Negotiating Bank Stating Payment Is On With Recourse Basis

he123 · Post by **he123** » Tue Jul 16, 2013 2:39 pm

LC CONDITIONS:
ISSUING BANK: BNXXX, LONDON
ADVISING BANK: BNXXX, NEW DELHI, INDIA
AVAILABLE WITH BY: BNXXX, NEW DELHI, INDIA
Field 47b sub field 10: Through the tenor of the L/c is 180 days sight negotiating bank will pay up front at sight basis to beneficiary the value of documents provided that L/c conditions of fully complied with. Discounting interest is on account of applicant at libor+ x pbs point
Beneficiary presented documents at negotiating bank: BNXXX NEW DELHI, Negotiating bank confirm documents are clean and fully comply as per article 15.
Beneficiary requested kindly pay as per field no. 47b sub field 10: You had negotiating documents referring to article 12b & 7c. Negotiating bank BNXXX, NEW DELHI paid to beneficiary on next day.
Documents received by issuing bank BNXXX. LONDON ON 02 may 2013 and issuing bank confirmed to negotiating bank(BNXXX, NEW DELHI) on 08 may 13 stating documents are fully complied as per L/c terms and condition along with maturity date.
Question is: Negotiating bank stating this payment is on with recourse basis. Can we have reasons of recourse please? We hope this payment is now without recourse. Kindly advice what recourses can happen?

abrar · Post by **abrar** » Tue Jul 16, 2013 3:43 pm

This appears to be a "UPAS" (Usance Paid At Sight) transaction the subject of which, has been previously discussed on this forum.

Generally, if the nominated bank is not a confirming bank, having negotiated the documents (i.e discounted at sight), recourse would normally be retained by the NB against the beneficiary, in the event of failure of the IB to pay the advising bank at maturity.

The mechanism under this LC is a straightforward permission to the NB to negotiate documents, with the only difference being that the discount interest under this scenario is charged to the issuing bank. In practice, since the interest is to be paid at maturity, the NB would set up a loan in the name of the IB, with principal plus interest to be paid at maturity by the IB. This being the case, my view is that recourse in the event of non-settlement should be exercised by the NB against the IB rather than against the beneficiary in the form of a refund.

he123 · Post by **he123** » Tue Jul 16, 2013 4:02 pm

Dear Sir, Thanks for your comment..it mean beneficiary is safe and paid without recourse.

abrar · Post by **abrar** » Tue Jul 16, 2013 4:57 pm

If I were you , I would not automatically assume this to be the case. I suggest that you put the points which I mentioned in the previous post to the NB, and obtain their confirmation that they will not exercise recourse against you.