Y Ltd. an Indian Company opened irrevocable letter of credit for 6 Million Swedish Kroner in favour of Z Ltd. for import of two pulsed rectifiers. Z Ltd. the Swedish Company shipped only one pulsed rectifier but invoiced

CS Professional · Corporate Funding & Listings in Stock Exchanges · PYQS · June 2019
Y Ltd. an Indian Company opened irrevocable letter of credit for 6 Million Swedish Kroner in favour of Z Ltd. for import of two pulsed rectifiers. Z Ltd. the Swedish Company shipped only one pulsed rectifier but invoiced for two pulsed rectifiers. Bill of Lading also stated that the packing contains two pulsed rectifiers. Based on the documents the Indian Bank remitted the amount to the Banker of Z Ltd. and debited the account of Y Ltd. Y Ltd. wants to hold the Indian Banker responsible for wrong payment against the short shipment. Will Y Ltd. succeed? Give your assessment with reasons.

Answer & Explanation:

Indian Company will not succeed , since the foreign LC is subject to Uniform Customs and Practices for Documentary Credit (UCPDC 600) as per the guidelines of International Chamber of Commerce (ICC). According to which LC is not payment against goods but only payment against documents. As far as the Bank is concerned, the documents as called for in the LC have been presented by the seller and there is no internecine discrepancy among the documents. Because of this he will not be held liable for short shipment of the goods, physically.

Topics: International Finance

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