Can 2nd Beneficiary Present Document Directly To Issing Bank

[hassan]

Dear all
Please note following articles of ucp 600
UCP 600 - Article 6
Availability, Expiry Date and Place for Presentation
a. A credit must state the bank with which it is available or whether it is available with any bank. A credit available with a nominated bank is also available with the issuing bank.

d.
ii. The place of the bank with which the credit is available is the place for presentation. The place for presentation under a credit available with any bank is that of any bank. A place for presentation other than that of the issuing bank is in addition to the place of the issuing bank.[/color

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UCP 600 -Article 38
Transferable Credits

k. Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank.

Considering above 2 Articles(red parts) you suppose the L/C has totally transferred to a second beneficiary by nominated bank and the second benef. Has prepared docs. Complied with transersd L/C.

Q1 is second beneficiary authorized to present documents directly to
issuing bank?

Q2 wether or not the issuing bank can reject this presentation due to
discrepancies such as : the presentation is not from the first
beneficiary , the unit price is smaller than that stated in credit , the
total amount in invoice is less than that stated in the credit.


Thank you

[shahriar]

dear hassan,

excellent pick. could start a good debate. however the answer to your question is relatively simple. here is part of the ICC opinion on this issue.

The questions that you raise in relation to sub-article 38 (k) are linked, in particular, to the garment industry in Bangladesh where it is common for a credit to be issued as transferable and the transferred credit to be established on the basis of a 100% transfer and no substitution of documents.

The rule in sub-article (k) rectifies the situation that regularly occurred under UCP 500 whereby the documents of the second beneficiary by-passed the transferring bank and thereby denied the first beneficiary of an opportunity to substitute their invoice and draft (if any) for those of the second beneficiary. The rule reflects the fact that the majority of transferred credits involve a substitution of documents.

When there is a 100% transfer of the credit amount and no substitution is to occur, the necessity to present the documents of the second beneficiary to the transferring bank is negated. This position prevails to the extent that the transferring bank has not added their confirmation to the transferred credit and, thereby, necessitating that documents are presented to that bank in order for the undertaking of the confirming bank to be fulfilled.

When a transferable credit is issued, the issuing bank will invariably have little or no knowledge as to whether it will be transferred and, if transferred, whether there will be one or more transfers effected and whether that or those transfers will equate to the full amount of the transferable credit. It therefore follows that it will, in most cases, be inappropriate for an issuing bank to modify or exclude sub-article 38 (k) in their transferable credit. The only bank with information concerning the requirements of any transfer(s) is the transferring bank.

When transferring a credit, the transferring bank is responsible for creating the advice of transfer in favour of the second beneficiary. In the advice of transfer, where there is a 100% transfer, the transferring bank may make a modification of the rule to state that the documents are to be sent direct to the issuing bank. In such circumstances, the transferring bank should inform the issuing bank of this action.

Conversely, where an issuing bank is aware that a 100% transfer is to occur, they may elect to modify the rule in sub-article 38 (k) and state that documents are to be sent directly to them. However, the transferable credit would need to specifically state that any transfer thereunder must be for 100% of the value of the credit and that there is to be no substitution of documents. In this way, the transferring bank will be aware of the reason for the modification and will only be able to accept instructions from the first beneficiary that provide for a 100% transfer. The first beneficiary will also be aware that no substitution of documents is to occur.

regd

shahriar

[iLC]

just to add,

ICC position paper of transferable letter of credit says

"When an issuing bank agrees to issue a transferable credit it must appreciate that some of the information appearing on certain documents may not agree with that shown on the invoices, due to the substitution of the second beneficiary's invoices. For instance, the invoice number of the first beneficiary may be different from an invoice number (that of the second beneficiary) which may appear on say, a certificate of origin. If amounts are shown on documents other than the invoice (and draft(s) if any) and these differ from that on the substituted invoice, the issuing bank will still be bound to effect settlement if the documents are otherwise in conformity with the credit terms and conditions. The issue of amounts being shown on documents other than the invoice, is more for the first beneficiary who may not wish the original purchase price to be made known to the applicant. There would be no discrepancy for the reasons outlined above. The negotiating bank would not be required to produce any proof of values that may have appeared in the second beneficiary(ies) invoice(s). (Opinion R.489)

iLC

[nesarul]

Dear all,
another confusion, pls comments,
Does 100% transfer automatically ceases first beneficiary's right to substitute invoice and draft[if any]?
regards
nesar

[iLC]

dear nesarul,

the answer is "NO". even when the Letter of credit is transferred 100%, the first beneficiary may want to substitute the document to hide the second beneficiary though it will be a tough job.

iLC

[nesarul]

DEar ILC,
Thanks for comments.
What financial benefit does first beneficiary get from 100% transfer under the framework of article 38 of UCp 600?
pls comments
nesar

[Md.zakir Hossen]

Dear nesar
In case of 100% transfer there may be an arrangement between 1st and Second beneficiary.Second beneficiary may offer some financial benefit to 1st beneficairy.

[nesarul]

Dear Zakir Vai,
Since one cannot alter the conditions of transferable credit into transferred credit except sub article 38(g), How come you show it in a letter of credit transaction?
.
regards
nesar

[hassan]

Dear Shahriar,
Thank you for yor explanation but I mean and consider a situation that l/c "terms and condotions" is silent about 38 (k) and the transferring bank has not made a modification of the rule to state that the documents are to be sent direct to the issuing bank and also it has not informed the issuing bank of such action.

you suppose in such a situation the issuing bank receives docs. from second benef. and faces with an invoice issued by unmentioned one in l/c and less than l/c amount .

[shahriar]

dear hassan,

sorry as i missed your point. my immediate observation is, the issuing bank should revert to the transferring bank to check whether the LC was transferred to that beneficiary. and also need to check whether the first beneficiary wants to substitute the documents.

regd

shahriar

[Navi]

Dear friends...

Assume that Lc transferred to only one 2.Benef with amount reduced to 90 PCT of the original amount. 2.Benef presented conform docs. to transferring bank. The 1.Benef substituted the invoice but there are discrepancies on the invoice and he failed to correct it on due time. As per UCP 600-38i, transfering bank has the right to present the docs to issuing bank as received from 2.Benef.
* Can applicant take the goods with the docs presented by 2.Benef if 2.Benef issued the invoice to the name of 1.Benef instead of applicant?
* While transferring the LC, can 1.Benef request BL to be issued to his order? or it should be either applicant's or issuing bank's order for the purpose of this article?

[shahriar]

dear navi,

there is already a good discussion on the related topics. my initial comment is;

yes, the applicant can ask for the BL to his order;

the issuing bank will accept the invoice even if it is made out by the second beneficiary to the first beneficiary.

regd

shahriar

[hassan]

Dear Shahriar,
you have written : . . . the issuing bank should revert to the transferring bank to check whether the LC was transferred to that beneficiary. and also need to check whether the first beneficiary wants to substitute the documents.

Q1: does the issuing bank have only 5 banking days after receiving docs for acceptance or rejection of second benef,s docs (and also for corresponding with transefering bank for a/m purpose) ? and if yes,
Q2 : considering the Art. 38 (k) can issuing bank raise discrepancy of direct presentation (i/e presentation to issuing bank i/o transfering bank)?

[iLC]

dear hassan,

good question.
let me try to help u.. hope shahriar wont mind

1. yes; the issuing bank still have only 5 days. lets imagine u received a direct presentation from the second beneficiary under a transferable letter of credit. you have two option. accept it or reject it. accepting wont be a good idea unless you are already informed by the transferring bank about the transfer. so you have to check with the transferring bank. but you have only five days. so the best idea is to issue an refusal advice and at the same time check with the transferring bank. if things are ok, you can accept it later.

2. already answerd

iLC

[shahriar]

thanks iLC

regd

shahriar