is not being offered by insurance companies in the market to guarantee satisfactory completion of a project by a contractor and provide performance security to various government agencies.

Surety Bond is a three-party agreement that legally binds together a principal who needs the bond, an obligee who requires the bond and a surety company that sells the bond. Surety bonds provide financial guarantee that contracts will be completed according to pre-defined and mutual terms. When a principal breaks a bond’s terms, the harmed party can make a claim on the bond to recover losses.