The effect of set-off on demand and recovery of bank guarantees

Bank guarantee is one of the most efficient financial instruments that what is the importance of its role in the process of signing the contracts and transactions is the independence of the underlying contract between the beneficiary and principal and the contract for issuing the guarantee between guarantor and principal. Due to these characteristics, if the principal fails to perform his obligations in underlying contract, Beneficiary can demand guarantee without having to prove negligence. During the demand of guarantee it’s possible to be resorted to set-off by principal and guarantor. In view of the above-mentioned relations between principal and guarantor, principal and beneficiary and guarantor and beneficiary and set-off that prevent from prolongation of mutual payments, it must see that in which relationship can be relied on set-off against beneficiary? According to the concept of independence guarantee, the only guarantor can invoke to set-off for mutual demands against beneficiary and then to be innocent of his debts. The same approach was also adopted in international and domestic regulations