Question: An Indian Bank after negotiation did not pay to Beneficiary considering the non payment of earlier part bill by Foreign Bank against same L/C and also for the reason that the beneficiary had no credit limit facility with the Nagotiating Bank.
- Can Issuing Bank establish that documents were not negotiated as per Article 10b(ii)?
- After 17 months of 1st discrepancy Telex dated 23.11.98 is Issuing Bank authorised to say now that documetns were not negotiated?
- When L/C was subject to UCP 500 on which conditions law of land will apply and is that applicable in present case?
Answer: • According to UCP 500 Article 9 negotiation means "giving value". It has been clarified time and again by the ICC Banking Commission and there is also a position paper on the subject clarifying that giving of value need not be immediate.
If the Negotiating Bank is requested to give the value immediately then at that time it will do minus interest; otherwise it will pay the beneficiary full amount on due date.
The very fact that Indian Bank after negotiation did not pay to the beneficiary does not vitiated the negotiation process. In this connection I am faxing under separate cover a copy of the ICC Position Paper.1. Based on the above, replies to queries are as under :
In the situation enumerated in your message the Issuing Bank can not establish that documents were not negotiated as per Article 10b(ii) once the Negotiating Bank certifies that they have negotiated.
2. In view of the reply to 1 above question 2 has no validity or relevance.
3. Once the L/C is subject to UCP 500 the law of land will apply only in cases which are not covered by UCP 500.
Question: Kindly clarify the following :
- L.C states under clause no. "39a: 10/10". What does it mean =!0%(+ or -) in both quantity and value or only in quantity?
- If the L/C is silent about the negotiating bank, can we treat it as free negotiation?
- Is it compulsory under a letter of credit to draw a bill of exchange. What would be the consequences if no bill of exchange is drawn (When no clause of B/E is there in the L/C)?
- L/C states that "all bank charges outside (parties country) are to the account of the beneficiary" dies it include the reimbursement charges of the opening bank. If nothing is mentioned about the reimbursement charges, can we treat that they are to the account of the opening bank?
- Opening Bank has raised a discrepancy that "Carrier’s name not indicated on Bill of Lading" – Clarify the meaning of Carrier in this case.
- If the opening bank does not come back to us or to the negotiating bank with any discrepancies with in one week from the date on which they receive the original documents, are they allowed to charge any discrepancy charges? If they have already charged, can we claim them from opening bank?
Answer: • Article 39a allows a tolerance of 10% more or less than the amount or the quantity or the unit price to which they refer. It will depend as to whether the words "about", "approximately", "circa" or similar expressions are used with the quantity, amount or the unit price and will apply to that. If they are used with both quantity and value only then it will apply to both.
• According to Article 10b(i) unless the credit stipulates that it is available only with the Issuing Bank, all credits must nominate the bank which is authorised to pay, to incur a deferred payment undertaking, to accepts drafts or to negotiate. If no bank is nominated and the credit is not available with the Issuing bank then it will be deemed to be freely negotiable credit. You are, therefore, right in presuming so.
• Drawing of a bill of exchange is not mandatory in respect of credits providing for sight and deferred payment. However, drafts will have to be drawn in respect of an acceptance credit where the banks have to accept drafts drawn by the beneficiary so also in respect of negotiation credit. If no bill of exchange is to be drawn then the payment will be forthcoming based on the presentation of the conforming documents.
• As per Article 19e the Reimbursing Bank charges are to be for the account of the Issuing Bank. If nothing is mentioned about the reimbursement charges then surely you can treat them to be for the account of the Issuing Bank.
• Article 23 dealing with the Marine/ Ocean bills of lading stipulates as one of the conditions for a bill of lading to be acceptable that it appears on its face to indicate the name of the carrier and have been signed or otherwise authenticated either by the carrier or a named agent or the master or a named agent. Carrier is the shipping company which undertakes to carry the goods to the named destination. Without indication of carriers’ name on the B/L, we would not know as to who has taken the responsibility for the carriage of goods.
• Discrepancy charges are payable only if discrepancies are found and so informed the Opening Bank is not allowed to levy such charges.
Question : Bank of India, Calcutta, negotiated Sonali Bank, Dhaka’s L/C which stipulated presentation of documents within 16 days from the date of shipment. L/C was freely negotiable with any Bank in India.
Shipment has been made on 30.10.98 within last shipment date of 31.10.98. The Beneficiary presented the conforming documents to Bank of India on 13.11.98 a day earlier to the last date of presentation 14.11.98.
Bank of India sent the documents to Sonali Bank, Dhaka, under cover of their forwarding schedule date 17.11.98 certifying that "Documents have been disposed off in terms of Credit and all the terms and conditions have been complied with" but nowhere was there mention of presentation/negotiation date.Sonali Bank under telex dated 23.11.98 stated we refuse "Negotiation of documents as per Article 14D(ii) of UCPDC 500" and stated discrepancy as "L/C expired and late negotiation by 3 days."
Bank of India disputed the same and informed Sonali Bank under telex dated 24.11.98 that "Beneficiary has deposited captioned bill within the validity of L/C". In refusal notice Sonali Bank have only mentioned that they have referred the matter to the drawee and has not mentioned "whether they are holding the documents at the disposal of, or returning them to the presenter".
Export goods in the meantime were auctioned by customs of the country of import in May 1999.• Was issuing bank correct in refusing the documents/negotiation?
• Any evidence was required to be submitted for timely presentation of documents by Beneficiary?
• Mentioning only "refusing documents as per Article 14D(ii) responsibility of Issuing Bank for stating that "they are holding documents at the risk of Bank of India or returning to them" is covered?
• Is Issuing Bank precluded from claiming discrepancy under Article 14(e) of UCP500?
Who will be responsible for the material auctioned?
Answer: As per UCP 500 the negotiating bank has maximum of 7 days for examining documents and undertaking negotiation. In this particular case, as it is clear from the documents, negotiation was done 3 days after expiry of L/C according to the issuing bank which is well within the permitted reasonable time for examination of documents. The issuing bank, therefore, is not right in refusing the documents.
Any evidence for timely presentation of documents by the beneficiary is not needed so long as the documents have been examined by the negotiating bank and negotiation undertaken within a period of not more than 7 banking days.As per UCP 500 Article 14D(ii) a bank deciding to refuse documents has to give a notice to that effect.
Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal or is returning them to the presenter. In this case, since the issuing bank failed to indicate whether it is holding the documents at the disposal of the Bank of India or returning them to that bank, the issuing bank is precluded from claiming discrepancies.
• In terms of Article 14(e) if the issuing bank fails to act in accordance with the provisions of this article and/or fails to hold the documents at the disposal of or return them to the presenter, the issuing bank ..... shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the credit. As per the provisions of this particular sub-clause, the issuing bank is precluded from claiming discrepancies.
• Since documents have been presented in time and negotiated, the issuing bank, in terms of Article 14(e) of UCP 500, is bound to pay to the beneficiary. As for the responsibility for the material auctioned, it is a matter between the issuing bank and the applicant for the credit.
Question: Clarification required on tolerance clause in L/CAn L/C allows for tolerance of 10% plus or minus in L/C amountThe L/C also bears a clause stating that commercial invoices issued for amounts in excess of the amount permitted by the credit not acceptable.Kindly clarify whether the advantage of the positive tolerance of 10% as allowed by the L/C can we availed.
Answer: One can certainly avail the positive advantage of 10% tolerance allowed in the L/C.
Question : Kindly clarify the following :• L/C value is $ 10000/- Tolerance allowed is +/- 10% in Quantity and Value. One of the L.C. condition states that "Documents must not be drawn in excess of the credit value". Here credit value means $ 10,000/- or $ 10,000 with variance of 10% i.e. 11000/-. Banks are objecting if we negotiate documents worth $ 10,500/-.
• L/C $ 17400/- Tolerance allowed is +/- 10%. In reimbursement instructions of L/C opening bank says that "Please claim reimbursement for $ 14,400/-". Does it mean that documents for which value is more than $ 14,400/- will not be reimbursed by the opening bank? If yes what is the significance of + 10% tolerance in this regard.
• L/C issuing bank address mentioned in clause 42 (A) is differing from the address mentioned in Instructions for negotiating bank column (Normally issueing bank will give their full address for forwarding the Original Documents). In such case which address to be treated as issuing bank’s correct address.
• L/C says that documents to be presented within 16 days. Should we include or exclude the B/L date for the purpose of arriving last date/expiry date for negotiation.
• As per U.C.P, if the B/L is signed by an Agent the words "On behalf of carrier as agents" should appear on B/L. In some of the B/Ls only name of the Carrier and the words "as agents" were mentioned but the notation "On behalf of the carrier" was not appearing. Will it be treated as discrepancy.
• Last date of Shipment is 31.01.00 and expiry is 15.02.00 Bill of lading was dated 28.01.00. We have asked bank to send the documents on collection basis on 05.02.00 as it was a state bill of lading. Does Opening Bank is obligated to check for all the conditions mentioned in L/C even after sending the documents on collection basis. Opening bank has pointed out some discrepancies. Is opening bank right to raise discrepancies even after sending it on collection?
• L/C expiry is 29.02.00. As we could not get country of origin by 29.02.00 we could not negotiate on 29.02.00 but were sent on collection on 02.03.00. In this connection we would like to bring to your notice that all documents were having the L/C NO., date and opening bank name as we were thought of negotiating before expiry of the L/C.
• In this case, when Negotiating Banks is requested to send it on collection are they duty bounded to check for the L/C conditions just because the L/C No. and other details are mentioned on the documents. What is the right of opening bank regarding discrepancies.
• L/C requires courier receipt as a proof of couriering non negotiable copies with in 5 days of shipment. Opening Bank point out a discrepancy that the courier receipt does not mention what it contains. Is it a valid discrepancy?
Answer: Clarifications required by you are given below ad seriatim :• If the L/C stipulates documents must not be drawn in excess of the credit value, in that case tolerance will be available only in regard to quantity and not value. The specific stipulation of the credit will supercede provisions of Article 39. Hence bank’s objections seems to be all right.
• As already commented in 1 above tolerance will be available only if the L/C does not specifically provide otherwise. If, however, reimbursement is limited to the credit value then that will supercede Article 39.
• Address given in the L/C will be the correct address as provided in L/C for purposes of this particular question.
• If L/C says documents are to be presented within 16 days then it will include the date of B/L for purposes of arriving at the last date of negotiation.
• In this connection, I am sending by post a copy of the ICC Position Paper relating to B/L. It all depends upon various factors enumerated in the Paper.
• As per facts mentioned by you I am unable to find the logic for sending documents on collection basis for if the last date for shipment was 31/01/00 and expiry date as 15/02/00 then a B/L dated 28/01/00 will be perfectly all right and not stale. For this reason the Opening Bank is treating documents under L/C and not under collection (URC 522) and raising discrepancies. If you intend documents to be sent on collection basis then appropriate collection instructions need to be given through your bank to the Issuing Bank.
• In this particular case since documents were not sent under L/C the banks will handle collection on the basis of collection instructions.
• So long as the courier receipt can be linked with the other L/C particulars, there is no need for the courier receipt to mention of what it contains. In any case at the time of receiving such courier documents courier will not know what it contains.
Question: Contract terms stipulate "Net Cash Against a Customary Set of Shipping Documents for 98%. Balance 2% to be payable to XYZ towards commission."Documents drawn as follows :• Invoice & Bill of Exchange drawn for 100% with separate instructions to remit 98% and pay 2% to XYZ A/C• Invoice prepared for 100% less 2% commission to XYZ net 98%. Bill of Exchange drawn for net 98%.Which of the above two are correct?
Answer: If the term of L/C is to make payment of 98% of the proceed against shipping documents and balance 2% to be payable to XYZ towards commission, then the best course will be to prepare invoice for 100% assign 2% of the proceed in favour of XYZ and draw B/E for the balance 100%.
Question: We had negotiated some export bills under various DCs issued by the Standard Chartered Bank, Hong Kong calling for "Clean Shipped on Board Marine Bills of Lading". Documents drawn as per L/C terms were sent to the issuing bank after negotiation.
The B/Ls issued by M/s Maersk India Ltd have the following clause therein :"Received in apparent good order and condition, unless otherwise stated herein, for transportation on board the ocean vessel mentioned herein or any substituted vessel or on board the feeder vessel or other means of transportation (rail or truck) if place of receipt is named in this Bill of Lading the goods or packages or containers said to contain goods, hereinafter called "the Goods", specified herein for carriage from the port of loading named herein or place of receipt if mentioned herein, on a voyage as described and part of discharge named herein or deliver at the place of delivery if mentioned herein, such carriage, discharge or delivery being always subject to the exceptions, limitations, conditions and liberties hereinafter agreed in like order and condition at the port of discharge or place of delivery if named as the case may be, for delivery unto the Consignee mentioned herein or to his or their assigns where the Carrier’s responsibilities shall in all cases and in all circumstances whatsoever finally cease. It is further agreed that Containers may be stowed on deck without notice pursuant to Clause 16 on the reverse side of this Bill of Lading. In witness whereof the number of original Bills of Lading stated on this side have been signed one of which being accomplished the other(s) to be void".
The Standard Chartered Bank refused the documents under article 23 a(ii) of UCP 500 on the ground that the on Board notation on the B/L does not show actual vessel’s name.
We believe that the discrepancy pointed out does not hold good as the printed clause mentioned on the front side of our B/L is neither a "substitution clause" nor does it represent the indication "intended vessel or similar qualification".
We would like to seek opinion of the group as to the validity of the stand taken by our bank.
Answer: This case is similar to the Query TA.18 handled by Banking Commission bearing a similar clause stating inter-alia "by the vessel named herein or any substitute at the carriers option and/or other means of transport" where the Banking Commission has held that if the B/L contains the indication ‘intended vessel or similar qualifications in relation to the vessel, loaded on board or named vessel must be evidenced by the on board notation on B/L to the date on which the goods have been loaded.
Even if they have been loaded on the vessel named as the ‘intended vessel’. The Banking Commission had further added that where the pre-printed statement ‘loaded on board the vessel’ appears this should also incorporate the name of the actual vessel even if this is the same vessel which appears under the heading ‘ocean vessel’.
The same logic as in the case of Banking query TA.18 will apply to this case. Since no finality could be reached in regard to this particular query even at the Banking Commission it will be pre-mature to express any opinion. We may possibly have to wait till a unanimous opinion crystallizes in the Banking Commission on this subject. (Since handing out of this opinion the Banking Commission has decided that in the circumstances of this particular case, name of the actual vessel need not be given in the on board notation).
Question: We are manufacturer exporter of Home furnishings and Bags . Nowadays a lot of buyers are asking for FCR (forwarders cargo receipt, for sea shipment) and House Airway Bill for Air Shipment.
These are normally issued by shipping/forwarding agents nominated by the buyer who have their counterparts/business partners at the other end. When they take in charge goods from the exporter they issue House Airway Bill/FCR which shows bank as the consignee but the master B/L or the Airway Bill shows their counterpart as the consignee.
The nominated shipping agents handover only House Airway Bill/FCR copy to exporter. When the goods reach the port of destination, their counterpart releases the goods immediately and handover to the applicant. The importer after taking delivery of the goods if he wishes to avoid payment, simply asks his banker to engineer, and discrepancies return the documents making the exporter suffer.Is the release of goods by these shipping agents to the buyer justified? Whether or not it is justified, what are the precautions that need to be taken for getting paid for?
Answer: This is not a UCP issue. If a House Airway Bill/FCR shows bank as the consignee and the shipping agents deliver the goods to the applicant without the House Airway Bill/FCR as presented through Bank, they are liable to recompense the beneficiary. They need to be dragged to the courts of law or to an arbitration depending upon the terms of contract of particular case between the beneficiary and the shipping agents.
Question: UCPDC 500 makes it mandatory that Letter of Credit should provide for Drafts/ Bill of Exchange to be drawn on the Opening Bank and not on the applicant.
If such drafts (i.e. drawn on applicant) are drawn, they will be treated as extraneous documents. However, in practice several Letter of Credit come across which call for drafts drawn on the applicant.
In this regard please clarify :• Whether such an L/C becomes invalid abinitio under UCPDC 500.• Whether a Negotiating Bank loses protection under UCPDC 500 if it negotiates documents containing a draft drawn on the applicant in confirmity with L/C terms.• Whether a negotiation gets a protection under UCPDC 500 if it negotiates documents containing a draft drawn on the opening bank even though the Letter of Credit calls for a drawn on applicant.
Answer: • An L/C calling for draft on the applicant will not be invalid on that count.• Since draft on the applicant is additional document the Negotiating Bank will loose protection of UCP500 if it negotiates documents containing a draft drawn on the applicant only.• The Negotiating Bank will be protected under UCP if it negotiates document containing a draft drawn under Issuing Bank even though the L/C calls for a draft drawn on applicant.
Question: L/C Opening Bank under usance letter of credit sent following acknowledgment on receipt of documents from Negotiating Bank, who had instructed Opening Bank to acknowledge and advise acceptance and due date."We acknowledge receipt of documents which is subject to acceptance."
As the reply was not satisfactory Negotiating Bank requested Opening Bank on telephone to advise acceptance and due date, for which the reply was "Unless you hear from us documents can be treated as accepted."
Can the Negotiating Bank treat the acknowledgment letter as acceptance. If no communication is received within 7 working days it will be understand as documents are in order.
Answer: As per UCP 500 if the Issuing Bank does not communicate with 7 working days its rejection of documents that bank is precluded from refusing to take up the documents thereafter.
Question: All export documents drawn under credit has to be in foreign currency (Home currency not permitted) as per RBI/FEDAI directive/guidelines. Whether an export document under L/C negotiated by the Bank will be treated as giving value for the draft/ document when Rupee advance is given without taking foreign currency into position.
While Rupee advance is given not upto 100% of invoice value but around 80% to 90% holding balance as margin (may be to cover exchange risk/interest recovery). In such case, part disbursement/advance shall be treated as full negotiation of document under the credit.
Answer: Any Rupee advance given without taking foreign currency into account will be deemed as giving value for the draft/documents negotiated to the extent of the advance and will be subject to further adjustments later on.
Question : Buyers in Italy get quick stay from the Court preventing payment being effected under letters of credit. Can ICC do something about it?
Answer: ICC is continually seeking to address the issue of injunctions being obtained to stop payment under credits. Banks are expected for the sake of protecting their name and goodwill to move the courts to get the injunctions vacated. It is deplorable that not many banks do that, which is not desirable.
Question: Many times documents are dispatched directly to the beneficiary who takes delivery of goods and then has documents rejected by the Issuing Bank. What should be done in such cases? In this connection it was pointed out that it should be stipulated in the UCP that once buyer has taken delivery of goods, he must pay. Also many times documents could be corrected. The exporter should, therefore, be given an opportunity to do so. Should ICC not appoint a panel to see whether discrepancies are there or not?
Answer: If the feeling is that this type of situation arises because of documents getting refused after goods have been dispatched directly to the buyer, then the best course will be to get the credit amended. This requires greater caution even at the stage of entering into purchase-sales contract and ensuring that there is a provision of the issuance of an L/C which does not provide for goods going direct to the buyer.
As regards the suggestion of making the buyer pay, if he has taken delivery of goods despite documents being discrepant, it is not feasible for how will you convert this into a documentary requirement. What type of documents will meet the requirement, who will issue it and whether it will be possible to get such a certificate, are some of the questions deserving attention.
Question: In a letter of credit issued by one of the Korean Banks the reimbursement conditions was that the Issuing Bank will reimburse to the Negotiating Bank in accordance with their instructions provided all the terms and conditions of the credit have been complied with.
The Negotiating Bank negotiated documents and sent a reimbursement claim to the Issuing Bank with a request to affect payment value three working days later as per the reimbursement conditions. The Issuing Bank, however, did not meet its obligations and did not reimburse to the Negotiating Bank on value date.
While the reimbursement instructions stated that the Issuing Bank will make reimbursement in accordance with the Negotiating Bank’s instructions, they have not met the value date requested. Kindly clarify what is the correct position.
Answer: If an Issuing Bank includes reimbursement instructions in their credit requiring the Negotiating Bank to claim from them and they will honour the claim according to the Negotiating Bank’s instructions this does not necessarily apply to the honouring of the claim with the value date requested by the Claiming Bank.
The claim for interest, if any, would need to be based on what is deemed to be the ‘reasonable time’ for the Issuing Bank to honour the claim and not that the Claiming Bank received payment on a date later than that requested in the telex claim.
Question: Kindly clarify on the following points where airfreighting of consignments under house airway bills issued by freight forwarders are concerned.
• Does the act of issue of a delivery order by a freight forwarding agent who is in control of the consignment (and the consequent authorization of delivery) to a party other than the named consignee of the airway bill without obtaining authorization from the named consignee fall under the purview of the Warsaw Convention?
• If so, do the limits of liability for such an act as stipulated in Article 18 and 22 of the Amended Convention apply for such an act? Or would such an act be looked into under the framework of Article 25 and 25A which indicate the conditions under which the limits of liability are not applicable.
• Is it a practice in New Delhi for Airfreight forwarding agents to hand over consignments to a party other than the named consignee of an airway bill without obtaining from such a consignee proper authorization to do so?
• If it is a practice, isn’t the freight forwarder responsible for his own acts of resorting to such a practice? Is or is not the freight forwarder liable for the consequences of such an act?
Answer: The issue of a delivery order by a freight forwarding agent to a party other than the named consignee of the airway bill without obtaining authorization from the named consignee will be outside the purview of the Warsaw Convention for as explained above the provisions of Warsaw Convention get complied with as soon as the airlines has handed over the delivery to the freight forwarding agent in New Delhi.
• In view of what has been stated above limits of liability as stipulated under various provisions of Warsaw Convention will not apply.
• There is no practice in New Delhi for airfreight forwarding agents to hand over consignments to a party other than the named consignee of an airway bill without authorization from such a consignee.
• The freight forwarder is liable for consequences of such an act.
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.
Question : Who is a Buyer?
Answer: Buyer is the drawee to whom presentation is to be made in accordance with the collection instructions. His role is to accept B/E facilitating release of documents if the terms are documents against acceptance (D/A) or to pay on presentation of documents if the terms agreed are documents against payment (D/P).
Question : Define the term ‘Presenting Bank’.
Answer : The presenting bank is the one which makes presentation of documents to the drawee for payment, if the terms are documents against payment (D/P), or for acceptance, if the terms are documents against acceptance (D/A). The presenting bank is also known as the collecting bank and it is the one which comes in direct contact with the drawee. This bank’s role is to present Bill of Exchange (B/E) and other documents for payment under D/P terms or release documents after securing acceptance of B/E in case of D/A terms, and present B/E on due date for payment. This bank must act according to the collection instructions and get the noting and protesting of a dishonoured B/E if so instructed by the remitting bank and so willing.
Question : In relation to a case of fraud, wherein the injunction forbids the Issuing Bank to effect payment under its credit to the negotiating bank, whether• the Negotiating Bank has a recourse against the beneficiary,• the Negotiating Bank has recourse against the beneficiary even if the Negotiating Bank has confirmed the credit, and• whether the Issuing Bank is still responsible to make payment to the Negotiating Bank because the Negotiating Bank negotiated the documents in good faith.
Answer : Article 3 emphasizes that credits are separate transactions from underlying contracts, and Article 4 stresses that in credit transactions all parties deal with documents and not with goods, and Article 10(b) and Article 14(a) state that nominated banks are entitled to be reimbursed if they have complied with the terms and conditions of the credit. However, there is an exception to these provisions in many jurisdictions, namely related to abuse of rights and frauds. It is upto the courts in various jurisdictions to fairly protect the interest of all bona fide parties concerned.
Question : Whether an expired L/C can be transferred by a Bank?Answer : An expired L/C cannot be transferred by the Transferring bank for there is no L/C to Transfer.
Question : When an L/C is transferred for a value less than the original credit, does the second beneficiary to whom the L/C is not transferred to, get the right to negotiate the documents with the first applicant directly, bypassing the first beneficiary?
Answer: Unless the L/C provides otherwise a second beneficiary does not get the right to negotiate documents with the first applicant directly bypassing the first beneficiary.
