Case study on import

Case study on import 

Case –1.

A Letter of credit for USD-1,000,000/- was opened in favour of a supplier of Zurich for import of Raw Cotton. As shipping documents were discrepant negotiating bank sought acceptance from the opener. But Buyer refused to accept discrepant document and opening bank conveyed their non-acceptance to the negotiating bank. As a result local agent of the supplier constrained to arrange to sell the imported goods to another buyer. Accordingly negotiating bank sent shipping documents directly to the banker of the 2nd buyer. Banker of the 2nd buyer then requested opening bank to endorse the relevant B/L in their favour and provide them with all necessary papers including insurance cover note for release of the goods.

Discussions:

Could opening bank comply with the request of 2nd bank?

Case –2.

A letter of credit for USD-175,000/- was opened in favour of a supplier of South Korea for import of capital machinery under Banks project loan scheme. On receipt of shipping documents and scrutiny of the same by the opening bank following discrepancies were detected:

i.      Goods were not inspected by SGS as per terms of the credit.

ii.     Negotiating bank claimed reimbursement for 100% invoice value instead 75% in violation of credit terms.

Discussions:

What courses of action you will take to safe guard Bank’s interest even if importer agrees to accept documents despite stated discrepancies?

Case –3.

A letter of credit for USD-50,000/- was opened for import of machinery and spare parts from India. On receipt of the shipping documents and scrutiny of the same it was observed that documents were negotiated with following discrepancies:-

iii.    SGS certificate contained several unauthenticated alterations by erasing & tampering.

iv.    SGS certificate issued and addressed to the beneficiary instead of issuing it in the standard format.

Discussions:

How will you raise objection to the negotiating bank and project banks interest even if the importer agrees to accept documents after 6 months from the date of negotiation?

Case –4.

A Letter of credit prohibited partial shipment and allowed shipment from any European port. Transfer of the L/C was also restricted. On receipt of shipping documents and scrutiny of the same by the opening bank it was found that shipment effected in three phases on three different dates at three different ports but in the same vessel. Opening bank raised objection to the negotiating bank that partial shipment effected. But negotiating bank confirmed them that they negotiated documents correctly.

Please discuss.

Case –5.

At the request of a new customer bank first opened a letter of credit for USD-100,000/- at 75% margin for import of sugar. Transaction of the L/C ended satisfactorily. There after bank opened second L/C on A/C of them for same amount at 30% margin for import of C.I. sheet. Bank also obtained a credit report of the supplier which indicated that the age of the company was only one and a half year and among four directors three were the citizen of Bangladesh. After receipt of shipping documents bank as usual advised the importer for retirement of the same. But the importer refused to accept documents on the point that shipping mark was not shown in the B/L. After a thorough inspection of the goods by the banks appointed surveyor it was found that goods were not as per specification of L/C and were also of inferior quality. On investigation it also revealed that subject importer had similar 6(Six) disputes with different banks.

Discussions:

Suggest how bank could protect their safety.

Case –6.

At the request of importer bank opened L/C for US$10,000/- for import of white sago seeds of Malaysian origin from Singapore. After one and half months importer approached the bank to request the advising bank to stop shipment of the goods until further instruction which was declined by the bank. Thereafter at the request of importer opening bank effected an amendment to the credit for inspection of the goods before shipment. Advising bank advised the amendment to the beneficiary but beneficiary refused to accept the said amendment and effected shipment as per terms of original credit. Negotiating bank duly negotiated documents. On inspection of the goods at the port of destination it was found that red sago seeds had been shipped instead of white sago seeds. Opening bank, apprehending probable untoward situation, instructed reimbursement bank not to honour claim against subject  credit until further instruction.

Please discuss.

Case –7.

Bank opened a letter of credit for DM3,000/- for import of spare parts from Hamburg. On receipt of shipping documents it was found that shipment effected prior to the date of opening of the credit and documents negotiated under reserve.

Discussions:

How you will settle the transaction.

Case –8.

Bank opened a letter of credit fur US$10,000/- for import of ceramic tiles from Spain. As usual bank received a set of original shipping documents for US$10,000/- which were also duly retired by the importer. After few days of the retirement of the documents bank received another set of original shipping documents for US$10,000/- from the same negotiating bank. On investigation it was found that double shipment effected against the same letter of credit.

Discussions:

i.              Now if the importer desires to accept the documents and how the transaction can be settled.

ii.             If the importer does not accept the documents and the negotiating bank on behalf of supplier requests the opening bank to secure the goods until final disposal. What course of actions bank may take.

Case –9.

Bank opened a letter of credit for US$5,000/- for import of stationery items from Hong Kong at 100% margin. Partial shipment was allowed in the subject L/C. On arrival of the goods importer requested for issuance of shipping guarantee against documents for US$2,500. Bank issued shipping guarantee for release of the goods shipped under partial shipment. On receipt of original documents it was found that no partial shipment was actually effected and documents were negotiated for US$5,000/-.

Discussions:

How you would regularize banks record with relevant bill of entry.

Case –10.

A letter of credit was opened for import of capital machineries from Pakistan under bank finance. At the time of opening of the credit a valued client of the bank accorded an undertaking on behalf of the importer, authorizing bank to adjust their liability by debit to his A/C in case of failure of the importer to retire shipping documents in time. Accordingly after expiry of reasonable period of retirement of shipping documents bank adjusted their liability by debit to the A/C of guarantor, who then claimed for delivery of the documents in his favour since liability adjusted by debiting his A/C. Since opening of the credit importer was not available in his recorded addresses for unknown reason.

Discussions:

How documents can be delivered to the guarantor.

Case –11.

Bank opened on L/C for import of CRC sheet of an Industrial consumer as per their pass book entitlement. Opening bank received the pass book directly from the importer and opened the LC at a fixed margin but margin A/C was not actually credited with required fund. In this connection supplier arranged a bank guarantee in favour of opening bank allowing encashment of the guarantee in case of failure of payment of required margin by the importer within a stipulated period. Pass book of the importer was under custody of another bank and that bank released the pass book directly to the importer at their request for audit purpose of custom authority. Both custodian bank and opening bank were holding huge amount of liabilities against the subject importer. Opening bank had to sue against the importer for violation of commitment in liquidating bank liabilities and other grass irregularities.

Discussions:

Discuss lapses occurred in discharging duty and responsibility by the bank officials.

Case –12.

An L/C was opened at 120 days sight against lien of another Export L/C. Opener released the goods against acceptance. After taking delivery of the goods they alleged shortage of fabrics and rejection of finished Garments for colour scheduling for obvious reason they could not provide the bank with export proceeds and bank could not remit the amount to the negotiating bank on due date. Meanwhile, a case was filed by the importer against the foreign supplier and subsequently a court injunction was issued against payment of the L/C. Negotiating bank discounted the bill and effected payment to the beneficiary.

Discussions:

Discuss position of the opening bank.

Case –13.

At the request of importer bank opened a letter of credit for US$1,000,000/- for import of 2500 MT sugar at 10% margin incorporating therein a clauses for submission of SGS certificate. Credit also allowed a charger party B/L. After few days of opening of the credit bank received a advice from negotiating bank that documents presented with several discrepancies including Late shipment. In usual practice opening bank also informed the importer said discrepancies. Importer agreed to accept the documents on collection basis. Meantime, representative the beneficiary arrived in the country of opening bank with information that carrying vessel with her entire cargo had been waiting at the outer anchorage of the discharged port. Having convinced by that representative importer requested the opening bank for release of the payment and accordingly bank also released the payment.

Later on bank/importer came to know that no such vessel was actually waiting at the outer anchorage of discharged port. Opening bank requested an international surveyor for finding whereabouts of the said vessel who informed them that vessel had already gone for scrapping in Cochin.

Please discuss.

Case –14(a).

 (a)An influential & political person approached the bank for opening an A/C with a view to import cotton yarn to the extent of US$10 million. Immediately after opening the A/C they submitted proposal for opening two L/Cs. One for US$50,000/- and the other for US$9,50,000/- at 10% margin.

In the 1st L/C inspection of goods by SGS was duly incorporated. But subsequently inspection clause was amended to “Inspection by SGS or any International reputed surveyor”. Bank also requested foreign advising bank for adding confirmation to the credit and to restrict negotiation with advising/confirming bank. But suppliers credit report was not obtained. On receipt of shipping documents it was found that negotiation of documents effected freely. Bank subsequently came to know that advising bank did not add their confirmation to the credit and restrict negotiation with themselves. Bank however advised the importer for retirement of the documents. In reply  importer requested bank to release the goods allowing them LIM facility. Bank for obvious reason was constrained to do so. Before release of the goods bank inspected the same with their appointed surveyor and found that goods were not as per specification of L/C and were of very inferior quality.

Case –14(b).

 (b). In second LC. all terms and condition of the credit were same as 1st LC. After 15 days of receipt of shipping documents shipping agent of the vessel on which goods were shipped informed the bank that due to mechanical trouble vessel was not of order on high sea. Thereafter shipping agent sent another B/L to the opening bank indicating that goods had been transferred to another ship. B/L also indicated the right of ship owner to transfer the goods to another ship under compelled circumstances. After few days of that occurrence in a daily news paper of the importing  country it was found that 2nd ship with her entire cargo had sunk in Indian Ocean. Bank claimed compensation with insurance company. But survey report of insurance company revealed that no such vessel sank in Indian Ocean at that period.

Discussions:

Evaluate how bank can safeguard its interest in such circumstances.

Case –15.

At the request of a regular client Bank opened a letter of credit for USD2,000,000/- in favour of a supplier of U.K. for import of Sugar allowing shipment from a country of South America. Thereafter three more L/Cs were opened by three different banks against Indent of same Indentor. Pre-shipment Inspection clause and acceptability of charter party B/L were incorporated in the credit. None of the banks could obtained credit report of the supplier. On receipt of discrepant documents negotiating bank sought acceptance from the opening Bank. But with the consent of Buyer/Importer opening Bank refused to accept discrepant documents and requested negotiating bank to send documents on collection basis. Meantime representative of the beneficiary arrived in the country of opening Bank with information that carrying vessel with her entire cargo had been waiting at the outer anchorage of the discharged port. Having convinced by that representative importers requested opening bank for release of the payment- Later on bank/ Importer came to know that no such vessel was actually waiting at the outer anchorage of discharged port. Opening bank requested an International Surveyor for finding whereabouts of the said vessel who informed them that vessel had already gone for scrapping in Co-Chin.

Discuss the following points:

·         Liability and responsibility of opening bank in releasing payment of the collection bill.

·         Seaworthiness of the vessel/Financial Integrity of the shipping company.

·         Role of Indentor.

·         Legal action.

Case –16.

At the request of a valued client Bank opened a letter of credit for USD75,000/- for import of Machineries from India Incorporating therein a clause that pre-shipment inspection to be made by SGS. Opening bank on receipt of shipping documents from the negotiating bank made thorough scrutiny and found the same in order except SGS certificate. SGS certificate was issued in their office pad instead of issuing it in standard format. Out of curiosity Bank contacted with local SGS office and got it confirmed that no certificate was issued by the SGS of supplier country. Importer also came to know the fact from local SGS office and refused to accept documents.

Discussions:

Discuss position of opening bank & negotiating bank. How could opening bank raise objection to the negotiating bank to protect its interest?

Case –17.

A Back to Back letter of credit for USD-178,000/- was opened in favour of a supplier of South Korea for import of fabrics for export oriented readymade garments industry, containing a clause “shipped on board date bearing the name of vessel and port of shipment must be evidenced by a separate notation on BL and this must be authenticated under stamp and signature by the issuer” . When goods arrived at Chittagong port the importer came to know that goods were defective. However, on receipt of shipping documents and scrutiny of the same by the opening bank following discrepancy was detected:

i.  On Board notation in the B/L not authenticated with stamp and signature by the issuer.

On receipt of this notice of discrepancy the Negotiating Bank claimed that the BL was signed by the issuer and in Korea the carrier do not stamp the on board notation and UCP600 deems a stamp as equivalent to a signature.

Discussions:

Was the quoted discrepancy valid?

Case –18.

A Letter of credit (cash) for $22,048,300.00 ($10,000,000.00 at sight & $12,048,300.00 at 180 days sight) was opened in favour of a supplier of United Kingdom for import of scrap vessel, containing a payment clause “payment will be made upon receipt of Notice of readiness (NOR) from the seller’s agent at Chittagong”. Negotiating Bank forwarded one set of original documents to the opening bank and claimed reimbursement from the Reimbursing bank for $10,000,000.00. On receipt of claim and scrutinizing the shipping documents the Opening Bank intimated the following discrepancy:

·         Notice of Readiness duly accepted by the buyer not submitted with the original documents.

On receipt of notice of refusal the Negotiating Bank informed that the copy NOR was presented with the shipping documents and thus their claim was valid.

Discussions:

Could opening bank comply with the request of negotiating bank?