Amendment of L/C amount

[Vital B.]

Dear Colleagues,
I have a query concerning amendment of the l/c amount.
We have issued the amendment to the credit containing only the decrease of the l/c amount. Advising bank has acknowledge the amendment, but the beneficiary didn't provide us with it's consent. Than he presented docs for amount not exceeding the amount of the credit after the amendment. If the beneficiary will make one or more presentations that will exceed the amended l/c amount and not exceed the l/c amount before the amendment, would l/c be overdrawn (because the beneficiary has accepted the amendment according to article 10c of UCP) or it will be complying presentation (because the beneficiary has not provide us with it's consent to amendment and make a presentation according to not amended l/c terms). Highly appreciate yr opinions.

[Masoom Hasan]

Hello Dear,

According to sub-article 10 (d) of the UCP 600,

A bank that advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection

It is clear from this sub-article that it will be a standard practice if advising bank gives notice of acceptance or rejection of an amendment of a creidt, but it cannot be imposed as an obligation for the advising bank. Here it is apparent from the query made by Vital B that 'Partial shipment is allowed' and the advising bank has given it's notification of acceptance, since it acknowledged the the amendment. So if after the first presentation of drawings beneficiary make futher presentation which exceeds the value after amendment but doesn't not exceed the value before amentment, I think it could be considered as credit overdrawn and the second presentation or any other subsequent presentation can be considered as non-complying or discrepant.
Thanks.

[ajoy]

To make sure I understand your case, Let me assume some numbers. I will also assume some minor things to keep it simple:

Original LC - 100000
Tolerance : 0 %
( if you assume a tolerance it will get even more complicated)
Amount after Amendment - 800000
( Assuming amendment is accepted by bene)
Partial shipment allowed
No acceptance /rejection explicitly stated by bene.

1st presentation : 79000 ( can be any amount upto 80000)

So has the amendment been accepted or rejected?

Cant say from sure from the documents. Maybe yes maybe no.

Therfore a) If the bene now goes on to submit a 2nd presentation for say 20000 the LC will not be overdrawn and we will have to treat the amendment as accepted.

b) If he has accepted the amendment you will not recive another presentation (so it will still be not overdrawn.)

BTW You could look at the quantity shipped and unit price on the invoice vs the original LC before amendment to get a hint whether the amendment was accepted.


Hasan,

Here it is apparent from the query made by Vital B that 'Partial shipment is allowed' and the advising bank has given it's notification of acceptance, since it acknowledged the the amendment.

I am afraid not beacuse

1) acknowledgement of amendment By bank is not acceptance of amendment
2) an amendment comes into force only if all parties i.e Issuing Bank , Confirming Bank if any, and beneficiary accept it.
Here we dont even have a confirming bank and even if we had one and the confirming bank accepted the amendment the amendment still doesnot come into force unless benefeciary accepts it..

Cheers

[Vital B.]

To make sure I understand your case, Let me assume some numbers. I will also assume some minor things to keep it simple:

Original LC - 100000
Tolerance : 0 %
( if you assume a tolerance it will get even more complicated)
Amount after Amendment - 800000
( Assuming amendment is accepted by bene)
Partial shipment allowed
No acceptance /rejection explicitly stated by bene.

1st presentation : 79000 ( can be any amount upto 80000)

So has the amendment been accepted or rejected?

eers

Thank you very much, ajoy. It's a great ability to make complicated things simple. Your explanation of situation is great.

[shahriar]

Good explanation dear ajoy. Agree with you. The beneficiary can make another presentation. The issuing bank may seek explanation from the advising bank

[nesarul]

DEAR,
QUOTE

Advising bank has acknowledge the amendment, but the beneficiary didn't provide us with it's consent.

WOULD YOU PLS PROVIDE THE EXACT WORDING OF ADVISING BANK ACKNOWLEDGMENT'
REGARDS
NESAR

[ajoy]

I guess the acknowledgement could indeed say that the bene has accepted /rejected the amendment..

Or could simply say the amendment has been accepted or words to taht effect.

Further, generally an advising /confirming bank would not say something like above unless they had a written acceptance /rejection from the bene. So IB and applicant could safely assume that the acceptance /rejection is a done thing.

However, if the bene has not actually given an written acceptance i.e the advising bank has simply goofed up, AB will be liable but the bene will not be I.e the fate of the amendment will still be in bene hands.

Or Am I missing something.

Cheers

Ajoy

[Masoom Hasan]

Dear,

Neasar bhai and Mr. Ajoy I think you both are now turning to my view point. Emphasis added,

Advising bank has acknowledge the amendment.

Ido agreee with Nesar bhai, we need to know the exact wording of the acknowledgement of amendment that the advising bank communicated to the issuing . Actually if the beneficiary did not give it's notification of acceptance to the advising bank, why should advising bank communicate the acknowledgement of the amendment to the issuing bank? However, without knowing the wording of the acknowledgement we better restrain ourselves form coming to an inference.
Thanks.

[ajoy]

Masoom,

I do agree that looking at the actual wording of the amendment is a good idea and you were right to bring it up.

Acknowledging of an amendment simply means acknowledging a message recived from the Issuing bank. At least that is how I intrepreted an acknowledgement. This was a typical practice for mail LCs and amendments. Before swift became the common means of transmission advising banks used to acknowledge the LCs and following amendments. The practice I belive is rarely required in these days of swift.

Do note that advsiing bank is not a party to the LC and hence cannot accept an amendment.

In other words unless a issuing bank recieves a message from the advising bank clearly stating that the bene has accepted a particular amendment the acknowledgemnet itself is meaningless.

IN this case are we talking of a conventional acknowledgement or is there an acceptance as above... I doubt if it is not a mere acknowledgent . Beacuse if Issuing bank has recieved an acceptance ( not an acknowledgement ) then there should be no issue and no debate in the first place. Issuing bank can sleep well and Vital would not have any reason to doubt that teh amendment was not already accepted.

Now, let me give this a twist :

Let us say in this case Issuing bank has indeed recieved an acceptance message for the amendment from the advising bank.

Later a second presentation is recieved from the bene just as in our example. On investigation turns out Advising bank made a mistake. They have actually never recieved an accepteance of the amendment from the bene under this LC.

What is the status of the amendment and the LC now ? Is the LC overdrawn?

Assuming the numbers as in my example above I would say no. The advsing bank is liable to the issuiing bank (and in a soup) but the LC is not overdrawn I.e the bene is going to get paid under the LC.

Cheers

[narisa]

Dear all ,
Let's me give some of my opinion in this case.as amend of this case is non documentary condition and may be make confusion,so i.b.should asked for document from bene to confirm for acceptance or reject of this amend attached with other docs at time of presentation.

other comments appreciated.

[Masoom Hasan]

Dear Ajoy,
Well if it is evident from the wording of the acknowledgement of amendment that there is no indication of acceptance of the amendment by the beneficiary then I completely agree with your opinion.
Thanks.