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Retirement Of Documents,
Discrepant documents
Nalind Saxena,MoF,CSC
What is Negotiation?
Negotiation is just another way of
receivable financing
Security for advance is guarantee of
opening bank under LC to pay against
specified documents.
This security is available only if credit is
Issued subject to UCP
Made available by negotiation
Made available with a nominated bank
(Restricted Negotiation by that bank only) OR
Made available with any bank (Freely
Negotiation means
the purchase by the nominated bank
drafts (drawn on a bank other than
the nominated bank) and/or
documents under a complying
presentation, by advancing or
agreeing to advance funds to the
beneficiary on or before the banking
day on which reimbursement is due
to the nominated bank.
(Article 2 of UCP 600)
Manufactured clauses
These are clauses incorporated by opening bank to avoid liability at a
later date
On receipt of conforming documents and receipt of
funds under the master credit we promise
On acceptance of drafts by applicant we promise
The credit will become operative on issue of a shipment
authorisation by the applicant or his agent.
All discrepancies are acceptable on payment of a fee.
Requirement of obtaining documents at the importing
country like A certificate from Health / Port/ Customs
authorities that goods are fit as per importing country
standards and permitted

If any LC contains similar clauses we should not
negotiate and seek an amendment
Negotiability of a credit
Opening bank may make the credit
available (field 41a of MT 700)
By Sight payment
By Deferred payment
By Acceptance
By Negotiation
A credit cannot be available with an
issuing bank by negotiation
Caution to be exercised while
negotiating documents against a credit
which is stated to be not available by
There is no harm in advising the credit. Careful
Bank is under no obligation to negotiate, just
because the credit is restricted to it. The matter
is different if it adds its Confirmation while
advising. (Article 12 UCP 600)
Q. While advising a credit received from Finicky
Bank, Milan, the Careful Bank notices that
negotiation under the credit is restricted to it
(Careful Bank). Their past experience with the
Finicky bank has not been good. Would you
suggest Careful Bank to go ahead and advise the
credit ?
Honour Vs Negotiation
Honour means issuing/
confirming bank meeting its
To pay at sight if LC
payable at sight
To incur deferred payment
undertaking and make
payment on due date
To accept a bill of exchange
drawn by the beneficiary
(not on applicant) and pay
at maturity
A confirming bank may
honour or negotiate
For negotiating bank it is an
optional new business
Negotiating bank outlays its
funds generally with
recourse -charges interest
If it is negotiable, funds can
also be paid in advance.
Advancing or agreeing to
advance on or before the
date reimbursement is due
is considered as negotiation
A confirming bank
negotiates without recourse
(Article 2, 8 UCP600)
Negotiate or not -
Is the credit genuine?
Was Swift Msg received and advised by us.
If not verify authenticity - signature etc.
Is it issued subject to UCPDC?
Is the opening/ confirming bank acceptable?
Correspondent bank
Is the credit available by negotiation?
Is our bank nominated bank? Or is it freely
Are the documents in order?
Scrutiny of documents.
Negotiate only if the answer is yes to all the questions
Standard for
Examination of Documents
Banks must examine a presentation to
determine, on the basis of the documents
alone, whether or not the documents appear
on their face to constitute a complying
presentation. (Art 14a)
Complying presentation means a
presentation that is in accordance with the
terms and conditions of the credit, the
applicable provisions of rules (UCP600) and
international standard banking practice.
Banks deal with documents and not with
goods, services or performance to which the
documents may relate. (Art 5)
Standard for Examination of Documents
Documents Alone
Q. Documents are received under a
credit opened by your Bank.
Customer has received substandard
goods from same supplier under
another order. He wants the Bank to
reject the documents. Will the Bank
agree ?
No. Buyer has no role to play once credit is
opened. Bank to decide acceptability or
otherwise on the basis of documents alone,
though the opener may be consulted during
the exercise.
UCP 600 Article 14,16 Decision based on documents alone
5 Banks deal in documents only
A nominated bank acting on its
nomination, a confirming bank, if any, and
the issuing bank shall each have a
maximum of five banking days following
the day of presentation to determine if a
presentation is complying. (Art 14b)

It is still expected that banks will not in all
cases utilise the maximum number of days

When a bank determines the documents
are complying it must honour or negotiate
Standard for Examination of Documents
5 Banking Days
A document presented but not required by the credit
will be disregarded and may be returned to the
presenter.(Art 14g)
If a credit contains a condition without stipulating the
document to indicate compliance with the condition,
banks will deem such condition as not stated and will
disregard it. (Art 14h)
Standard for Examination of Documents
Documents Required, Non-documentary Conditions

46A Documents required:
Commercial invoice, packing list, Full set of clean on board
Bill of Lading made to the order of Punjab National Bank,
PNB House Mumbai Marked notify XYZ & Co., Mumbai, Freight
prepaid, Certificate of origin

Standard for Examination of Documents
Date of issuance
Documents may be dated prior to the issuance date of the
Credit but must not be dated later than its date of presentation
Art 14 i UCP600
Standard for Examination of Documents
Addresses of the beneficiary and the applicant in any document
need not be the same as those stated in the Credit or in any other
stipulated Document, but must be within the same country as the
respective addresses shown in the Credit
Art 14 j UCP 600
Standard for Examination of Documents
When the address and contact details of the applicant
appear as part of the consignee or notify party details in a
transport document, they must be as stated in the Credit
Art 14 j UCP 600
Standard for Examination of Documents
Contact details

Contact details (telefax, telephone, email and the like) stated
as part of the beneficiary's and the applicant's address will be

Art 14 j UCP 600
Standard for Examination of Documents
Other Documents
If a Credit requires presentation of a document other than
these, without stipulating by whom the document is to be
issued or its data content, banks will accept the document as
presented if its content appears to fulfill the function of the
required document and otherwise complies with UCP600.

Examples of how a document would fulfill its function include.
-a Certificate of origin showing the origin of the goods
-an inspection certificate indicating that the goods have
been inspected
Standard for Examination of Documents
Data in a Document
Standard for Examination of Documents
Standard for Examination of Documents
21 Calendar days
Discrepant Documents
Bank can reject documents if discrepant
Decision on the basis of documents alone
Advise rejection to negotiating bank within 5 banking days
Entire list of discrepancies to be advised
Also intimate if documents are retained for applicants
waiver or returned
It is the sole discretion of the issuing bank to approach the
applicant for waiver.
Bank may even reject the documents even if the applicant
is ready to waive the discrepancies
Rejection notice to be sent even if discrepancies have been
noticed by the negotiating bank
(Article 16 UCP 600)
Q. A Credit was issued by you, restricting
negotiation to PNB Hongkong. You had
also authorised the negotiating bank to
claim reimbursement from your Nostro
account with them. You receive a set of
documents under the LC from HSBC
Hongkong requesting for credit to their
account in New York. Will you honour
the claim?

An issuing bank is irrevocably bound to honour
as of the time it issues the credit. An issuing bank's
undertaking to reimburse a nominated bank is
independent of the issuing banks
undertaking to the beneficiary.
(Article 7)
Discrepant Documents
Notice of Refusal
Discrepant Documents
Notice of Refusal
Discrepant Documents
Notice of Refusal
Discrepant Documents
Notice of Refusal
Discrepant Documents
Preclusion rule
Q. You have negotiated documents under a letter of
credit opened by HSBC Singapore, available by
negotiation with your bank. The documents were
forwarded to HSBC Singapore through your regular
courier. The documents were misplaced / lost in
transit by the courier. Despite best efforts the
documents are not traceable. What do you do? Is
HSBC liable to pay you without original documents?
On the basis that the letter of credit stipulated a nominated
bank to negotiate (and that bank duly acted) or that the credit
was freely negotiable, a negotiating bank would be entitled to
receive payment from the issuing bank. A negotiating bank is
protected by the content of Article 35 in the event that
documents are lost in transit. In order that the issuing bank
may carry out a review of the documents to establish
compliance to the terms and conditions of the credit, it may
request that the negotiating bank obtain copies of the
transmitted documents. Delivery order/Shipping guarantee may
be issued for release of goods by Transporter.
Article 35 Disclaimer on Transmission and Translation
Reimbursement Process
Negotiating bank pays beneficiary first and claims
reimbursement from the reimbursing bank.

The Issuing Bank is responsible for
indicating in the Documentary Credit
that Reimbursement Claims are
subject to URR725
In a bank-to-bank reimbursement the
Reimbursing Bank acts on the
instructions and/or under the
authority of the Issuing Bank
Reimbursement Claims
Reimbursement Claim must be in the form of
tele-transmission (SWIFT) unless prohibited
by the Issuing Bank or an original letter.
If tele-transmission is used then no mail
confirmation to be sent. Reimbursing Bank
will not be responsible for duplicate payment
Reimbursing Bank has the right to request
that the Reimbursement Claim must be
Discrepant Documents
Scrutiny of Documents
Nalind Saxena
Documents under Credit
Financial documents Drafts
(ISBP Para 43 to 56)
Transport documents BL, AWB etc
(UCP Articles 19 to 27, ISBP Para 68 to 169)
Insurance documents Certificate/ policy
(UCP Article 28, ISBP Para 170 to 180)
Commercial documents Invoices
(UCP Article 18, ISBP Para 57 to 67)
Miscellaneous documents All other documents
Certificate of origin, Packing list, Quality
certificate etc.
Documents other than invoices, transport and
insurance documents are not defined by UCPDC
Only Certificate of Origin dealt with under ISBP Para
181 to 185
Bill of Lading
-- However named
Bill of Lading
-- Name & Signature
Bill of Lading
-- Shipped on board
Bill of Lading
-- Intended Vessel
Bill of Lading
-- Port of Loading
Bill of Lading
-- Originals
Bill of Lading
-- Terms & Conditions
Bill of Lading
-- Charter Party
Bill of Lading
-- Transhipment
Air Transport Document
-- However named
Air Transport Document
-- Name & Signature
Air Transport Document
-- Date of Shipment
Air Transport Document
-- Flight number & Date
Air Transport Document
-- Airports Indicated
Air Transport Document
-- Original for Shipper/Consignor
Air Transport Document
-- Terms & Conditions
Air Transport Document
-- Transhipment