A Few Questions and Answers on UCP - Part 2

Question : Can a transferable L/C be transferred to an overseas supplier or it has to be with the national boundaries of the first beneficiary?

Answer: There is no bar in a transferable L/C being transferred to an overseas supplier.

Question: One of the conditions of a credit is submission of Pre-shipment Inspection Certificate retarding specification, quality, quantity, packaging, marketing and all other details of the goods by M/s SGS Bangladesh Ltd/ Llyods/ Bureau Veritas or their accredited representative.
The Pre-shipment Inspection Certificate is issued by M/s SGS India Ltd and a separate letter from SGS Bangladesh Ltd says that SGS India Ltd is a member of worldwide SGS Group operating out of SGS Geneva. Will such a Certificate of Pre-shipment Inspection be acceptable or will it be considered as a discrepancy?

Answer: The supporting document should be issued as an attachment to the SGS certificate issued by SGS India and that this would be sufficient proof to determine that SGS India is an appointed agent. Issuance of the supporting document without it being an attachment to the actual Inspection Certificate would constitute an ‘additional document’ in the context of the UCP500 and would be ignored by banks for the purposes of checking.

Question: We are exporting components to a buyer in the US against irrevocable L/C. The Issuing Bank is deducting US $60 for discrepancy charges on the ground that the B/L is not signed as per UCP500. Kindly advise the correct position.

Answer: There is a trend in US in the banks to charge discrepancy fee for the handling of discrepant documents. As already indicated by the Issuing Bank these discrepancies charges are for the Bill of Lading not being signed as per UCP500. In the absence of a copy of B/L it is not really possible to know whether the Bill of Lading in question has been signed as explained above. If not, then it will be deemed to be a discrepant presentation. The Issuing Bank will certainly charge discrepancy fee for handling discrepant documents if that is their policy.

Question: An L/C has been received with the following conditions :
Documents can be negotiated any time during the validity period of the L/C irrespective of date of transport documents/LR.
Clearly the L/C waives applicability of 21 days after the date of issuance of the transport documents under Article 43 by expressly mentioning irrespective of date of transport documents. The Negotiating Bank, however, maintains that since no other specified date has been mentioned, 21 days period will apply. Kindly clarify.

Answer: The condition on the L/C by mentioning that documents can be negotiated in time during the validity period of the L/C irrespective of date of transport documents in fact waives the requirement of 21 days from the date of transport documents being applicable under Article 43. If the words ‘irrespective of date of transport documents’ were not there, the 21 days period would have been applicable.

Question: An L/C was opened on 180 days usance basis. The L/C required inter alia the following :
• Material Receipt challan for the entire quantity from customer to be submitted, while negotiating documents.
• Copy of certificate of origin issued by Chamber of Commerce.

The beneficiary after delivery of material by endorsing the B/L in favour of the applicant and getting the Receipt Challan as required negotiated the documents with its bankers. The certificate of origin as submitted was issued by its overseas supplier instead of Chamber of Commerce.

The L/C Opening Bank, therefore, informed the Negotiating Bank of the discrepancy in that a certificate of origin issued by a Chamber of Commerce is not enclosed. The beneficiary thereupon arranged a certificate of origin issued by a Chamber of Commerce covering the entire quantity in the vessel and showing a third party as the consignee.

The L/C Opening Bank thereupon refused to accept the certificate of origin as it was not as per the terms of L/C and, therefore, agreed to handle the documents on collection basis.

The applicant, however, while issuing the Receipted Challan confirmed that documents are acceptable to them inspite of discrepancies and that they are requesting their bankers to release the payment of the L/C on due date. The discrepancies in the 2nd certificate of origin was that the consignee name in it differed from the notify party name in the B/L.

The Opening Bank also refused to refer the matter to the applicant on the ground that it is the Opening Bank alone who could decide whether to take up the documents or not based on documents alone.

Kindly provide answer to the following queries :
• Whether the L/C Opening Bank was justified in not referring the discrepancy to the customer and rejecting the documents.
• Whether the L/C Opening Bank was justified in rejecting the documents inspite of clear acceptance conveyed by the customer.
• If the bank is justified in rejecting the payment what course of action is available to the supplier, specially considering the fact that customer is a sick and ‘BIFR’ unit?
• Whether the L/C Opening Bank was justified in appropriating the margins under the L/C towards other outstandings, while rejecting the documents under the L/C?

Answer: • In terms of UCP500 it is the Issuing Bank alone who decides whether the documents are in terms of L/C or not. It may if it so wishes refer the matter to the applicant. It is not mandatory for them to refer the matter to the applicant.

• The Opening Bank is fully justified in rejecting the documents inspite of clear acceptance conveyed by the applicant for if documents submitted are not in terms of L/C then the submission is discrepant and the Issuing Bank is not bound by any agreement between the applicant and the beneficiary.

• This is a commercial risk which has to be borne by the beneficiary. The only course of action available to him is to file a suit for recovery of dues.

• The question of appropriating the margins by the Opening Bank under the L/C towards other outstandings is on the basis of arrangement between the parties and the beneficiary has no claim against those margins.