UCP 600 Inco delivery terms used globally

UCP 600 Inco delivery terms used globally

1. LETTER OF CREDIT MECHANISM UCP 600

2. Overview of UCP600 Articles General Provisions and Definitions 1-5 Liabilities and Responsibilities 6-13 Examination of Documents 14-17 Documents 18-28 Miscellaneous 29-33 Disclaimers 34-37 Transferrable Credit & Assignment 38-39 1-5 6-13 14-17 18-28 29-33 34-37 38-39

3. Introduction: Uniform Custom Practices for Documentary Credit otherwise known as UCP 600, is an International Chamber of Commerce (ICC) document providing certain guidelines in respect of payment through Letter of Credit (L/C). ICC was established in 1919. First UCP was introduced in 1933 and has undergone revision for the sixth time. The current UCP 600 has come into effect on July 1, 2007 . It has 39 articles UCP 600

4. UCP 600 Historically evolved practices of documentary credit ICC channelized, codified, standardized all such practices for general acceptability all over the world. Latest brochure UCPDC 600 w.e.f. 1st July 2007 and having 39 articles Uniform Customs and Practice for Documentary Credits

5. ICC made a survey before the UCP 600 was introduced and found out 70% of documents under L/C was rejected by the bank because of the deficiency slips had to be issued by the bank. While revising UCP 500 , this issue has been taken into account.

6. [Article 1] Rules apply to any Documentary Credit, including Standby Letter of Credit The text of credit to indicate expressly that it is subject to these rules. Rules are binding on all parties thereto. Rules may be expressly modified or excluded by the credit.

7. [Article 2] Important Definitions - Credit : A definite undertaking of the issuing bank to honour a complying presentation. Complying presentation : a presentation in accordance with- (i) the terms and conditions of the credit. (ii) the applicable provisions of these rules. (iii) international standard banking practice. Confirming bank : the bank that adds its confirmation to a credit upon issuing bank’s authorization or request. Confirmation : (i) definite undertaking of the confirming bank. (ii) in addition to that of the issuing bank. (iii) undertaking to honour or negotiate a complying presentation.

8. Important Definitions Honour : (i) to pay at sight if credit available by sight payment. (ii) to undertake and to pay on maturity if usance is available. (iii) to accept bill of exchange (draft) drawn by beneficiary if credit available by acceptance in case of Usance. Issuing bank : the bank that issues a credit at the request of the applicant Negotiation : (i) purchase / discount by the bank of drafts and / or documents under a complying presentation. (ii) by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the Bank.

9. [Article 3] -Interpretations Where applicable, words in the singular include the plural and vice versa. No more “(s)” - “Document” instead of “Document(s)” A credit is irrevocable even if no indication to that effect 30 days from shipment date = 30 days after shipment date Shipment date: 1 AUG 2007 Maturity date: 31 AUG 2007 For determining maturity date, the words “from” and “after” exclude the date mentioned For determining a period of shipment, the words “from” and “after” have different meanings – “From” includes the date mentioned – “After” excludes the date mentioned

10. [Article 4] Credits v/s. Contracts Credit is separate from sale or other contracts. Banks not bound by such contracts even if there is reference in credit. Banks undertaking under credit not subject to such contracts [Article 5] Banks deal with documents and not with goods, services or performances. [Article 6] Availability, Expiry Date, Place / Last Date for Presentation / negotiation must be specifically mentioned in the credit Name of the bank with which available or available with any bank. Whether available by Sight payment, Acceptance, Negotiation Credit not to be issued available by a draft drawn on applicant. Presentation must be made before expiry date

11. [Article 7] IB’s undertaking to the nominated bank is independent to its undertaking to the beneficiary. [Article 8] CB must honour complying presentation. CB undertakes reimburse another bank’s complying presentation. [Article 9] AB advises the credit and amendments without any undertaking to honour or negotiate. AB signifies that it has satisfied as to genuineness and authenticity of LC and advises credit/amendment received. Amendments also to be advised through the same Bank. [Article 10] Amendments - Requires agreement of IB,CB and the beneficiary. IB irrevocably bound by its amendments since issued. Amendment must be accepted by the Beneficiary.Partial acceptance NOT allowed.

12. [Article11]-Teletransmitted and Pre-Advised Credits and Amendments Preliminary advice of issuance of a credit or amendment obligates the issuing bank to issue the operative credit or amendment. [Article 12] - Nomination By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank [Article 13]-– Bank to Bank Reimbursement Agreements B to B reimbursement is available / obtained directly by claiming from reimbursing bank.

13. [Article 14] Examination of Documents Transport documents must be presented within 21 calendar days after the date of shipment – but not later than the expiry date. Except invoice, transport documents and insurance other documents as issued will be accepted. Documents may be dated prior to date of credit (but not later than the date of presentation). Addresses of applicant and beneficiary need not be same as in credit but must be within same country as mentioned in address in credit. Address / contact details of consignee or notify party must be same. Banks have a maximum time of five banking days following the day of presentation to examine the documents presented and to determine if presentation is complying

14. [Article 15] Complying Presentation must be honored by NB/CB/IB. Documents to be sent as mentioned in the LC to IB if the documents are honored by the Bank other than IB.

15. [Article 16] Discrepant Documents, Waiver and Notice If Banks (NB, CB, IB) determines that a presentation does not comply, with the terms of LC, it may refuse to honour or negotiate. The applicant may be approached for waiver of the discrepancies. (It does not extend limit of five banking days – Art. 14). Bank refusing to honour or negotiate must give a single notice stating all discrepancies for which refusing. Must Seek disposal instructions from presenter and / or waiving instructions from applicant. May hold documents at risk of presenter OR return the documents . Everything above should be completed Not later than the close of the fifth banking day following the day of presentation. OTHERWISE presentation will be treated as accepted. It can not claim that documents do not constitute a complying presentation.

16. [Article 16] Notice of Refusal: “The issuing bank is holding documents until it receives waiver from applicant and agrees to accept it, or receives further instructions from presenter prior to agreeing to accept the waiver.” Beneficiary Applicant Issuing Bank Notice of Refusal Request for return of documents Waiver Accepts the waiver

17. Important Timelines (UCP 600 14, 15 and 16) Document Examination: – Max. 5 banking days following the day of presentation Complying Presentation: – When an issuing bank determines that a presentation is complying, it must honour Refusal: – Notice of refusal by the close of the fifth banking day following the day of presentation

18. [Article 17] Original Documents and copies At least one original of each document must be presented. If credit calls for copies – either originals or copies permitted. If credit requires documents IN DUPLICATE, IN TWO FOLD, IN TWO COPIES – at least one original and remaining number in copies. [Article 18] Commercial Invoice Must be issued by the beneficiary, made out in the name of the applicant, in the same currency as the credit Need not be signed. Amount may differ but description of the goods, services or performance must correspond with that of credit.

19. [Article 19 to 27] Transport Documents Bill of Lading Full set means 3 original plus 2 N/N copies Must indicate the name of the carrier and be signed, Must indicate that goods have been shipped on board, Must indicate Place of Shipment and Final destination Date of shipment : Date of issuance of B/L – OR - Date of on board, stamp or notation. Air Transport Document Must indicate the name of the carrier and be signed, Must indicate the date of issuance - flight number and date is not date of issuance Must indicate airport of departure and destination, Must indicate that goods have been accepted for carriage. Clean Transport Document No clause/notation declaring defective condition of goods / packaging Word “ clean ” need not appear even if LC requires “clean on board”

20. [Article 28] Insurance Document & Coverage Must be issued and signed by insurance company . Original policies must be presented. Cover notes not acceptable. Date not later than date of shipment unless issued retrospectively. Must indicate AMOUNT OF coverage and be in the same currency as credit. Amount of coverage at least 110% of CIF. Must indicate – risk coverage at least from place of taking charge or shipment and place of discharge or final destination. If credit states type of insurance and additional risks if any to be covered the same should be clearly mentioned in the document.

21. [Article 29] Expiry Date or Last Day for Presentation Expiry date or last day for presentation falls on a day the bank is closed for reasons other than “Force Majeure”, it will be extended to the first following banking day Nominated bank must provide the issuing bank or confirming bank with a statement that presentation was made within the time limits extended Latest date for shipment will not be extended

22. [Article 30] Tolerance in Credit Amount, Quantity and Unit Prices Words “about” or “approximately” used in conjunction with credit amount, quantity or unit prices, are to be construed as allowing a tolerance not to exceed 10% more or 10% less Quantity not in terms of stipulated number of packing units or individual items has a tolerance not to exceed 5% more or 5% less, provided credit amount is not over drawn Even when partial shipment is not allowed, a tolerance not to exceed 5% less than the credit amount is allowed, provided the quantity is shipped in full and that any unit price is not reduced

23. [Article 31] Partial Drawings or Shipments. Both allowed. Latest date is the date of last shipment in such cases [Article 32] Installment Drawings or Shipments Any Instllment not drawn or shipped credit ceases to be a vailable [Article 33] Hours of Presentation - Bank has no obligation to accept presentation beyond banking hours [Article 34] Effectiveness of documents - Bank assumes no liability or responsibility for – accuracy, genuineness, falsification or legal effect of any document [Article 35] Bank not liable or responsible for delay, loss in transit, errors in transmission, of documents sent as per credit. Bank not liable for errors in translation or interpretation of technical terms and may transmit credit terms as it is. [Article 36] Force Majeure - No liability or responsibility of a bank.

24. [Article37] -Disclaimer for Acts of an Instructed Party Issuing bank or advising bank not liable or responsible for instructions not carried by another bank Bank instructing another bank to perform services is liable for that bank’s charges Issuing bank is liable for charges that cannot be collected or deducted from the proceeds Applicant is bound by and liable to indemnify a bank against all obligations and responsibilities imposed by foreign laws and usages L/C or amendment should not stipulate that advising to beneficiary is conditional upon the receipt by advising bank or second advising bank of its charges

25. [Article 38] - Transferable Credits Credit must specifically state it is “transferable”. Bank under no obligation to transfer except to the extent and manner expressly consented . May be transferred in whole or part. May be transferred to more than one beneficiary provided partial drawings / shipments are allowed. Must accurately reflect the T/C of credit (including confirmation if any) However : Any or all of following may be reduced/curtailed . Amount, Unit Price, Expiry date, Period of presentation, Latest shipment date or given period. - Insurance % may be increased. First beneficiary has right to substitute its own invoice and draft.

26. [Article 39] Assignment of Proceeds The fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to which it may be or may become entitled under the credit, in accordance with the provisions of applicable law. This article relates only to the assignment of proceeds and not to the assignment of the right to perform under the credit.

27. Thank you! J Lalitha