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CHAPTER 22
IMPORT BILLS UNDER LC (PAYMENT AGAINST DOCUMENTS)
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CHAPTER 22
IMPORT BILLS UNDER LC (PAYMENT AGAINST DOCUMENTS)
INDEX
Para No TOPIC Page No
22 Introduction 3
22 1 Receipt of Documents and Control in PAD 3
22 2 Scrutiny of Documents 3
22 2 1 Initial Scrutiny Scrutiny of Individual Documents 4
22 2 2 Bill of Exchange 5
22 2 3 Invoice 6
22 2 4 Bill of Lading 6
22 2 5 Airway Bill or Air consignment Note 9
22 2 6 Insurance Document 10
22 2 7 Other Documents 11
22 2 8 Certificate of Origin 12
22 3 Presentation of Documents 12
22 3 1 Retirement of Import Bills under LC 15
22 4 Overdue Import Bills 17
22 4 1 Clearing / Storage of goods of Unpaid Import Bills under LC 18
22 5 Cancellation of LC due to Frustration of Contract 20
22 6 Cancellation of Partly utilized / Unutilized LC 21
22 7 Revival of Expired LC 21
22 8 Missing Import Documents 22
22 9 Missing BL Guarantee 22
22 10 Issuance of Delivery Order in the absence of AWB 23
22 11 Co-acceptance of Deferred Payment Import Bills 24
Annex No Annexure
1 Letter to negotiating bank informing discrepancies 25
2 Trust Receipt agreement 27
3 Counter Indemnity BL 31
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22. INTRODUCTION
Payment under documentary credit is made only if the documents received conform to terms
laid down in the credit. Hence scrutiny of documents plays a vital role. Various check points
for scrutiny of documents and other related procedures are explained hereunder :
22.1. RECEIPT OF DOCUMENTS AND CONTROL BY PAD SECTION
The documents, on receipt, should be inwarded by affixing the Bank's date stamp and entered
in the Safe-in Register. The documents are to be attached to the LC folder after ensuring
that all the documents listed in the overseas bank's covering schedule are received. In case
any of the documents listed in the covering schedule are not received, it should be brought to
the forwarding Bank’s notice immediately.
The covering schedule has to be scrutinised to ascertain whether the documents
have been sent on approval/collection basis. It is also to be verified whether the
reimbursement has been claimed / to be claimed as per terms of the LC or
whether they are claiming reimbursement from us.
In case a duplicate set of documents are received earlier than the original set,
the same is to be treated as 1st set and scrutinised accordingly. The negotiating
bank is to be informed immediately in case the 1st set is not received and should
be followed up for the same.
22.2 SCRUTINY OF DOCUMENTS
Documents should be carefully examined and it must be determined on the basis of the
documents alone whether or not they are in compliance with the terms and conditions
of the LC.
Following are the guidelines for scrutiny of documents :
As soon as the documents are presented, identify the LC against which the relative
documents are presented. Generally, it will be apparent from the forwarding
schedule of the negotiating bank.
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Even if it is omitted (particularly in case of documents sent on collection basis) the
relative LC number can be identified from the notations appearing on draft, invoice or
shipping/other documents.
Take out the relative LC together with all the amendments effected and prior
authorisation, if any, given for waiver of discrepancies. Arrange all of them in
chronological order and run through them so that a broad idea of operative
(amended) terms and conditions of LC is formed.
Check whether all documents listed in the forwarding schedule are received or
not. If not, inform the same to the negotiating bank, along with other
discrepancies if any, arising out of scrutiny, clearly stating that documents are
held at their disposal or otherwise.
Before scrutiny of individual documents presented, an overall scrutiny of
documents with reference to the general conditions of the credit and the basic
necessities of documents should be verified.
22.2.1INITIAL SCRUTINY :
Check whether
All documents called for in LC are submitted.
All documents are submitted in the requisite number of copies (take into account
the duplicate set/second mail that may be following)
Documents are issued and signed by the persons specified/required to issue
Documents, where necessary and stipulated, are dated. If they are dated, the
dates should be consistent with the terms of LC.
Documents, where necessary and stipulated, are manually signed.
Material alterations/additions on documents are duly authenticated.
The requisite and stipulated documents are originals or marked as originals and
appear to be signed.
All documents, on their face appear to be in compliance with the terms and
conditions of the credit.
Shipment is effected within the time stipulated. If it is an instalment credit
whether the requisite quantity is shipped within the stipulated time schedule and
is as per the terms of the LC.
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Any partial shipment is effected ? If so whether it was permissible under LC. If so,
ensure that the partial shipment effected as per the terms of the LC.
[Note : Split transport documents for the same vessel/voyage not to be treated as
partial shipments].
Documents are presented at the place of expiry stipulated in the LC.
Documents are presented within the expiry date (validity) of the credit. If
documents are presented to the nominated bank on an extended validity date in
terms of provisions of Art.29(a) of UCP 600, the nominated bank should confirm on
its covering schedule that the presentation at their counters was made within the
time limits extended in accordance with article 29(a) of UCP 600.
SCRUTINY OF INDIVIDUAL DOCUMENTS
21.2.2 BILL OF EXCHANGE (DRAFTS)
It should bear a date.
It should be drawn by beneficiary or any other person authorised in this regard.
It should be signed by the drawer or his authorized representative.
It should be drawn unconditionally and should be free from any extraneous
conditions and should contain the reference to LC.
It should be drawn for a specified amount and should be consistent with the terms
of the drawing permitted in the LC.
It should be drawn payable to a specified payee as mentioned in LC and properly
endorsed.
It should be drawn payable at tenor specified in the LC.
It must indicate that it is drawn under the subject LC.
It should, unless otherwise specified, be drawn in the same currency of invoice/LC.
22.2.3 INVOICE
Should be made out by the beneficiary or other authorised person(s) as stipulated
in the LC.
Should unless otherwise specified be made out in the name of the applicant.
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Description of goods specified must correspond with the description in the LC.
Quantity of goods, unit prices, delivery terms etc. must correspond with the LC
terms and be consistent with other relative documents.
Should be drawn in the same currency of LC, unless otherwise specified.
Should not include any charges which are not permitted by LC. As per stipulations
of LC, the gross value of invoice should not exceed the credit amount.
Should show deduction towards agency commission payable etc. as applicable.
Arithmetical calculations should be accurate, (compare unit price and quantity).
Final amount of invoice or the percentage of drawing as permitted in LC should
correspond with the draft amount.
If partial shipments are effected, amount of drawings should correspond to
proportionate quantities shipped (where only quantity is mentioned without unit
prices etc.)
Invoice being a 'documents of contents', the details stated therein must
correspond/be consistent with details appearing on all other documents.
Must confirm to facts like IEC No. and ITC(HS) classification No. etc. as stipulated
in the LC.
If invoice is issued for an amount in excess of the amount permitted by credit
(when not specifically prohibited by terms of LC), the nominated bank or the
issuing bank has the option to accept a commercial invoice issued for an amount in
excess of amount permitted by the credit, and its decision will be binding upon all
the parties, provided the bank in question has not honoured or negotiated for an
amount in excess of that permitted by the credit as per Article 18(b) of UCP 600
22.2.4 BILL OF LADING
Bill of Lading (BL) is one of the most common transport documents called for under
the LCs. However, there are various types of Bills of Lading. Articles 19 to 27 of UCP
600 apply to shipping documents and deal at length with types of BL which will be
accepted and what will not be accepted etc. It must be clearly understood that a
'Marine BL' which otherwise is also known as an 'OCEAN BILL OF LADING' or 'Bill of
Lading covering carriage by sea' is one which is issued only when the goods are being
transported from one sea port to another sea port (i.e. port to port voyage by sea).
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On the other hand other BL such as 'Combined transport Bill of Lading' or 'Port to Port
Bill of Lading' are those which are issued for movement of goods from one place or
port to another place or port with one leg of transaction by sea voyage. Accordingly,
UCP 600 lays down different norms of acceptability or otherwise to 'Marine Bill of
Lading' and other types of BL. Hence, in the checklist given below the specific
features applicable to 'Marine Bills of Lading' are explained separately.
Every Bill of Lading Must
Be issued by a named carrier or his authorized agent
Bear a distinct number
Indicate the place of issuance
Indicate the date of issuance
Be signed by named carrier or his authorized agent
Indicate the name of consignor and his address
Indicate the name of consignee and his address
Indicate brief description of goods being carried / shipped
Indicate port of loading or taking charge (in case of Marine BL, it should indicate a
definite port of loading and in other cases it can be shown as an 'intended' port).
Name of the vessel and voyage number
Be presented in full set of originals (full set comprises two or more originals, all of
which are marked as 'ORIGINALS' and signed. The number of copies of originals
issued is to be indicated on the BL itself). Similarly transport documents marked
Original, Duplicate, Triplicate etc. are all to be treated as originals
Meet all other stipulations of the credit
Must indicate whether 'Freight Prepaid' or 'Freight Payable'
Must bear the number of the LC
A Bill of Lading should not (Unless Otherwise Specified by Terms of LC)
Be a Charter party Bill of Lading
Indicate that the carrying vessel is propelled by sail only.
Be issued by a freight forwarded (unless he himself acting as a carrier or his
agent). However if LC permits Freight Forwarder’s Receipt it can be accepted if
issued by IATA approved agent.
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Must not indicate that the goods are or will be loaded on 'deck'. A clause on a
transport document stating that the goods may be loaded on deck is acceptable,
Article 26(c) of UCP 600.
Be a claused Bill of Lading.
Bill of Lading can (Unless Otherwise Prohibited or is Inconsistent with Other Terms
of LC)
Be a short form or blank backed BL if the LC permits
Indicate a place of taking charge is different from the port of loading and/or a
place of final destination different from the port of discharge
Indicate that the goods are carried in Container(s) Trailer(s) / or 'LASH' barge(s), if
LC permits.
Indicate that the goods will be trans-shipped provided the same BL covers the
entire carriage.
Be a 'Freight Payable' BL.
Evidence freight prepayment by a stamp or otherwise on BL to that effect like
'Freight Prepaid'.
Bear reference by stamp or otherwise to the costs additional to freight charges.
Show clauses such as 'shippers load and count' or 'said by shipper to contain' etc.
with reference to goods covered by the BL.
Show shipper as a third party other than beneficiary. (We generally do not call for
third party transport documents)
Be deemed as 'Clean on Board' if it is an on board BL without any super imposed
clauses or notations expressly declaring the defective condition of the goods and or
the packaging.
Other Aspects of BL
An 'On Board' BL it must indicate the name of the carrying vessel/voyage number.
A transport document issued by a freight forwarder can be accepted provided
freight forwarder has issued the same in his capacity as a carrier or his agent and
all other requirements are met with and is issued by IATA approved agent.
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Received for shipment BL can be accepted, if affixed with 'ON BOARD' notation
duly signed or initialed and dated by the carrier or his agent.
If LC calls for a 'Marine BL' without specifying whether it should be 'On Board; or
'Received for shipment', only 'ON BOARD' BL will be accepted.
Date of issue of BL / 'ON BOARD' notation should be dated on or prior to the
shipment date permitted under the LC.
Shipping marks, gross/net weight etc. specified on BL must correspond to those
specified in other documents.
22.2.5 AIRWAY BILL OR AIRCONSIGNMENT NOTE
Must show flight number and date
Must show the name of the carrier
Must be issued by a named carrier or his authorized agent
Must indicate the place of issuance
Must indicate the date of issuance
Must be signed by a named carrier or his authorized agent (in case of HAWB by the
Air Cargo (Consolidator himself).
Must indicate the name of the consignor and address
Must indicate the name of the consignee and address as per LC terms. (and not
that of the consignor or his order).
The AWB submitted must be 'ORIGINAL No.3' meant for shipper/consignor.
Must indicate Airport of loading and discharge.
Must give brief description of goods being carried and should not be inconsistent
with other documents.
Must comply with all other specific requirements of LC.
Must indicate 'notify parties' as stipulated in the LC.
Should not be claused (it should be clean AWB).
Unless prohibited by the LC, following are acceptable/permitted
a) short form AWB or blank backed AWB.
b) Can bear reference by stamps or otherwise to cost, any thing additional to
freight charges.
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c) It can contain words like 'said by shipper to contain' or 'shippers load and count'
etc.
d) It can show the consignor as a third party other than beneficiary.
It must show the shipping marks of packages, number of packages, gross weight,
net weight etc. and they must be in accordance with other documents containing
similar details
It must indicate whether freight is prepaid or payable at destination.
In case of HAWB (whether specified) it must show the name of Airlines, Master
Airway Bill number, the flight number, consolidator's IATA registration number.
It should be remembered that unless credit calls for flight date, even if flight
date is shown on AWB, the date of issue of AWB is considered as date of
shipment.
22.2.6 INSURANCE DOCUMENT
Must be issued only by Insurance Company or underwriters or their authorized
agents.
It should not be issued by brokers.
It must be signed by the issuer
It must be dated
Date of issuance must be on or before the date of shipment or it must be
evidenced by specific notation that the cover is effective from the date of
shipment.
The currency of insurance must be same as the currency of LC.
Must indicate the name of the assured.
Must indicate brief details of the goods insured.
Must indicate the mode of conveyance (Air, Sea, Road etc.) the name of the
vessel, voyage number etc.)
Must indicate the nature of risks covered and should be those specified in the LC.
Should be in a negotiable form.
Unless otherwise specified, should be issued for an amount of 110% of CIF/CIP
value of the goods. If such value is not determinable from the documents on their
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face, it should be for the minimum amount of negotiation requested for or the
amount of invoice value whichever is greater.
If issued in more than one originals, all originals must be submitted (no. of
negotiable copies issued are indicated in the insurance policy/certificate).
Should be endorsed in blank by the assured, if required as per terms of LC.
Should indicate the port of shipment and destination or point of insurance
coverage and point of termination of insurance coverage.
Should not contain any clause affecting the interest of the assured/assignees.
Must cover all additional risks as specified in the LC.
The goods are on 'Deck', Deck shipment risks such as jettisoning or washing over
board should be covered.
If LC allows transshipment, such risk must be covered.
Claims should be made payable in India or in the specific city specified in the LC.
22.2.7 OTHER DOCUMENTS
A letter of credit may call for variety of other documents like Health Certificate, Pre-
shipment Inspection Certificate, Packing List, Shipping Company's Certificate,
Beneficiary's declarations/undertaking etc. Whenever such documents are called for
under LC, the following aspects must be checked in the documents.
Whether issued by the person or authority specified in the credit or authorized to
issue. If no specific mention is made regarding issuer of the document, Bank can
accept document issued by any person provided their data content is not
inconsistent with any other stipulated document presented.
Whether dated and signed by the person/authority concerned.
Whether they relate to the goods/shipment covered by the documents or not.
Whether the document certifies the facts required as per LC or not.
Whether the document contains wordings or data content as specified in the LC or
not.
Whether the details mentioned in such certificates/documents are consistent with
other documents called for.
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22.2.8 CERTIFICATE OF ORIGIN
Certificate of Origin is the document to determine the origin of goods.
It must be issued and signed by an independent authority such as a Chamber of
Commerce etc. indicating the origin of goods, as per LC stipulations.
The country of origin certified must be as per LC requirement and consistent with
the declaration given by the beneficiary in the invoice/other documents.
It must indicate the description of goods and should be consistent with other
documents.
Details appearing in the Certificate of Origin must be consistent with the details
appearing in the other documents.
NOTE : The above checkpoints are only illustrative and not exhaustive
22.3. PRESENTATION OF DOCUMENTS
The branch has to scrutinise the full set of documents and verify whether there are
any discrepancies as per the LC terms and conditions. If the documents are
without discrepancies, then presentation memo is to be generated through Finacle
and sent to the LC applicant.
In case, the branch finds discrepancies in the documents, all the discrepancies are
to be noted in the presentation memo. The branch in normal course has to follow
procedure as per Article 16(b) wherein the option is given to the LC opening bank
to refuse or take up the document. The decision to reject the documents should
be taken by Forex Dept. in-charge in consultation with the Head of the branch
whose final decision is to be recorded on the scrutiny sheet. If the branch decides
to reject the documents, following is the illustrative message to be sent to
negotiating bank as per Annexure 22(1).
While actually presenting the documents to the applicant, it has to be clarified
that Bank has rejected the documents in view of the discrepancies listed in FE
553R and that the documents are presented pending receipt of disposal
instructions of the negotiating bank. It should also be clearly stated that delivery
of documents against payment in the case of sight bills and acceptance in the case
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of DA bills will be subject to receipt of instructions from the negotiating bank and
credit decision of the Bank/ Branch.
Alternatively, if the branch decides that they want to approach the applicant for
the waiver of discrepancies (this does not, however, extend the period of 5
banking days following the day of receipt of documents to examine the documents
and determine whether to take up or refuse the documents) the branch should
refer the matter with presentation memo to the LC applicant and seek his
acceptance of the documents after waiver of the discrepancies listed in the
presentation memo.
It is pertinent to note that all documents are to be minutely scrutinised and all
discrepancies are to be highlighted in the presentation memo. The applicant or
his authorised representatives can call on the branch and examine the documents
before communicating their final decision. Such examination by the applicant or
his authorised agent should be recorded on the reverse of the presentation memo.
This will preclude the applicant from raising objections subsequently on the ground
of fresh discrepancies. Normally the applicant is given 48 hours after delivery of
the presentation memo. for communicating his decision. It should be noted that 5
banking days referred to above is inclusive of 48 hours deliberation period given to
the applicant. If applicant decides to take the documents, he should return to the
branch the acknowledgement copy duly signed. If drafts are drawn in the case of
DA bills, the same are to be adequately stamped and accepted. If the
acknowledgement is not received within 48 hours, the documents are presumed to
have been rejected. If the documents are not taken up, the negotiating bank
should be informed by 5th banking day about rejection with full details of
discrepancies, as per Annexure 22(1). It is to be noted that all discrepancies are to
be intimated in the very first instance itself and not in piecemeal. Disposal
instructions of negotiating bank have to be sought and they should be put on notice
that documents are held at their disposal, risk and responsibility.
Once the branch has finally decided to reject the documents (particularly in the
case of DA bills and in the case of sight bills if reimbursement is not claimed)
Reimbursement Authority already given is to be withdrawn. Necessary
communication is to be sent.
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No documents received from the overseas bank should be given to the customer
unless payment/acceptance is received. In the case of Bills of Lading, branches
should take care that all 'negotiable' copies are received from the correspondents.
If any copy/copies are being sent with duplicate set of documents, watch should
be kept for receipt of duplicate sets and in the case of unpaid bills, duplicates also
should be kept with the original documents after verifying that the remaining
copies of Bills of Lading have in fact been received.
Branches should note that when Bills of Lading are issued in sets, all original copies
are negotiable and when one copy is presented for delivery of goods, the other
negotiable copies automatically become void. It is therefore, necessary that all
negotiable copies of Bills of Lading and other documents received separately are to
be kept in proper safe custody. In case of rejection of the documents the
negotiating bank also should be asked to refund amount claimed, if any by them
under the LC and the same to be followed up till receipt.
The branch should not transfer the rejected documents (PAD) to collection
portfolio unless specific instructions are received from the negotiating bank and
also the Bank is discharged from the LC obligation.
The decontrol of the LC liability and the control of the PAD liability will be done by
system automatically when the bill is lodged in Finacle by passing the following
entries :
Dr. Liability for acceptance of LC
Cr. Customer’s liability for acceptance of LC
Control of PAD liability Dr. Customer’s liability for acceptance PAD
Cr. Liability for acceptance PAD
The PAD particulars such as date of receipt, due date for retirement etc. on the
Covering schedule. The documents (both first and second sets) are to be kept in
safe custody and all safe-in safe-out operations carried out under dual control.
Documents drawn on sight basis are to be kept in chronological order number wise
and those on usance basis in the order of due dates. The safe-in register must be
kept inside the safe after each operation.
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A copy of presentation memo along with copies of forwarding schedule of
negotiating bank and invoice should be kept in a separate file for follow up. This
will reduce Safe-in Safe-out operations for follow up purposes.
Arrival of steamer is to be monitored, in respect of outstanding bills including
those crystallised. Arrival of steamer in respect of outstanding bills should be
notified to the importer with a request to retire the bills.
22.3.1 RETIREMENT OF IMPORT BILLS UNDER LC
USANCE DOCUMENTS DRAWN ON ACCEPTANCE BASIS
Documents accompanying usance bills drawn on acceptance basis are to be
delivered to the importer against acceptance of the Bill of Exchange (adequately
stamped) if called for under the LC or against acceptance recorded on the
presentation memo, if there are no Bills of Exchange on the importer. If bills are
accompanied by AWB, delivery order (FE 590) is to be issued after entering the
details in Delivery Order issued Register.
If document is released against acceptance, the officer of PAD section will record
his 'remark' that signature of authorised signatory for acceptance is verified and
found in order and then the document can be released after obtaining counter
signature of department in charge and obtaining necessary margin
The importer has to necessarily execute the Trust Receipt Agreement (FE 578R)
(Ann No.22(2)) duly stamped whenever documents are delivered against
acceptance. Executing necessary security documents /registration of charge /
Collecting additional margin, as stipulated by the sanctioning authority is to be
completed in order that the goods received under the usance LC could be
hypothecated to the Bank and periodical stock inspection carried out.
Stock insurance policy to be obtained from the importer.
The sale proceeds of the goods received under the usance LC should be credited to
the importer's account separately opened for this purpose at the branch if
stipulated in the sanction advice. Alternatively cash flow of the importer should
be monitored regularly and periodical statement of book debt/stock should be
obtained.
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The acceptance of the document and due date is to be informed to the negotiating
bank. Care must be taken to see whether due date is not falling on Saturday,
Sunday or a bank holiday. In such case payment will be due on first banking day
following the due date.
The PAD folder should be properly diarised for retirement / remittance positively
on due date.
While handing over the documents to the importer copies of the non-negotiable
transport document, invoice and a copy of all the documents are to be kept on
record.
On or before due date, Form A1 in duplicate and Bill of Entry are to be submitted
by the importer.
In case of LCs drawn under special credits etc. care should be taken that additional
document as may be specified are to be retained for making reimbursement claim,
drawal of line of credit etc.
In case the importer desires to effect prepayment in respect of a bill under DA
L/C the same can be effected by obtaining concurrence of the negotiating bank
and after deducting an interest @ LIBOR +50 bps (upto a period of one year) or
prime rate whichever is less, for the unexpired period.
SIGHT BILLS
The importer is required to retire import bills on sight basis immediately but not later
than 10 days from the date of receipt of the documents If the document is released
against payment, the officer of PAD section will record his remarks 'confirmed that
Current Account of the party has been debited for Rs.______ documents can be
released' in the PAD folder and sign the same. Department In-charge will countersign
the recommendations and return the folder permitting release of documents.
Report transaction to Dealing room to obtain BC selling rate or inform contracted
rate. Complete Form A1 duly signed by the importer.
Realize the PAD bill in Finacle and the following vouchers are be passed at the
time of retirement of the import bills :
Dr -- CD / CC a/c.
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Cr -- Treasury Br. (Digital Authority cheque issued)
Cr -- Income a/c. Commission on PAD
Cr -- Exp. A/c. Telegram / Swift / Postages
(Interest to be recovered from the date of debit to our Nostro account, whichever
is earlier till date of retirement of sight bills). If reimbursement is on receipt of
documents at our counters, interest is recoverable from date of reimbursement to
negotiating bank. Rate of Interest is the rate applicable for overdue advance.
Interest is to be calculated from the date of negotiation till retirement.
Entries are to be made in Safe in safe out register.
Documents are thereafter to be handed over to the customer after making
proper endorsement on Bill of Exchange/BL against acknowledgement. If
documents are accompanied by AWB, delivery order is to be issued after noting
the details in Delivery Order issued Register.
Diarise for submission of Bill of Entry.
Endorse in the 4th column of the exchange control copy of import licence. If
licence is fully utilised, hold the same at the branch.
Affix paid stamp on the folder and send the same for filing serially.
Margin is to be released as per instructions of the importer.
Pass decontrol contra voucher for utilisation of forward contract. If there is
early delivery under forward contract, swap charges, if any, are to be
recovered.
22.4. OVERDUE IMPORT BILLS
If the import bills under LC are not retired by the applicant, branches have to
crystallise the FC amount into Rupee liability on the 10th day after the date of
receipt of documents in the case of demand bills and on the due date in the case
of usance bills. If the 10th day or due date happens to be a holiday or Saturday,
crystallisation shall be done on the next working day. If no forward sale contract
is booked by the importers, branch has to report the crystallisation to designated
'A' category branch and obtain BC selling Rate for the currency in which import bill
is drawn. Prepare A1 form in duplicate and keep one copy with R-Return. We have
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to open a Overdue Import Bill A/c (Scheme DL011 / DL012) and realize the bill to
the debt of this account.
If forward sale contract is booked, crystallisation has to be done at the contracted
rate under advice to Dealing Room. If crystallisation leads to early delivery under
forward contract, swap charges, if any, are to be recovered.
Branch should follow up actively for payment of such bills and submit statement of
overdue PAD to the controlling offices periodically.
22.4.1 CLEARING/STORAGE OF GOODS OF UNPAID IMPORT BILLS UNDER LC
Steamer arrival or arrival of airfreight parcel should be watched carefully. If
importers are not in a position to pay off immediately, or on arrival of the
steamer/airfreight, the goods should not be allowed to remain in the docks
incurring demurrage and exposed to fire and other hazards.
If goods are not cleared within 60 days from the date of arrival at the port, marine
insurance policy expires. In case of air consignment, the period is 30 days. If
clearance is delayed for any reasons, fresh insurance cover is to be arranged.
If importers are not able to pay the bill, every effort should be made to collect at
least margin and deposit towards payment of import duty. If the parties are not in
a position to pay margin or deposit the duty/clearing charges, the goods should not
be left unprotected. The matter should be immediately reported to the
competent authority and their instructions sought for sending the documents to
the Bank's approved clearing agents for storing in bonded warehouse without
payment of customs duty. While doing so, due notification should be given to the
importer.
Definite plan for payment of the bills, customs duty and all other expenses, etc.
should be obtained from the customer and matter should be reported to Regional
Office giving full report on the limits, outstandings in various accounts and the
programme for repayment of Bank's dues.
Branches will have to use the service of our approved clearing agents in respect of
goods imported under LC which are under pledge to the Bank for overdue PADs
where parties have not been able to clear the goods. Give precise instructions to
the Clearing Agent regarding clearance, storage, transport, insurance etc.
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Write down all the details in Clearing Agent's Register.
Always insist on an acknowledgement of shipping documents forwarded to the
clearing agent, and also ensure regular follow up till receipt of the goods at the
final destination or till the submission of the relative Bonded Warehouse Bills of
Entry.
For clearance work entrusted by the Bank, our approved clearing agents will
naturally look to us for payment of their charges, customs/import duty (if unpaid)
freight, insurance etc. Except in the case of first class customers, our branches
must insist on a suitable deposit by the customer for defraying clearing agents'
expenses particularly, for customs/import duty and freight charges. Under no
circumstances, the R/R or MTR or BL, which represents the title to the goods
should be handed over to the concerned customer without recovery of full charges.
Where the clearing Agents’ bill is not received, the amount of approximate total
charges (which must be ascertained in advance from the Clearing Agent) must be
asked for and kept deposited in the 'Sundry Deposit Creditors Account' until
payment to the concerned Clearing Agent.
All instructions regarding clearance of the goods must be from the Bank to the
Clearing Agents. The concerned customer must be asked to direct his instructions
through us.
The clearing Agents must be asked to submit their bills in time and such bills must
be promptly paid, the customer may, if he chooses, be allowed to verify the
clearing agents' bills, before payment.
For goods that are under lien to us, a statement should be called from each of the
Clearing Agents as of quarter ending March/June/September and December. Such
statement must clearly indicate the location of goods (if stored) or their present
whereabouts, as also an undertaking that the Clearing Agent will not part with the
same without proper instructions from the Bank.
While documents can be forwarded directly by our upcountry branches to the
approved Clearing Agents at ports, assistance of IBD or our branches located at the
port city may be utilised, in case any difficulty is experienced with the Clearing
Agents.
If bonded goods are not taken delivery of within the stipulated time by payment of
duties/charges, the authorities will call upon the Bank to make payment. As the
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bonded goods are primary security for the overdue import bills, matter has to be
referred to Controlling Office for instructions. If it is possible to realise the Banks
advance by sale of bonded goods steps may be taken for payment of
duties/charges, sale of goods etc, after giving due notice to the importer. If
import is under actual user conditions, permission of DFGT is required for sale of
goods by bank. If the chances of recovery after sale of goods are remote, notice of
abandonment has to be given to the Customs Bonded Warehouse and steps as
advised by them are to be taken. If Customs Department call upon the bank to pay
customs duty, it has to be represented that Bank is the innocent possessor of goods
and hence duty is to be waived. It may also be suggested that goods may be
auctioned and surplus, if any, be passed on to us together with auction report and
Bill of Entry to complete necessary exchange control formalities. Recovery
measures to be initiated against the importer in consultation with the Controlling
Office.
22.5. CANCELLATION OF LC DUE TO FRUSTRATION OF CONTRACT
Normally LCs issued by us are irrevocable LCs which contain a firm undertaking on
our part and cannot be cancelled or amended without the consent of the parties to
letter of credit, particularly the beneficiary. If the applicant approaches our branch
for cancellation of the LC, branch has to first give notice to the Beneficiary through
the advising bank about revocation of LC and obtain consent for cancellation.
Authenticated Swift message from the Advising / Confirming Bank to this effect has to
be obtained for cancellation. After obtaining consent of Beneficiary, reimbursement
authority given to the Reimbursing Bank has to be revoked. Only thereafter LC
liability can be reversed from the branch books and margin if any held can be
released. Necessary entries for utilization of LC without Bill to be made in Finacle.
LC commission recovered upfront can't be refunded. Out of pocket expenses incurred
in connection with cancellation are to be recovered, apart from lump sum fee of
Rs.500/- for cancellation of LC.
Any endorsement made on the relative import licence pertaining to the issuance of LC
has to be reversed and value reinstated.
21
22.6. CANCELLATION OF PARTLY UTILISED / UNUTILISED LC
At times the LC remains partly utilised/unutilised. Once such LCs are expired it is
necessary for branches to reverse the LC liability after satisfying that there are no
negotiations. Following steps are to be taken :
Relative nostro a/c. statement is to be verified to satisfy that there are no debits
pertaining to unutilised value of the LC. If debits are made, negotiating bank has
to be contacted for speedy despatch of document. If first set of documents
already despatched are missing, call for the second set. Put the applicant on
notice.
If LC is restricted, call for certificate from the Bank to whom LC is restricted that
there are no negotiations under the LC. Ensure that all negotiated documents are
received in case negotiation has already taken place.
In the case of restricted LC, if Nostro a/c. does not reveal any debits, ask the
applicant to produce documentary evidence from the Beneficiary/his Bankers to
the effect that LC amount is not utilised.
Allow 30 days to elapse from date of expiry. Reverse the LC liability thereafter.
In case applicant requests for immediate reversal of liability, cable / SWIFT
confirmation from reimbursing/advising banks are obtained, thereafter the LC
liability is reversed.
Min fee of Rs.500/- plus actual out of pocket expenses are to be recovered.
22.7. REVIVIAL OF EXPIRED LC
Revival of expired LC is left to the option of the Bank. Applicant has to make a written
request together with supporting documents, such as underlying contract, proforma
invoice etc. Sanction of the Head of the branch is to be obtained. Such revival is to be
done within 3 months from the date of expiry and usual commission is to be recovered.
The revival has to be advised to the Beneficiary through same advising bank, through an
authenticated amendment. Details such as value, revised last date for
shipment/negotiation, etc. are to be indicated. Necessary amendment is to be made in
Finacle.
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22.8. MISSING IMPORT DOCUMENTS
It is possible that import bills despatched by the Negotiating Bank are lost in transit.
Meanwhile Negotiating Bank has already claimed reimbursement from the Reimbursing
Bank and obtained payment. Our Nostro a/c. has been debited. If documents are
despatched in sets, branch has to call for second set. If entire documents are mailed in
one set, contrary to our instructions, we have to seek refund of the amount charged to
our account together with interest. If entire set is mailed in one lot as per our
instructions, negotiating bank has to be called upon to arrange for fresh additional set
of documents together with certificate confirming clean negotiation. Meantime, the
applicant has to be informed of loss of documents in transit, debit to our Nostro
account and his attention is to be drawn to indemnity clause in the LC application. In
case the vessels / aircraft has arrived prior to receipt of documents the steps as stated
below in para 22.9. and 22.10. are to be followed. On receipt of fresh set of
documents, the same is to be scrutinised and presented to applicant for
payment/acceptance.
22.9. MISSING BL GUARANTEE
Often the consignment reaches destination but documents do not. Goods start
incurring demurrages and applicant desires to take delivery of the consignment. To
enable him to do so, missing BL guarantee may have to be issued favouring shipping
lines. Following procedure has to be followed :
i) It has to be satisfied that Transport Document is drawn with Bank as the
consignee and entire set has been mailed to us by the Negotiating Bank.
Documentary evidence to the above effect has to be obtained. Discreet
enquiries are to be made with the Shipping Co. to confirm that the underlying
goods have not be delivered.
ii) A request letter from the Importer together with copy of invoice is to be
obtained for issuance of missing BL guarantee.
iii) Undertaking from the party to take up documents notwithstanding discrepancies
is to be obtained.
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iv) If the documents are on sight basis, 110% cash margin is to be obtained. If
documents are on DA basis Trust Receipt and margin as stipulated is to be
obtained.
v) The format of guarantee is normally given by the shipping lines. The same
should not contain onerous clauses. Contra Liability for Rs.1/- in the case of LC
bills and actual invoice amount in the case of collection bills is to be controlled.
In the case of collection bills, branch should, before issuance of Missing Bill of
Lading Guarantee, ensure that the underlying import is valid and ranks for
outward remittance as per Exchange Control Regulations. Usual guarantee
commission is to be recovered. The guarantee for sight collection bill may be
issued against 110% margin and in case of DA bill undertaking to accept
documents irrespective of discrepancies and margin to be obtained as per
sanction terms.
vi) Appropriate counter indemnity is to be obtained (FE 569) (Ann. No.22(3))
vii) For documents under LC only Rs.500/- is to be levied for issuance of missing BL
guarantee.
viii) Once the original BL is received subsequently, the same is to be surrendered to
the shipping lines against acknowledgement and obtain back the guarantee duly
discharged.
22.10. ISSUANCE OF DELIVERY ORDER IN THE ABSENCE OF AWB
Following is the procedure for issuance of delivery order if consignment has reached
the destination before actual receipt of import documents.
Branch should satisfy that AWB was made out to the order of our bank.
Documentary evidence to the above effect is to be obtained.
Discreet enquiries are to be made to satisfy that the importer has not already
taken delivery of the air consignment.
Importer/Bank should have received cargo arrival notice.
Request letter (together with copy of invoice) is to be obtained from the importer
for issuance of delivery order.
Importer should give written undertaking to take up the documents inspite of
discrepancies, if any.
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110% of the value of invoice is to be deposited in Sundry Deposit account in the
case of sight bills. In the case of usance bills Trust Receipt (FE 578R) (Annexure
22(2)) is to be obtained and margin as stipulated must be obtained.
Delivery order (FE 590) is to be issued after noting details in Delivery Order Issued
Register.
Service Charges of Rs.500/- plus service tax is to be levied.
Branch should monitor receipt of documents which on receipt are to be retired to
the debit of Sundry Deposit account. Balance if any, is to be released to the
importer.
22.11. CO-ACCEPTANCE OF DEFERRED PAYMENT IMPORT BILLS
Branches should not co-accept import bills without prior approval of controlling office.
If credit sanction from Controlling Office is obtained, branches may co-accept the
import bills. Commission should be charged as per service charges chart issued from
time to time.
*********************
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Annexure 22(1)
Letter to negotiating bank informing discrepancies
Telex/Fax Date :
To
Dear Sirs,
Your ref.No……………………………………. dated ……………………..
For …………………………… opened by …………………………………….
Our LC No…………………………………………………………………………..
We refer to the aforesaid documents negotiated by you. On scrutiny, we observe the
following discrepancies:
1.
2.
3.
4.
5.
26
6.
Documents are not acceptable to us on account of discrepancies stated hereinabove and the
same are held by us at your risk and responsibility. Pending your instructions documents are
presented to applicant for acceptance/payment. If discrepancies are waived documents will
be released to the applicant against payment or acceptance without any reference to you.
Thanking you,
Yours faithfully,
M A N A G E R
27
Annexure 22(2)
Trust Receipt Agreement
To: Date:
(Name and address of the Borrower)
Dear Sirs,
We enclose the delivery Order and/or documents specified in the Schedule hereunder
written, relating to goods or produce pledged to us, on the terms that such delivery order
and/or documents, goods and produce to which they relate, and the proceeds of sale are held
by you on trust for us, and that you shall comply with the terms of the Trust Receipt annexed,
which please sign and return to us.
You may take delivery of the produce or goods on condition that you hold them and realise
them for us. In accordance will the terms set out in the Trust Receipt, and pay the proceeds
of all sales to us immediately and specifically as you receive them.
You are to pay to us the sum of Rs........................................ on account of the moneys
for which the documents and goods and produce described in the Schedule are pledged, not
later than ................................. even if the same have not been sold.
SCHEDULE Details of Documents/Delivery Order
Details of produce or goods
Yours faithfully For & On Behalf of Union Bank of India
Branch Manager
28
Stamp as applicable to Agreement
TRUST RECEIPT
To.
Union Bank of India Date :
______________________Branch.
I/We acknowledge receipt of the delivery order and/or documents specified in the Schedule
hereunder written relating to goods or produce pledged to your Bank, which delivery order
and or documents together with the goods or produce to which they relate and the proceeds
of sale, we hold on trust for you.
In consideration of your handing the abovementioned delivery order and/or documents to
me/us I/We jointly and severally irrevocale undertake as follows :
(a) To comply with all the terms and conditions referred to in your letter to us.
(b) To take delivery of the goods and produce to which such deliver order/document
relate (hereinafter for brevity's sake referred to as "the Goods") exclusively for the
purpose of selling them on your behalf to buyers to whom I/We am/are not Indebted
or under any liability. I/We acknowledge that I/We hold the goods as trustees and to
your order at our entire risk and expense.
(c) Pending sale to warehouse the goods, as you may from time to time direct, and to
hand over to you the storage/ware-housing receipts forthwith. You have the right to
enter any Premises, to inspect the goods and take possession at any time.
(d) On sale of all or any of the goods, to remit to you the entire proceeds of sale of any
part payment immediately without any set off or deduction whatsoever and without
intermingiling the same with other moneys, and I/We hereby irrevocably authorise
you to receive from the buyer the purchase money for the goods and in the
meantime I/We hold the same, and all my/our rights against the buyer in trust for
you.
(e) Not to sell or otherwise dispose of any of the goods on credit or on deferred payment
terms or for any non monetary consideration or for less that the current market
29
value without your prior written consent.
(f) At all times to keep the goods insured in your name against all risks including fire
and flood for their full value at our expense and cost and to hold the Policies and the
proceeds on trust for you, and in case of loss or damage to the goods howsoever
caused to pay over to you forthwith all moneys received from the Insurers or
otherwise in respect of such loss or damage and to make up any deficiency.
(g) To pay all freight, warehousing, transportation, insurance premium and other
charges, rent and all other costs of and incidental to the goods and to indemnify you
against the same.
(h) To keep the goods at all times separate from any other goods or produce, whether
belonging to ourselves or to any other person.
(i) To keep you Informed of the whereabouts of the goods at all times, and not to
permit the same to be processed or altered without your prior written consent.
(j) To forward to you copies of all sales invoices for the goods forthwith on the same
being issued, showing the name of the buyers and the total sale price in each case.
(k) To advise you of any change in the condition, quality or quantity or state of the
goods, and to keep the same free from any mortgage, charge, pledge, lien or
other encumbrance.
(I) To return to you all the abovementioned documents and the goods represented
thereby and the pledged goods taken delivery under the delivery order in respect
whereof you have not then received the proceeds immediately upon your first
demand.
You shall have no responsibility whatsoever, for the correctness, validity or sufficiency of
the documents handed to us or for the existence, character, quality, quantity, condition,
packing, value or delivery of the goods.
I/We hereby jointly and severalty agree to indemnify you, you correspondents and agents
on demand against all actions, claims demands, costs, expenses, liabilities of whatever
nature and losses not or hereafter incurred by you or any of them, or by any agent
officer or employee for whom you or they may be answerable for anything done or
omitted to be done in connection with or arising out of you releasing to us the pledged
goods, documents, or otherwise in relation on to the goods.
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This Trust Receipt is of a continuing effect notwithstanding the death, insolvency,
liquidation, incapacity or any change in the constitution of any of us or any settlement of
account or other matter whatsoever, and is in addition to and shall not merge with or
otherwise prejudice or affect your general banker's lien or any contractual or other right
or remedy or any Guarantee, lien, pledge, bill, note mortgage or other security whether
created by deposit of documents or otherwise now or hereafter held by or available to
you, and shall not be in any way prejudiced or affected thereby or by the invalidity
thereof or by you now or hereafter dealing with, exchanging, releasing, varying or
abstaining from perfecting or enforcing any rights, which you may now or here -after
have, or giving time for payment or indulgence or compounding with any other person
liable.
If signed by a firm, this Trust Receipt shall be binding on all persons from time to time
carrying on business in the name of such firm or under the name the business of such
firm may from time to time be continued notwithstanding the retirement or death of any
partner, or the Introduction of any further partner.
THE SCHEDULE ABOVE REFERRED TO
Details of documents/delivery order Details of produce or goods
Signed and Delivered by )
_____________________________)
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Annexure 22(3)
(Counter - Indemnity - Bill of Lading)
UNION BANK OF INDIA
1. WHEREAS the Bill of lading in respect of goods viz_________________________ ______________________________________________________________________________
________________________________________________________
which I/We declare are free from any charge or lien whatsoever) valued at about Rs.
_____________Rupees _____________________________________________)
which have arrived at ____________________________ ex ship__________ _____
has not yet been received by me / us but which is expected to be received within
____________days, I/We request you to join me / us in giving an indemnity to
______________________________________________________________________________
__________ for the delivery of the said goods without production of the relative Bill of
Lading
2. Pending your release from the said indemnity, I/We undertake and agree to receive, hold
and deal with the aforesaid goods and all documents of title thereto (including the Bill of
Lading on arrival) and all proceeds thereof or any insurance thereon on your behalf and as
trustee (s) for you. I/We will also keep the said goods insured to their full value against all
usual risks.
3. In consideration of your joining with me/us in giving the aforesaid indemnity, I/We agree
to Indemnify you against any payment, loss damage, costs charges or expenses which you
may sustain, incur or pay or for which you may become liable, under or in respect of the
Indemnify which you give, and I/We hereby authorise you to debit my / our account with
the amount of any payment which you may make thereunder.
4. I/We further undertake to procure your release from the Indemnity and to return the
Indemnity to you as soon as the Bill of Lading arrives in ____________ and can be obtained
by me/us.
Dated ____________
