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Dear all Friends,

"Credit must not be available by draft drawn on Applicant" Will you please elaborate exact background or explaination for reason?.

Thanking you
Pradip Bhavsar

you need to understand the basic use of draft. a draft is issued by the drawer on the drawee to demand a specific amount and when the drawee accept the draft by signing on the back of the draft, it becomes legal bindings. now if a letter of credit is available acceptance, draft drawn on the applicant, then theoretically honor (the credit) would require the applicant to accept the draft. but that violates the basic principles of irrevocability. the applicant is not a part of the credit transaction.

while you have made reference to draft, the same principal applies to any document that requires signature of the applicant. it is again not entirely correct that a credit can not ask for a draft drawn on the applicant. a credit can ask for draft drawn on the applicant but only as a document. it can not be used for obtaining acceptance from the applicant

In other words;

All drafts are to be drawn by "the beneficiary" as stated in ISBP681 Art. 53
While, if a draft is drawn on "the applicant" then it would be required to be accepted by the applicant, which conflicts with the issuing bank irrivocable undertaking in the credit.

However, ISBP681 Art. 54 clarifies that;

A credit may be issued requiring a draft drawn on the applicant as one of the required documents, (i.e outside the LC irrivocability nature), but must not be issued available by drafts drawn on the applicant.

I hope I have made things clear a little,

Dear all Friends,

Thanks for your reply.