The Redressal Cell offers advice to its members on their problems related to UCP500, Incoterms, and any other areas related to international trade.

The advice of the Cell helps in resolving number of disputes/cases of its members.

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.

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

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

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

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

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?

Answer

• 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.

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

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 1^st 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?

• 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?

• 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

• We had established an L/C on 2.9.99 and the tenor of the L/C was 90 days after sight. We received the documents from the negotiating bank on 18.9.1999. Owing to certain discrepancies in the documents, the payment under the L/C was refused by us on 20.9.1999 which was also conveyed to the Opener, who subsequently accepted the documents with discrepancies on 28.9.1999.
• The due date was calculated from 18.9.1999 i.e., the day the bank sighted the documetns and the bill was due for payment on 17.12.1999 which was also conveyed to the negotiating bank.
• The opener, however, differed and contended that the due date should have been arrived from the day he accepted the documents i.e., from 28.9.1999.
• As the same documents cannot be sighted twice and moreover, the B/E is drawn on Bank, we contended that the due date as 17.12.99.
• Please clarify :-
  • the correct due date
  • whether our commitment under the L/C still continues after having refused the documents at the first instance due to discrepancies and then conveying the openers acceptance to the negotiating bank

• For a L/C at 90 days after sight, the due date is to be calculated from the sighting of document (receiving of documents by the negotiating bank i.e. 18.9.1999). That means the correct due date is 17^th December, 1999.
• If you have communicated to the beneficiary that the documents have been accepted by the opener and have accepted the B/E, you are liable to make payment under the L/C.

Question

• We make export transactions through an Indian Bank. Till now they were computing FOB value of exports as under
• FOB value of exports of the merchandise = CIF value of the merchandise – Freight – Insurance – Commission/Discount
• But now their officials have changed this formula. According to them now it is as under :
• FOB value of exports of the Merchandise = CIF value of the Merchandise – Freight – Insurance – Commission/Discount – Drawee Bank charges
• Kindly clarify whether the Drawee Bank charges should be deducted from CIF value.

Answer

• As the Drawee Bank charges are after sales expenditure, it should not be deducted from the CIF value for the purposes of arriving at FOB value of exports.

Question

• As per Article 13b, ‘The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting to their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly.
• Kindly clarify, whether the maximum limit of 7 days as the reasonable time is for the bank concerned to send out message from their end or for the receipt of the message by the bank forwarding documents at the other end.

Answer

• Sub Article 13b states "The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly".
• It can, therefore, be seen that the reasonable time (not to exceed seven banking days) following the day of receipt of the documents encompasses a period in which the following must occur :-
  • an examination of the documents;
  • a decision to accept or reject (including any period to approach the applicant for a waiver); and
  • if rejected to send a notice to the presenter.
• On this basis, it the sending of the message within the seven banking days which is critical not the receipt by the presenter. For instance, it would be unfair in a situation of an issuing bank in say, New York having to ensure that their rejection notice was received by a bank in say, New Zealand within the last day – given the time difference of around 18 hours. Then consider the case if he details were the opposite.
• The article can only give the requirement that the notice is sent within the seven banking days to impose on the issuing bank that they must ensure receipt by the presenter within the seven days would impose differing standard dependent upon the location of the presenter.
• The answer given above pre-supposes that banks have taken the full seven banking days, where the intention is that ‘reasonable’ remains a period which is less than seven banking days.

Question

• A documentary clause in a letter of credit stipulates presentation of photocopy of the special Custom Invoice with a signed visa stamp. The document is issued by the Government of India.
• Another clause in the same letter of credit subjects the above document to the condition that "the unit price set forth on the visaed document must agree with the unit price set forth on the letter of credit and any superseding amendments".
• The required document was presented without having the unit price declared, but it indicated the total quantity and total value. Hence, it was averred that the unit price can be calculated.

Answer

• Where a document, as specified above, clearly requires the insertion of the unit price as part of the content, the beneficiary must comply. It is not the duty of the issuing or nominated banks to carry out a calculation as described to determine acceptability or otherwise. It does not necessarily follow that the total value divided by the total quantity would give a unit price that is required in the context of the credit.
• The document, as described, would be discrepant without the inclusion of the unit price, even if the document showed the total quantity and total value.

Question

• A letter of credit required the presentation of a full set of bills of lading. The party presented the documents to the bank together with a certificate from the shipping company certifying that the number of original bills of lading was 3. This was arranged as none of the bills of lading gave the number of originals issued.
• The party’s local bank accepted the documents without discrepancy. The Issuing Bank refused to honour the documents on the ground that the number of original B/Ls should be mentioned on the B/L itself. Which Bank is correct in their interpretation?

Answer

• If a certificate is to be issued, it should be issued by the carrier or their appointed agents and should be issued as an official addendum to the bill of lading i.e. indicate that the document is an integral part of B/L No……….. dated…………. As presented, the additional certificate from the shipping company was not required by the credit and therefore would not be examined in accordance with Sub-article 13a of UCP 500.

Question

• In a specific instance, a foreign buyer obtained an order from the court in their country in order not to pay the bill amount on maturity. This order was given on unsound reasons after the buyer took delivery of the goods on presenting the bill of lading etc., which the bank delivered to him on accepting sellers draft for payment.
• As a consequence of the court order, the Negotiating Bank did not receive the proceeds on due date. In effect the sense and spirit of the irrevocable credit became nullified. Is this a justifiable action?

Answer

• This is not an issue for UCP but one for local law and banking practices prevalent in the country concerned. A good bank, however, should approach the Court to get the stay vacated for the sake of its name and fame.

Question

• The issuing bank provided a reimbursement condition which stated that provided all the credit terms and conditions were complied with they would reimburse the negotiating bank in accordance with their instruments. The negotiating bank negotiated documents and sent a reimbursement claim to the issuing bank requesting payment value three working days later. The issuing bank failed to meet the required value date as they had also done on previous occasions. Whilst they are stating that they will honour in accordance with the negotiating bank’s instruments they are not meeting the value dates requested.

Answer

• If an issuing bank includes a reimbursement instruction, in their credit, that requires the negotiating bank to claim from them and that 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.
• A claim for interest, if any, would need to be based on what was deemed to be a ‘reasonable time’ for the issuing bank to honour the claim and that the claiming bank received payment on a date later than that requested in the telex claim.

Question

• In paragraph 2-3 on Page 34 of ICC Publication 550 it is mentioned that the practice of principals/remitting banks drawing drafts on the collecting/presenting banks without prior agreement of such banks was discussed and the Working Party expressed the view that unless otherwise agreed by the collecting/presenting bank, drafts must not be drawn on such banks. We seek clarification from the ICC Banking Commission, if despite this view expressed, a draft is drawn on the collecting/presenting bank without prior agreement of that bank and that bank communicates "Drafts expected to mature on XXXX date", will it be taken as acceptance of draft by the collecting bank and will that bank be responsible for payment.

Answer

• If the bank agrees to handle the collection and accepts the draft which has been drawn on it, then it is obliged to effect settlement on the due date despite any contestation by their customer. With reference to the specific query, the advice of acceptance reading "expected to mature on XXXX date" is not acceptable. An acceptance constitutes the acceptors undertaking to pay at maturity and should not be qualified without the prior agreement of the remitting bank.
• In any collection transaction, the collection instruction must, in addition to other pertinent information, clearly state the requirements of acceptance, advice thereof and release of documents.

Question

• Submission of "Received for shipment Bill of Lading" along with a shipped on Board Certificate issued by the Shipping Line mentioned that "this is an integral part of the Bill of Lading", will the Bill of Lading be considered as ‘Clean on Board Bill of Lading?

Answer

• Unless there is a reference in the Bill of Lading to an accompanying On-Board certificate, a mention in the certificate that this is an integral part of the Bill of lading will not make the Bill of Lading as a Clean on Board.

Question

• A letter of credit which restricted to the counters of a bank over 1000 kms from sellers office, the seller presented the L/C to their local bank who negotiated and forwarded the documents to the issuing Bank.
• The Negotiating Bank has now received a telex from the Issuing Bank stating that the buyer has rejected the shipping documents under the L/C. The telex did not specify any discrepancies other than the reference to the buyer having rejected.
• As the issuing bank has not mentioned any discrepancies can they stop the payment to the seller by refusing to reimburse their bank.

Answer

• If an issuing bank fails to conform to the requirements of sub-article 14(d) it is bound to honour the documents as presented, even though valid discrepancies may exist. The issuing bank, in this case, has clearly failed to provide a notice of rejection which contains a listing of the discrepancy(ies) observed and has, therefore, failed to comply with this Sub-Article.

Question

• Should the word ‘BANKS’ in Article 16 of UCP be considered as all the banks involved in a credit transaction or only the issuing bank? From experience, it seemed that the issuing, negotiating and advising banks all took protection under Article 16 whenever the circumstances provided therein occurred. Almost all the issues remain unsolved to the obvious strain on either suppliers or buyers.

Answer

• Use of the word ‘Banks’ in the context of Article 16 is not restrictive to the Issuing Bank. The Article equally applies to the Issuing, Advising, Transferring or Nominated Bank.

Question

• If any Import Bill falls due for payment on any International holiday (Saturday/Sunday) than bank should demand or debit our account for the payment "prior or preceding day of the due date. Kindly clarify

Answer

• Article 44 of UCP 500 refers to expiry date which allows extension of the expiry date to the next day following in case it happens to be a holiday.

Question

• Define the term ‘Clean Collection’.

Answer

• Clean collection is the collection process where the basis of the collection is the financial documents not accompanied by commercial documents. This is distinguished from documentary collections in the sense that the collection instructions in a documentary collection have to be accommodated by financial documents and commercial documents or only commercial documents not without financial documents. Thus in a clean collection operation the presenting bank presents financial documents for collection and release those documents on receiving payment. Clean collections are rarely on D/A terms.

Question :

• In a case of collection, the Collecting Bank was served with a Judicial Attachment Order on June 29, 1999 by Ravenna Court in Switzerland. The Bank released the documents to the buyer on July 1, 1999 against full payment for documents. Knowing very well that they will not be able to remit proceeds in view of the attachment order, is it not unethical on the part of the Bank to have released documents to the buyer without seeking further instructions from the Indian Exporter. I would like to have your opinion in the matter.

Answer :

• The documents were sent on collection presumably subject to URC522. The requirement for release of documents within the rules is for payment to be made. If payment is not made to the remitting bank then the documents should be held at the disposal of the remitting bank. To have been placed on notice of a court order, the collecting bank should have advised the remitting bank and sought instructions prior to releasing the documents. Exporter and the India bank have grounds to request that the documents be returned in their original state, failure to do so would render the collecting bank liable to honour the collection.

Question

• We had exported 11 Gensets to Colombo on 90 days D.A. basis. The documents i.e. B/L, Invoice and Bill of Exchange were drawn in the Seylan Bank, Chetham Street Branch, Colombo, the Seylan Bank delivered the documents to M/s. Overseas Qualitools (P) Ltd, No. 354, Sri Sangraja Mawatha, Colombo and communicated that the drawee has accepted the Bill of Exchange. The Bill of Exchange was not honoured on due date. The Seylan Bank, Colombo, as drawee, is liable to effect the payment but till date they have neither remitted the money nor acknowledged any of our/remitting bank’s letters.
• The opinion of the ICC India Grievance Redressal Cell is sought as to whether Seylan bank acted within the spirit of URC 522. If not, are they not be in breach of their obligation.

Answer

• As per URC 522 the presenting bank has to act within the ambit of collection instructions. In this particular case, the B/L, invoice and the Bill of exchange were drawn on the Seylan Bank. They should either have not agreed to act as per the collection instructions. In that case they should have communicated their refusal without delay. Once they have agreed to act under collection they are bound to make payment on due date after having conveyed acceptance of B/L as per collection instructions. If the intention by the word drawee is the buyer M/s Overseas Qualitools (P) Ltd, in that case the collecting bank i.e. Seylan Bank has no right to change the collection instructions without the approval of the remitting bank/principal. In neither case the presenting bank i.e. Seylan Bank is liable for its actions.
• The Seylan Bank, Colombo, must reimburse the remitting bank/principal for the collection amount because of their breach of obligation.

Question

• Whether the Collecting Bank is absolved of its responsibilities under Collection instrument if the documents are stolen and used in taking delivery of the goods.
• Despite repeated reminders to the party and the bank, no reply was forthcoming. Enquiries reveal that delivery orders against the B/L’s concerned were taken by manipulated discharged B/Ls.
• The matter was brought to the notice of the Bank’s Head Office who responded that since documents were stolen from their branch and were used in the delivery of the goods, without their permission, by false signatures and stamps no liability or responsibility devolved on their bank. Though the documents were sent in March/April 1997, the party was only informed of their theft in September 1997 i.e. after six months.

Answer

• Whilst the collecting bank have not complied with a number of the requirements of URC522, the resolution of this issue is one for local law. Hence a legal action against the Collecting Bank in its country on the basis of their Civil Law will be advisable.

BANKING QUERIES ANSWERED BY ICC INDIA

Quote

One L/C stipulated


ORIGINAL INSURANCE POLICY IN NEGOTIABLE FORM FOR DDP + I INVOICE VALUE PLUS A MINIMUM OF 10 PERCENT COVERING ALL RISKS
3/3 MULTIMODAL TRANSPORT DOCUMENT EVIDENCING GOODS SHIPPED ON BOARD AN OCEAN VESSEL FOR THAT PART OF THE SHIPMENT EFFECTED BY SEA, ISSUED TO ORDER AND BLANK ENDORSED MARKED FREIGHT PAID.

The issuing bank rejected the documents citing following discrepancies:

INSURANCE POLICY DOES NOT STATE "ALL RISKS" AND SHOWS SUM INSURED AS RS7761.60

BILL OF LADING DOES NOT EVIDENCE THE CARRIER AS PER ART 23A UCP500

Now there are two questions

1) Under what article the name of vessel has to be specified even in case of a multimodal transport document.
I understand as per Article 26 a (i) "...........Any signature or authentication of the carrier, multimodal transport operator or master must be identified as carrier, multimodal transport operator or master, as the case may be.
........."
However, Position Paper No. 4 of ICC regarding transport documents states "Where the document is signed by the carrier, it is not necessary for the word 'carrier' to appear again in the signature box when it has already been used on the front of the document to identify the party acting as carrier.
2) Institute Cargo clause(A) I presume is an all risk cover.
Are the discrepancies valid.

Unquote

Analysis & Conclusion

1. The discrepancy that has been stated relates to the identification of the carrier of the goods i.e. the shipping line that is taking responsibility for the carriage of goods from the point of receipt to discharge and not the name of the vessel. The UCP requires that the transport document must quote the name of the carrier within the document. This can be by way of a specific statement i.e. Carrier is XYZ Company or by way of signing the document i.e. for XYZ company the carrier or ABC company as agents for XYZ company the carrier, or similar.
   
   The B/L that has been presented does not clearly identify the name of the carrier. The fact that Maersk may be shown in bold print within the document is not sufficient identification for the purposes of UCP. The document is discrepant. The discrepancy should have referred to Article 26 and not Article 23.
   
   
2. The UCP states that where the credit specifies "all risks" this will be satisfied by a document that contains any 'all risk' notation. In general terms this has meant the actual inclusion of the words "all risks" within the document. However, in the recently approved ICC publication "International Standard Banking Practice for the Examination of Documents under Documentary Credits" - it is stated that Institute Cargo Clauses (A) is considered an All Risk term. On the basis of the ISBP it is not a discrepancy.

Quote

An irrevocable L/C was opened in favour of an Indian company for supply of dyed yarn on deferred payment basis (85 days after B/L date). The amount of credit mentioned was Not Exceeding USD22,900/-.

Transshipment was allowed and Partial Shipment not allowed.
Among documents required:

Commercial invoice (original + 3 copies) duly dated, signed and stamped by beneficiary stating that the goods regarding quantity quality and prices are as per proforma invoice

Full set Clean on Board Ocean B/L issued to the order of XYZ notifying applicant marked freight prepaid.

The documents were sent to the issuing bank and they noted following discrepancies:

Amount of documents differ from L/C

Partial shipment not allowed

Present combined transport B/L

Are the discrepancies valid as per the documents presented alongwith the copy of L/C.

Unquote

Analysis and conclusion

The nature of goods is such that it can't be shipped to the perfect tonnage. Moreover, partial shipment is also not allowed. As per Article 39(c) of UCP500, "Unless a Credit which prohibits partial shipment stipulates otherwise, or unless sub-Article (b) above is applicable, a tolerance of 5% less in the amount of the drawing will be permissible, provided that if the Credit stipulates the quantity of the goods, such quantity of goods is shipped in full, and if the Credit stipulates a unit price, such price is not reduced. This provision does not apply when expressions referred to in sub-Article (a) above are used in the Credit". In this your particular case, the credit value of goods shipped is less than the permissible limit.

The L/C condition requires 'clean on board ocean bill of lading'. However, " combined transport bill of lading " with data content of a marine bill of lading, which means that it should clearly evidence port-to-port movement of cargo, i.e. not a combined transport, despite the heading of the document, is acceptable.

This covers the practice whereby some carriers use the same document for a marine bill of lading and/or for a combined transport bill of lading, the difference being that extra pieces of information which are included when the document is used as a combined transport bill of lading.