How long should issuing bank hold onto discrepant documents?

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How long should issuing bank hold onto discrepant documents?

Postby sean - on Fri Mar 25, 2011 12:19 am

Good day,

We are the issuing bank and have received documents from the negotiating bank.
We checked the documents and found them to be discrepant. This is for LCs that are available by payment (sight).
We sent the advice of refusal and mentioned in the advice that we will hold the documents but will also try and obtain a waiver from the applicant. We also inform them that we are holding documents at their disposal. But most of the time they dont advise us what to do with the documents.
If the applicant refuses to accept the discrepant documents what course of action can the issuing bank take in disposing of the documents?
If we returns the documents to the negotiating bank who will bear the cost? Sending a message to the negotiating bank to tell them to pay our courier costs for returning the documents is also a costly matter for the issuing bank. It becomes a burden to keep on requesting the negotiating bank to advice on what we should do with the documents.
What do other issuing banks do when the applicant refuses to accept the documents (which is his right to do)?
How much time do you give the applicant to accept the discrepant documents?

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hi

Postby nikhil - on Sat Mar 26, 2011 1:59 am

Hi,

If the discrepancies are communicated to the nego bank within 5 days of booking of bill under LC, then you can hold document at nego bank's risk and disposal.

You will return the document once you get applicant's consent for the same. Applicant must confirm on charges, i.e. document returning charges to whose a/c. If applicant confirm's returning charges are to bene's a/c, you can recover the charges at the time of payment of rebooked bill, where also risk involves. So banks levy these charges directly to applicant as a policy decesion.

As a banker we shall discourage attitude of applicant who keeps the document unaccepted for a long time.

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HOLDING DISCRIPANT DOCS?

Postby shruti - India on Sun Mar 27, 2011 6:08 pm

DEAR NIKHIL :)
REFER ART 16 C

iii. a) that the bank is holding the documents pending further instructions from the presenter; or

b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

c) that the bank is returning the documents; or

d) that the bank is acting in accordance with instructions previously received from the presenter.

WE SHOULD NOT HOLD THE DOCS UNLESS INSTRUCTIONS FROM REMITTING BANK
Shrutika :)

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recent legal case

Postby picant - on Tue Mar 29, 2011 11:06 pm

Hi Pals,

I promise to find full documentation on a legal case Fortis Bank vs an Indian Bank, the latter sued Fortis Bank for not having immediately sent back documents after providing a correct refusal message.
I will back soon but naturally if someone has this documentation, I am not jealous.........


Ciao

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Legal case

Postby cristiand969 - Romania on Wed Mar 30, 2011 2:36 pm

picant wrote:Hi Pals,

I promise to find full documentation on a legal case Fortis Bank vs an Indian Bank, the latter sued Fortis Bank for not having immediately sent back documents after providing a correct refusal message.
I will back soon but naturally if someone has this documentation, I am not jealous.........


Ciao


Hi Picant !
I am very curios whether the refusal notice was sent with disposal instructions as /return/ or /notify/ !
If this was /return/ and it has been an unjustified delay in sending back documents then the case may be in favour of Indian bank.
Thanks

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Fortis Bank Stemcore vs IOB

Postby picant - on Wed Mar 30, 2011 10:05 pm

Hi Pals,

I found the case; Issuing bank having correctly rejected the documents, must send them to the presenter with reasonable promptness.
IOB stated something different bu the Court dismissed the claim.
Naturally if the issuing bank stated "notify"or "previnst" it will act accordingly to art 16 UCP600.

Other comments appreciated

Ciao

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Fortis vs Indian O/S Bank

Postby abrar - on Wed Mar 30, 2011 10:11 pm

Thanks to Picant for highlighting the case.

The Court of Appeal held that when an issuing bank gives such notice of rejection, and states that is returning the documents it is under an obligation to return the documents promptly. If it does not, the bank is precluded from claiming that the documents do not comply with the credit and will then be bound to honour the credit notwithstanding the discrepancies.

If anyone is interested, the full transcript is here :

http://www.20essexst.com/sites/default/files/judgments/Fortis%20Bank%20and%20Stemcor%20UK%20Limited%20v%20Indian%20Overseas%20Bank.pdf

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returning the docs

Postby Chak - on Fri Apr 08, 2011 10:26 am

If the issuing bank refuses the docs and says that the docs are at the disposal of the presenter, then the issuing bank should wait for the instructions from the presenter for further instructions regarding the disposal, right.
What Sean is also trying to find out is, If the presenter does not respond regarding the disposal of the documents after receiving the refusal notice, then what is the course of action for the issuing bank.

Chak

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Hold and Return

Postby berry - on Fri Apr 08, 2011 11:10 am

very interesting case indeed. Thanks! however like chak, i would like to know what will happen if the instruction is "hold".

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Documents held

Postby Chak - on Fri Apr 08, 2011 7:03 pm

I think if the LC issuing bank advises the notice of refusal along with the message that the docs are held at the presenting banks risk and responsibility, then the LC opening bank need not worry.
But at the same time I am interested if there is any judgement given by courts regarding this sort of case.

Chak

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HOLD/RETURN Documents

Postby abrar - on Sun Apr 10, 2011 2:42 am

Chak wrote:If the issuing bank refuses the docs and says that the docs are at the disposal of the presenter, then the issuing bank should wait for the instructions from the presenter for further instructions regarding the disposal, right.
What Sean is also trying to find out is, If the presenter does not respond regarding the disposal of the documents after receiving the refusal notice, then what is the course of action for the issuing bank.

Chak


The general position is that sub-article 16 (e) provides for the issuing/nominated bank to return the documents "at any time" provided it has served the notoce of refusal in accordance with sub-art. 16 (c) (iii) (a) or (b). Whilst this may suggest that the bank is allowed to act in contradiction with its earlier advice (for example, that is holding documents at disposal), he better interpretation is that this should be exercised as a last resort option, where for example, it fails to receive disposal instructions from the presenter despite chasers, and subject to the bank giving prior notice of its intention to return documents.

The Fortis Bank + Stemcor vs Indian Overseas Bank (IOB) turned on a different issue. Here, IOB stated that it was returning documents (16 (c) (iii) (c)) but failed to return them within a resonable time. At the same time, Fortis Bank (confirming bank) acting on behalf of the beneficiary ,Stemcor, instructed that the documents not be returned, as Fortis did not agree with the discrepancies, as agreeing to the return of the documents would put them in a weaker position to dispute the discrepancies through the courts. To complicate matters, IOB relied on the refusal to of Fortis to return documents, as justificaion for the delay. However, the courts ruled that since IOB did not do what it said it would originally do, viz return the douments, they were precluded from asserting that the documents were not in order, and therefore must honour.

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How Long

Postby Veerla - on Wed Apr 13, 2011 5:38 pm

In the case of eUCP it's 30 calender days but in the case of UCP the ball is in the court of the 1. beneficiary in d case where we expect a reply, corrected dox 2. issuing bank from where v expect waiver 4 discrepancies.

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