VARIOUS DOCUMENTS UNDER LETTER OF CREDIT
Liability of an opening bank in a letter of credit arises, when the beneficiary delivers the documents strictly drawn as per terms of
the letter of credit. There documents include the following:
Bill of exchange This is the basic document which requires to be discharged by making the payment. It is defined u/s
5 of NI Act. The right to draw this document is available to beneficiary and the amount, tenor etc.
has to be in terms of the credit.
Invoice This document provides relevant details of the sale transaction, which is made in the name of the
applicant, by the beneficiary. The details regarding, quantity, price, specification etc. should be
same as mentioned in the letter of credit.
Transport Documents This is a document which evidences the despatch of the goods by the beneficiary, by handing over
the goods to the agent of the applicant, which may be a ship, railways or a transport operator, who
issues documents such as such as bill of lading, railway receipt, transport receipt. Other documents
could be Airway Bill or Postal or courier receipt.
Insurance documents The despatched goods are required to be insured for transit period. Insurance policy or insurance
certificate should be signed by the company or underwriter or their agent. Amount, kinds of risk etc.
should be same as mentioned in the letter of credit.
Other documents The letter of credit may also specify other documents to be presented along with the above
documents which may include certificate of origin, certificate from health authorities etc.
DIFFERENT TYPES KINDS OF BILL OF LADING
Received for shipment Bill of lading: It is an acknowledgment that the goods have been received by the ship owners for
shipment. It is not considered safe document for negotiation.
On-board Bill of lading : It acknowledges that the goods have been put on board of the shipment. This is considered safe for
negotiation purpose.
Short form bill of lading : Where the terms and conditions of carriage are not printed on the bill of lading and a reference to
another document containing terms and conditions is made on the bill.
Long form bill of lading : Where all terms and conditions of carriage are given on the document itself.
Clean bill of lading : Which bears no superimposed clause or notation that expressly declares the defective condition of goods
or packaging. This is considered safe for negotiation purpose.
Claused bill of lading : Which bears superimposed clause or notation that expressly declares the defective condition of goods
or packaging. Ship owner can disclaim his liability on loss to goods in case of such BL. Hence it is not considered safe.
Through Bill of lading : That covers the entire voyage covering several modes of transport. There is no guarantee of the carriers
for safe carriage of goods.
Straight bill of lading BL that is issued directly in the name of the consignee, where the goods will be delivered to the
consignee.
Chartered party bill of lading : Issued to a Chartered party who has hired the space in the vessel. Liability of Issuing Bank
As per UCPDC, an irrevocable Credit constitutes an definite undertaking of the Issuing Bank. Hence:
i. if the Credit provides for sight payment—to pay at sight,
ii. if the Credit provides for deferred payment — to pay on the maturity date(s) determinable in accordance with the
stipulations of the Credit,
iii. if the Credit provides for acceptance to accept Draft(s) drawn by the Beneficiary on the Issuing Bank and pay at maturity, or
iv. if the Credit provides for negotiation — to pay without recourse to drawers and/or bona fide holders, Draft(s) drawn by the
Beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the Applicant.
The Credit nevertheless calls for Draft(s) on the Applicant, banks will consider such Draft(s) as an additional document(s).
Advising Bank's Liability
As per UCPDC, a credit may be advised to a Beneficiary through another bank (the 'Advising Bank') without engagement on the
part of the Advising Bank. If that bank, elects to advise the Credit, shall take reasonable care to check the apparent authenticity of
the Credit which it advises. If the bank elects not to advise the Credit, it must so inform the Issuing Bank without delay. If the
Advising Bank cannot 'establish such apparent authenticity it must inform, without delay, the bank from which the instructions
appear to have been received that it has been unable to establish the authenticity of the Credit and if it elects nonetheless to
advise the Credit it must inform the Beneficiary that it has not been able to establish the authenticity of the Credit.
Liability of the Confirming Bank
A confirmation of an Irrevocable Credit by another hank (the 'Confirming Bank') upon the authorisation or request of the Issuing
Bank, constitutes a definite undertaking of the Confirming Bank, in addition to that of the Issuing Bank. Hence:
i. if the Credit provides for sight payment—to pay at sight,
ii. if the Credit provides for deferred payment — to pay on the maturity date(s) determinable in accordance with stipulations of
the Credit.
iii. if the Credit provides for acceptance to accept Draft(s) drawn by the Beneficiary on the Confirming Bank and pay them at
maturity,
iv. if the Credit provides for negotiation — to negotiate without recourse to drawers and/or bona fide holders, Draft(s) drawn by
the Beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the
Applicant. If the Credit nevertheless calls for Draft(s on the Applicant, banks will Consider such Draft(s) as an additional
document(s).
Examination of Documents
As per UCPDC, a Banks must examine all documents stipulated in the Credit with reasonable care to ascertain whether or not they
appear, on their face, to be in compliance with the terms and conditions of the Credit. Documents, which appear on their face to
be inconsistent with one another, will be considered as not appearing on their face to be in compliance with the terms and
conditions of the Credit. Documents not stipulated in the Credit will not be examined by banks. If they receive such documents,
they shall return them to the presenter or pass them on without responsibility.
Time for scrutiny of documents: 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 5 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
Insurance Documents
As per UCPDC, the:
A Insurance documents must appear on their face to be issued and signed by insurance companies or underwriters or their
agents.
B If the insurance document indicates that it has been issued in more than one original, all the originals must be presented unless
otherwise authorised in the Credit.
C Cover notes issued by brokers will not be accepted, unless specifically authorised in the Credit.
D Unless otherwise stipulated in the Credit, banks will accept an insurance certificate or a declaration under an open cover presigned
by insurance companies or underwriters or their agents. If a Credit specifically calls for an insurance certificate or a
declaration under an open cover, banks will accept, in
lieu of thereof, an insurance policy.
E Unless otherwise stipulated in the Credit, or unless it appears from the insurance document that the cover is effective at the
latest from the date of loading on board or dispatch or taking in charge of the goods, banks will not accept an insurance
document which bears a date of issuance later than the date of loading on board or dispatch or taking in charge as indicated in
such transport document.
F: i. Unless otherwise stipulated in the Credit, the insurance document must be expressed in the same currency as the Credit.
ii. Unless otherwise stipulated in the Credit, the minimum amount for which the insurance document must indicate the insurance
cover to have been effected is the CIF (cost insurance and freight (...'named port of destination')) or CIP
(carriage and insurance paid to (...'named place of destination')) value of the goods, as the case may be, plus 10%, but only when
the CIF or CIP value can be determined from the documents on their face. Otherwise, banks will accept as such minimum amount
110% of the amount for which payment, acceptance or negotiation is requested under the Credit, or 110% of the gross amount
of the invoice, whichever is the greater.
Commercial Invoices
As per UCPDC:
A Unless otherwise stipulated in the Credit, commercial invoices
i. must appear on their face to be issued by the Beneficiary named in the Credit, and
ii. must be made out in the name of the Applicant, and
iii. need not be signed.
B Unless otherwise stipulated in the Credit, banks may refuse commercial invoices issued or amounts in excess of the amount
permitted by the Credit. Nevertheless, if a bank authorised to pay, incur a deferred payment undertaking, accept Draft(s), or
negotiate under a Credit accepts such invoices, its decision will be binding upon all parties, provided that such bank has not
paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated for an amount in excess of that permitted by
the Credit.
C The description of the goods in the commercial invoice must correspond with the description in the Credit. In all other
documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit.
Bank-to-Bank Reimbursement Arrangements as per UCPDC
As per UCPDC: A If an Issuing Bank intends that the reimbursement to which a paying, accepting or negotiating bank is entitled, shall
be obtained by such bank (the 'Claiming Bank'), claiming on another party (the `Reimbursing Bank'), it shall provide such
Reimbursing Bank in good time with the proper instructions or authorisation to honour such reimbursement claims.
B Issuing Banks shall not require a Claiming Bank to supply a certificate of compliance with the terms and conditions of the Credit
to the Reimbursing Bank.
C An Issuing Bank shall not be relieved from any of its obligations to provide reimbursement if and when reimbursement is not
received by the Claiming Bank from the Reimbursing Bank.
D The Issuing Bank shall be responsible to the Claiming Bank for any loss of interest if reimbursement is not provided by the
Reimbursement Bank on first demand, or as otherwise specified in the Credit, or mutually agreed, as the case may be.
E The Reimbursing Bank's charges should be for the account of the Issuing Bank. However, in cases where the charges are for
the account of another party, it is the responsibility of the Issuing Bank to so indicate in the Original Credit and in the
reimbursement authorisation. In cases where the Reimbursing Bank's charges are for the account of another party they shall
be collected from the Claiming Bank when the Credit is drawn under. In cases where the Credit is not drawn under, the
Reimbursing Bank's charges remain the obligation of the Issuing Bank.
UNIFORMCUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS UCPDC-600
Uniform Customs and Practices for Documentary Credits - 600 (referred to as UCP-600), prepared by
ICC, Paris by revising the UCPDC-500, is being implemented wef July 01, 2007. It is 6th revision of
the Rules since first promulgation in 1933. The new document has 39 Articles (against 49 of UCPDC500) with supplement for
Electronic Presentation covering 12 eArticles. UCPDC-600, shall be applicable to LCs that expressly indicate that these are subject
to UCPDC-600.
Liability of an opening bank in a letter of credit arises, when the beneficiary delivers the documents strictly drawn as per terms of
the letter of credit. There documents include the following:
Bill of exchange This is the basic document which requires to be discharged by making the payment. It is defined u/s
5 of NI Act. The right to draw this document is available to beneficiary and the amount, tenor etc.
has to be in terms of the credit.
Invoice This document provides relevant details of the sale transaction, which is made in the name of the
applicant, by the beneficiary. The details regarding, quantity, price, specification etc. should be
same as mentioned in the letter of credit.
Transport Documents This is a document which evidences the despatch of the goods by the beneficiary, by handing over
the goods to the agent of the applicant, which may be a ship, railways or a transport operator, who
issues documents such as such as bill of lading, railway receipt, transport receipt. Other documents
could be Airway Bill or Postal or courier receipt.
Insurance documents The despatched goods are required to be insured for transit period. Insurance policy or insurance
certificate should be signed by the company or underwriter or their agent. Amount, kinds of risk etc.
should be same as mentioned in the letter of credit.
Other documents The letter of credit may also specify other documents to be presented along with the above
documents which may include certificate of origin, certificate from health authorities etc.
DIFFERENT TYPES KINDS OF BILL OF LADING
Received for shipment Bill of lading: It is an acknowledgment that the goods have been received by the ship owners for
shipment. It is not considered safe document for negotiation.
On-board Bill of lading : It acknowledges that the goods have been put on board of the shipment. This is considered safe for
negotiation purpose.
Short form bill of lading : Where the terms and conditions of carriage are not printed on the bill of lading and a reference to
another document containing terms and conditions is made on the bill.
Long form bill of lading : Where all terms and conditions of carriage are given on the document itself.
Clean bill of lading : Which bears no superimposed clause or notation that expressly declares the defective condition of goods
or packaging. This is considered safe for negotiation purpose.
Claused bill of lading : Which bears superimposed clause or notation that expressly declares the defective condition of goods
or packaging. Ship owner can disclaim his liability on loss to goods in case of such BL. Hence it is not considered safe.
Through Bill of lading : That covers the entire voyage covering several modes of transport. There is no guarantee of the carriers
for safe carriage of goods.
Straight bill of lading BL that is issued directly in the name of the consignee, where the goods will be delivered to the
consignee.
Chartered party bill of lading : Issued to a Chartered party who has hired the space in the vessel. Liability of Issuing Bank
As per UCPDC, an irrevocable Credit constitutes an definite undertaking of the Issuing Bank. Hence:
i. if the Credit provides for sight payment—to pay at sight,
ii. if the Credit provides for deferred payment — to pay on the maturity date(s) determinable in accordance with the
stipulations of the Credit,
iii. if the Credit provides for acceptance to accept Draft(s) drawn by the Beneficiary on the Issuing Bank and pay at maturity, or
iv. if the Credit provides for negotiation — to pay without recourse to drawers and/or bona fide holders, Draft(s) drawn by the
Beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the Applicant.
The Credit nevertheless calls for Draft(s) on the Applicant, banks will consider such Draft(s) as an additional document(s).
Advising Bank's Liability
As per UCPDC, a credit may be advised to a Beneficiary through another bank (the 'Advising Bank') without engagement on the
part of the Advising Bank. If that bank, elects to advise the Credit, shall take reasonable care to check the apparent authenticity of
the Credit which it advises. If the bank elects not to advise the Credit, it must so inform the Issuing Bank without delay. If the
Advising Bank cannot 'establish such apparent authenticity it must inform, without delay, the bank from which the instructions
appear to have been received that it has been unable to establish the authenticity of the Credit and if it elects nonetheless to
advise the Credit it must inform the Beneficiary that it has not been able to establish the authenticity of the Credit.
Liability of the Confirming Bank
A confirmation of an Irrevocable Credit by another hank (the 'Confirming Bank') upon the authorisation or request of the Issuing
Bank, constitutes a definite undertaking of the Confirming Bank, in addition to that of the Issuing Bank. Hence:
i. if the Credit provides for sight payment—to pay at sight,
ii. if the Credit provides for deferred payment — to pay on the maturity date(s) determinable in accordance with stipulations of
the Credit.
iii. if the Credit provides for acceptance to accept Draft(s) drawn by the Beneficiary on the Confirming Bank and pay them at
maturity,
iv. if the Credit provides for negotiation — to negotiate without recourse to drawers and/or bona fide holders, Draft(s) drawn by
the Beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the
Applicant. If the Credit nevertheless calls for Draft(s on the Applicant, banks will Consider such Draft(s) as an additional
document(s).
Examination of Documents
As per UCPDC, a Banks must examine all documents stipulated in the Credit with reasonable care to ascertain whether or not they
appear, on their face, to be in compliance with the terms and conditions of the Credit. Documents, which appear on their face to
be inconsistent with one another, will be considered as not appearing on their face to be in compliance with the terms and
conditions of the Credit. Documents not stipulated in the Credit will not be examined by banks. If they receive such documents,
they shall return them to the presenter or pass them on without responsibility.
Time for scrutiny of documents: 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 5 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
Insurance Documents
As per UCPDC, the:
A Insurance documents must appear on their face to be issued and signed by insurance companies or underwriters or their
agents.
B If the insurance document indicates that it has been issued in more than one original, all the originals must be presented unless
otherwise authorised in the Credit.
C Cover notes issued by brokers will not be accepted, unless specifically authorised in the Credit.
D Unless otherwise stipulated in the Credit, banks will accept an insurance certificate or a declaration under an open cover presigned
by insurance companies or underwriters or their agents. If a Credit specifically calls for an insurance certificate or a
declaration under an open cover, banks will accept, in
lieu of thereof, an insurance policy.
E Unless otherwise stipulated in the Credit, or unless it appears from the insurance document that the cover is effective at the
latest from the date of loading on board or dispatch or taking in charge of the goods, banks will not accept an insurance
document which bears a date of issuance later than the date of loading on board or dispatch or taking in charge as indicated in
such transport document.
F: i. Unless otherwise stipulated in the Credit, the insurance document must be expressed in the same currency as the Credit.
ii. Unless otherwise stipulated in the Credit, the minimum amount for which the insurance document must indicate the insurance
cover to have been effected is the CIF (cost insurance and freight (...'named port of destination')) or CIP
(carriage and insurance paid to (...'named place of destination')) value of the goods, as the case may be, plus 10%, but only when
the CIF or CIP value can be determined from the documents on their face. Otherwise, banks will accept as such minimum amount
110% of the amount for which payment, acceptance or negotiation is requested under the Credit, or 110% of the gross amount
of the invoice, whichever is the greater.
Commercial Invoices
As per UCPDC:
A Unless otherwise stipulated in the Credit, commercial invoices
i. must appear on their face to be issued by the Beneficiary named in the Credit, and
ii. must be made out in the name of the Applicant, and
iii. need not be signed.
B Unless otherwise stipulated in the Credit, banks may refuse commercial invoices issued or amounts in excess of the amount
permitted by the Credit. Nevertheless, if a bank authorised to pay, incur a deferred payment undertaking, accept Draft(s), or
negotiate under a Credit accepts such invoices, its decision will be binding upon all parties, provided that such bank has not
paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated for an amount in excess of that permitted by
the Credit.
C The description of the goods in the commercial invoice must correspond with the description in the Credit. In all other
documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit.
Bank-to-Bank Reimbursement Arrangements as per UCPDC
As per UCPDC: A If an Issuing Bank intends that the reimbursement to which a paying, accepting or negotiating bank is entitled, shall
be obtained by such bank (the 'Claiming Bank'), claiming on another party (the `Reimbursing Bank'), it shall provide such
Reimbursing Bank in good time with the proper instructions or authorisation to honour such reimbursement claims.
B Issuing Banks shall not require a Claiming Bank to supply a certificate of compliance with the terms and conditions of the Credit
to the Reimbursing Bank.
C An Issuing Bank shall not be relieved from any of its obligations to provide reimbursement if and when reimbursement is not
received by the Claiming Bank from the Reimbursing Bank.
D The Issuing Bank shall be responsible to the Claiming Bank for any loss of interest if reimbursement is not provided by the
Reimbursement Bank on first demand, or as otherwise specified in the Credit, or mutually agreed, as the case may be.
E The Reimbursing Bank's charges should be for the account of the Issuing Bank. However, in cases where the charges are for
the account of another party, it is the responsibility of the Issuing Bank to so indicate in the Original Credit and in the
reimbursement authorisation. In cases where the Reimbursing Bank's charges are for the account of another party they shall
be collected from the Claiming Bank when the Credit is drawn under. In cases where the Credit is not drawn under, the
Reimbursing Bank's charges remain the obligation of the Issuing Bank.
UNIFORMCUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS UCPDC-600
Uniform Customs and Practices for Documentary Credits - 600 (referred to as UCP-600), prepared by
ICC, Paris by revising the UCPDC-500, is being implemented wef July 01, 2007. It is 6th revision of
the Rules since first promulgation in 1933. The new document has 39 Articles (against 49 of UCPDC500) with supplement for
Electronic Presentation covering 12 eArticles. UCPDC-600, shall be applicable to LCs that expressly indicate that these are subject
to UCPDC-600.
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