Uncategorized UNDERDRAWN? By Mr Old Man Posted on March 16, 2014 5 min read 9 0 6,497 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION Hi, Please find below the case related to LC amount underdrawn: LC extracts: LC amount USD 45,250.00 Partial shipment is allowed. LC doesn’t states about the tolerance in quantity and amount. Description of goods: 1000 Leather hand bags made out of sheep leather with following colour: Black: 250 pcs – Unit price: USD 40 per pc Brown: 250 pcs Unit price: USD 45 per pc Tan: 250 pcs – Unit price: USD 47 per pc Aqua bluse: 250 pcs – Unit price: USD 49 per pc The commercial invoice evidences full shipment of goods as per field 45A and evidences Total amount USD 45,200.00, Less deposit 20% USD 9050.00 and mentioned as net amount payable as USD 36,200.00. Please note the draft is also drawn for the amount USD 36,200.00. Nowhere in the LC evidences discount or Less deposit will be allowed. The issuing bank rejected the documents stating that LC amount is underdrawn. But nominated bank contested the refusal stating that it complies according the ISBP para C7 which states: An invoice may indicate a deduction covering advance payment, discount, etc., that is not stated in the credit. Please comments your views whether the issuing bank is correct in rejecting the documents citing the discrepancy LC amount is overdrawn. Regards Vijay ——- ANSWER Dear Vijay, Last week I answered a question similar to yours. 1) Is it a discrepancy if the invoice indicates a deduction covering advance payment, discount etc. that is not stated in the LC? I agree with the nominated bank’s view that there is no discrepancy as per paragraph C7 ISBP 745, which says an invoice indicate a deduction covering advance payment, discount, etc., that is not stated in the LC The deduction in your case is a form of discount which could be up to any amount. There’s no discrepancy. 2) Is the discrepancy “underdrawn/short drawn” raised by the issuing bank valid? On DCPro Discussion Forum there have been at least two discussions on this topic, and of course there have been divided opinions on the issue. Some opine that as the invoice showing a deduction is acceptable, the amount claimed less than the amount permitted by the LC is acceptable. There is no discrepancy (short drawn), whereas some others say it is a discrepancy (underdrawn or short drawn). I am on the side of those who say that there is no discrepancy. Underdrawn or short drawn in this specific case is acceptable. If full shipment is made and full amount of goods shipped is indicated, why does the issuing bank/applicant refuse to pay just because the beneficiary claims for the amount less than that permitted by the LC. Just ask yourself: If you were the applicant, would you like to pay full amount or pay less than full amount? Perhaps, you know the answer already. Kind regards, Mr. Old Man
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?