Buying or selling something carries a certain amount of danger, particularly
if you're unfamiliar with the company you're dealing with. Even if you have
reliable business partners, unexpected events may trigger major disruptions with
severe financial consequences. There are, luckily, ways to and the risk. When it
comes to negotiating payment terms, confidence is key. On the riskier end of the
continuum, trade may be performed on open account terms, where the seller
accepts the risk of not being paid.
A Letter of Credit, or LC, is a less costly payment system that helps foreign
trade and a number of other transactions go more smoothly. Buyers and sellers
can save money by using a letter of credit.
Buyers and sellers may reduce their risk, ensure prompt payment, and be more
secure in the delivery of goods or services with a letter of credit. Learning
about the various forms of letters of credit will help you determine which one
to use and better understand what you're dealing with.
However, working with letters of credit has a number of disadvantages, as they
are not available to anyone and require a number of professional procedures,
making the whole process very difficult and time-consuming. The researcher will
test the reliability, credibility, and validity of using Letters of Credit in
International Transactions in the Research Paper.
The research approach used in this study is doctrinal methodology. There were no
surveys conducted for this study; instead, data was gathered from primary
sources such as acts and laws, as well as secondary sources such as journals,
books, and blogs. The knowledge comes from reliable and legal sources. In
addition, the location where data was collected is specified in the final work.
The study is doctrinal rather than empirical, and it is focused on the
hypothesis given above, which is only an assumption made by the researcher in
his project, and there is no definitive proof of it. As the research progresses,
it will become apparent whether the hypothesis holds true or is debunked. The
citation style used in this project will be Oscola fourth edition, with
footnotes instead of endnotes, and all citation rules will be followed in the
project. The study for this project is divided into the following sections:
Structure of Research Paper
Review Of Literature
- Review of Literature
- Statement of Problem
- Research Questions
- Objectives of the Research
United Nations Documentary In Commodity Trade
- Vladimir Anatole ich's A Letter of Credit as an Instrument to Reduce
Risks and Increase the Quality of Foreign Trade Transactions
This research paper was about the history of international trade and the
role of letters of credit in promoting international trade in various
countries such as Russia, India, and others. It was useful in understanding
the history of letters and then commenting on the current state of affairs.
- Trade Finance Fundamentals International Trade Payment Strategies 
Daniele Giovannucci is the author of this article. This research paper
discussed a variety of payment methods, but the commercial letter of credit
was particularly useful for the research and material, as it improved the
reader's understanding of the letter of credit and its applications.
- Letter of Credit Risk Analysis Using the Principles of "Independence"
and "Strict Compliance" Yan Hao Ling Xiao, Yan Hao Ling Xiao, Yan Hao
This research paper, which was published in the international Journal of
Social Science, discusses in detail the practical aspects of letter of
credit and the risk associated with letter of credit to the exporter and
importer, as well as the other important aspects of letter of credit and
enforcement involved in these processes.
These are the United Nations guidelines for international letter of credit
transactions, which in several ways explore the technicalities involved in
Documentary Credit Law: An Indian Perspective
This is a study in international trade law. Documentary credits are the most
common method of payment for goods in international trade. In India also these
instruments are used both in national and international trade. The law governing
these transactions remains haphazard. This study identifies the deficiencies in
the regulatory framework for documentary credits in India
- Avatar Singh- Contracts and Specific Relief & Pallock&Mulla is a book by
Avatar Singh and Mulla.
These books improve one's understanding of the Indian Contract Act's basic
principles, as well as a brief understanding of letters of credit, as well as
the concepts of bank guarantee and indemnity.
A number of online sources such as websites, articles are being used in the
research that would be cited in bibliography
Statement Of Problem
There are a number of advantages and disadvantages to using letters of credit in
international transactions, which leaves businesses undecided on whether to use
them or not. Additionally, the lack of a specific law on letters of credit poses
The positives of a credit letter clearly outnumber the drawbacks. Despite the
fact that many foreign rules have been developed, developing a single unified
law on documentary credits has proven problematic due to the complexities of
Objectives Of Research
- The researcher will try to answer the following questions in this
- What is the meaning of a letter of credit?
- What are the basic terms for a letter of credit?
- What are the various types of credit letters?
- What are the benefits and drawbacks of using a letter of credit?
- In a foreign transaction, how does a letter of credit work?
- What are laws surrounding letter of credit?
The study's goals are as follows:
Introduction To The Credit Letter
- To read more about letters of credit and their meaning in international
- To weigh the benefits and drawbacks of using a letter of credit
- To compare the benefits and drawbacks of a letter of credit in order to
comment on its reliability.
- To analyses the legal position of letter of credit in various countries
A letter of credit is a paper that assures the seller that the buyer can pay the
seller. It is issued by a bank which assures that the vendor is paid on time and
in full. If the buyer is unable to make such a deposit, the bank pays the whole
or residual balance on the buyer's behalf. A letter of credit is a document that
is given in exchange for a promise of securities or currency.
Banks usually charge a premium, which is typically a portion of the letter of
credit's size/amount. Letters of credit are a secure payment system in
international trade because of reasons such as distance, different laws in each
region, and the lack of personal communication during international trade.
Letters of credit used in financial transactions are governed by the
International Chamber of Commerce's Uniform Customs and Practice for Documentary
Credits. A Letter of Credit, also known as a Documentary Credit, is a commitment
made by a bank on behalf of the buyer (applicant/importer) to pay the seller
(beneficiary/exporter) a certain amount in the negotiated currency if the seller
submits all relevant documentation by a certain date. A Letter of
Credit/Documentary Credit is a widely used device for trade settlements all
around the world.
It is a bond between buyers and sellers that strengthens the buyer's reputation
by inserting his banker's promise to pay, while sellers must ship designated
goods and present shipping documents to banks before receiving payment. Thus, in
foreign trading, where buyers and sellers are located in two separate countries,
or even continents, the letter of credit serves as a useful tool, assuring
sellers of products of payment and buyers of shipping documentation as required
by the credit agreement.
It's a formal promise from an issuing bank to the beneficiary to pay within a
certain time frame in exchange for the presentation of documents that
specifically follow the credit terms. As a result, as long as the exporter
delivers the documentation in full accordance with the loan, the possibility of
nonpayment by the buyer is passed to the issuing bank (and the confirming bank
if the letter of credit is confirmed). It's important to note that with a letter
of credit agreement, the sides are dealing with paperwork, not goods. with the
bank's payment guarantee, as long as the credit terms are met. The importer will
use the letter of credit to ensure that all contractual documentary
specifications are fulfilled by making them provisions of the letter of credit.
Having a brief idea now about what exactly is letter of credit let's look at the
various definition of letter of credit and try to a draw a comprehensive
description of the term.
"An open letter of order, in which one person (usually a merchant or a banker)
asks some other person or persons to advance moneys or offer credit to a third
person named therein, for a certain sum, and agrees to refund the same to the
person advancing the same, or grant bills drawn upon himself, for the same
amount," according to an early period Story. When it is addressed to all
retailers or other people in general, requesting such an advance to a third
party, it is called a general letter of credit; when it is addressed to a
specific person by name, requesting such an advance to a third person, it is
called a special letter of credit."
A documentary letter of credit is described by Hart as follows: "Where the bank
undertakes to accept draughts against documents of title to commodities, with
details of the merchandise in respect of which the bills are to be drawn being
specified, it is a "documentary Credit." "
Davis came up with a revised definition." "A letter in which one person (usually
a merchant or banker) guarantees another person (who is either identified in the
letter, or to whom the letter is supposed to be shown and who is" he describes
"A letter of credit is in essence an obligation by a banker to follow draughts
drawn under the credit by the credit beneficiary in compliance with the terms
laid down therein," according to Halsbury's Laws of England.
" Letters of credit is an engagement by a bank or other individual made at the
behest of a client that the lender will honor draughts or other requests for
payment upon complying with the terms stated in the credit," according to
Black's Law Dictionary.
In, the court attempted to define a letter of credit."
"A typical letter of credit transaction consists of three separate and
independent relationships: an underlying sale of goods contract between the
buyer and the seller, an agreement between a bank and its customer (buyer) in
which the bank agrees to issue a letter of credit, and the bank's subsequent
commitment to pay the beneficiary (seller) if such documents presented to the
bank are presented. Importantly, the bank's reimbursement duty to the recipient
is principal, direct, and unaffected by any claims arising from the underlying
selling of goods transaction."
Let's take a look at the stakeholders interested with a letter of credit and get
a better picture of the idea.
Parties Involved In International Trade/Credit Transactions/Letter Of Credit
Types Of Credit Letters
- The buyers/importers or the claimant – whose LC is opened on their
- The LC beneficiary or the sellers/exporters,
- The LC is established by the opening bank (buyers bank).
- The advising bank (the bank in the seller's country), which serves as
the issuing bank's agent and authenticates the LC,
- The confirming bank is the bank that agrees to pay on behalf of the
- The bank that is negotiating (sellers bank or bank nominated by the
- The negotiation or verifying bank is reimbursed by the reimbursing bank.
It's possible that the advising, verifying, and bargaining banks are all the
- Letter of Credit for Commercial Transactions
A commercial letter of credit, also known as a documentary credit or an
import/export letter of credit, is a regular letter of credit that is widely
used in foreign trade. When any of the terms of the deal have been reached,
a bank serves as an impartial third party to release assets.
- Letter of Credit on Standby Transactions
This form of letter of credit is unique in that it guarantees payment if
anything goes wrong. A standby letter of credit, rather than facilitating a
contract, compensates when something goes wrong. Standby letters of credit
are identical to commercial letters of credit except that these are only
payable if the payee (or "beneficiary") may show that they did not get what
was promised in a contract. Standby letters of credit are a type of policy
that guarantees you'll be billed and that services will be completed
- Letters of Credit, Confirmed (and Unconfirmed)
When a letter of credit is confirmed, payment is guaranteed by another bank
(presumably one that the recipient trusts). Exporters may be wary of a bank
that offers a letter of credit on a buyer's behalf. If the exporter is
unfamiliar with the bank, for example, the seller will be skeptical that the
payment will ever come. As a result, the exporter could request that the
letter be confirmed by a bank in their home country. If the issuing bank
fails to pay, and the exporter meets all of the letter of credit's
conditions, the verifying bank must pay the exporter.
- Letters of Credit Followed by Letters of Credit
Intermediaries can bind buyers and sellers using back-to-back letters of
credit. This convoluted tactic employs two letters of credit to ensure that
each side is paying separately: the customer pays the intermediary, and the
intermediary pays the seller. A "master" letter of credit may be used by the
final buyer and the broker, with the intermediary and supplier using a
letter of credit depending on the master letter.
- Revolving Letters of Credit
They are a type of credit that can be used again and again. For several
payments, a revolving letter of credit is helpful. If a buyer and seller
anticipate doing business again, they may choose not to obtain a new letter
of credit for each purchase (or for every step in a series of transactions).
This form of letter of credit requires companies to use a single letter of
credit for many loans before it expires, which may be three years or less.
- Letter of Credit on Sight
Payment is made under a sight letter of credit as soon as the beneficiary
provides the relevant bank with suitable documentation. The bank has several
days to review the records and ensure that they comply with the letter of
credit's conditions. The bank must pay automatically if the papers are in
- Letter of Credit with Deferred Payment
Pay does not occur directly until the certificates are approved for this
kind of letter of credit. Before the purchaser collects money, a certain
amount of time must pass. A deferred payment letter of credit is obviously a
better option for buyers than for sellers, since it gives the buyer enough
time to detect a flaw in the seller's behavior. Word or usance letters of
credit are other names for these letters.
- Letter of Credit with a Red Clause
A red clause allows the recipient to get cash right away. The buyer consents
to the issuance of an unsecured loan as part of the letter of credit, which
functions as an advance payment. The money will then be used by the vendor
or beneficiary to purchase supplies, produce merchandise or complete jobs,
and send goods to the buyer.
- Letter of Credit (Irrevocable)
A letter of credit that is irrevocable cannot be modified without the
consent of all parties involved. Since revocable letters of credit do not
have the protection that most beneficiaries need, almost all letters of
credit are now irrevocable.
The concept of an irrevocable credit was established in 1951 by Article 5 of
the U.C. P. "Irrevocable credits are a definite undertaking by an issuing
bank and constitute the engagement of that bank to the beneficiary or, as the
case may be, to the beneficiary and bona fide holders of draughts drawn there
under that the provisions for payment, acceptance, or negotiations included in
the credits will be duly fulfilled provided that the documents or, as the case
Letter Of Credit Application/Process
Now its talk of about steps in letter of credit transactions
Beneficiary's Presentation of Documents
- Sales Agreement
The purchase contract is a written arrangement between the buyer and seller
that lays down the terms of the deal that both sides have agreed to. A
summary of the items, the quantity, the unit price, the terms of delivery,
the time allowed for shipping and display of records, the currency, and the
mode of payment should all be included in the contract.
- Agreement & Application
When filled out and signed, the bank's letter of credit application and
arrangement forms form a loan and repayment deal between the issuing bank
and the consumer. That is also the issuing bank's guidance to the customer.
The deal, which usually takes the form of a permission to debit the
customer's account, is a promise by the customer to repay the issuing bank
for drawings paid in accordance with the terms of the letter of credit.
- The Letter of Credit is issued
The issuing bank prepares the letter of credit and sends it to the advising
bank as stated in the application (a branch or correspondent of the issuing
bank). According to their customer's orders, the issuing bank instructs the
advising bank whether or not to include its validation.
- Advisory Bank
The advising bank sends the letter of credit to the beneficiary (seller)
thus claiming that it has no promise. However, if the advising bank is
approached to validate the letter of credit and accepts, it will have a
provision promising to honor the beneficiary's draughts if the papers show
that any of the letter of credit's terms and conditions have been met.
- Goods transportation
When the beneficiary receives the letter of credit, he or she can closely
review it to ensure that any of the terms and conditions will be met. If
this is not practicable, the recipient should insist that the claimant
arrange for a letter of credit extension. The beneficiary will be able to
assemble and transport the goods until he or she is fully fulfilled.
The beneficiary creates an invoice in the appropriate number of copies, with the
goods definition exactly as specified in the letter of credit. The beneficiary
obtains the bill of lading and/or other transportation documents from the
courier, as well as all other documents required by the letter of credit, and
prepares and/or obtains them. These are added to the drafted and addressed to
the advising/confirming/negotiating bank, drawn on the bank indicated and for
the period specified in the letter of credit.
Documents to be sent to the Issuing Bank
The counselling, confirming, and negotiating bank compares the seller's papers
to the letter of credit. If the documents follow the letter of credit's
conditions, the receiving bank may deliver them to the authorizing bank, who
will demand repayment and compensate the seller. The issuing bank will also
search the documentation for conformity before delivering them to the borrower,
either against payment or as an agreement to pay on maturity.
Benefits Of A Credit Letter
The Disadvantages Of Letter Of Credit
- Expanding Your Company Internationally in a Safe Way
A letter of credit allows trading partners to do business with undisclosed
parties or in new business relationships. It assists them in rapidly
extending their company into new geographies.
- Exceptionally adaptable
A letter of credit may be tailored to your specific needs. All trade parties
should have terms and conditions that fit their needs and come up with a
joint list of clauses. It can also be customized from one exchange to the
next if the trading parties are the same.
- Money is given to the seller if the terms are met.
A letter of credit establishes the issuing bank's independence from the
commitments of the trading partners, as well as any conflicts that might
arise as a result of those obligations. The bank just has to verify if the
beneficiary's papers meet the letter of credit's terms and conditions before
paying the maximum sum.
- Buyers may use it as a credit certificate.
The creditworthiness of the importer or consumer is transferred to the
issuing bank by a letter of credit. If an importer is backed by a
well-established and larger entity, such as a bank, he can conduct many
transactions at once.
- There is no credit risk for the seller.
In the event that the retailer or importer goes bankrupt, a letter of credit
protects the seller or exporter. Since the importer's creditworthiness has
been passed to the issuing bank, it is the bank's responsibility to pay the
amount specified in the letter of credit. As a result, a letter of credit
protects the exporter against the liability of the importer's company.
- For creditworthy parties, it is simple to implement.
A letter of credit may be written in a matter of minutes. The seller or
exporter must present evidence of commodity type and quantity, as well as
shipping certificates, to validate his argument that the items have been
delivered, according to the original terms and conditions. The advising bank
would check the paperwork and process the payment in full.
- In disputed transactions, payment is guaranteed.
In the event of a disagreement between trade parties, the exporter has the
option of withdrawing the funds as agreed in the letter of credit and
resolving the issue later in arbitration. The courts characterize the
beneficiary's entitlement to the whole sum as "pay now, litigate later."
- Payments made on time result in better cash flow planning.
A letter of credit ensures that the volume and timing of an exporter's cash
flows are both predictable. He can prepare ahead of time for his funding
needs, lowering his risk.
- Sellers will get pre-shipment financing.
A letter of credit may be used to provide pre-shipment finance for the
exporter. This aids him in filling any funding holes that might exist.
- Bank Fee (additional cost)
The cost of doing business is increased by using a letter of credit. Banks
charge a premium for this service, which will rise dramatically if the
parties wish to add any extra functionality
- Formalities that take up a lot of time
In a letter of credit, the necessary paperwork and formalities can be more.
This could increase the cost of doing business.
- Misuse Possibility - Fraud Risk
A letter of credit has complicated laws, and certain well-known buyers or
sellers can take advantage of them. A letter of credit exposes the importer
to a significant chance of theft. The bank would pay the exporter based on
the shipping records rather than the products' real condition. If the
standard does not match what was settled upon, a dispute will occur.
- Currency hazard
A letter of credit is therefore subject to currency risk. In the letter of
credit, there would be an agreed-upon currency. At least one of the parties
would be using a different currency, putting them at risk from currency
fluctuations. It may also be advantageous.
- Time Is Running Out
A letter of credit has an expiration date, so the exporter has a certain
amount of time to supply the goods by whatever means necessary. This haste
will also result in a disaster.
- Issuing Bank Risk of Default
The creditworthiness of the importer is transferred to the issuing bank
through a letter of credit. So, even though the issuing bank defaults, the
exporter still faces a payment risk. Though the exporter can stop it if the
advising bank promises payment, the cost of the letter of credit will rise
as a result.
Documentary credits are said to have been invented in association with the
exchange in commodities in the Middle Ages." However, it is commonly thought to
have originated only in the nineteenth century. It wasn't commonly used until
after World War I." Letters of credit are known to have been used in Renaissance
Europe, Imperial Rome, ancient Greece, Phoenicia, and even early Egypt." They
were first used in foreign trading to minimize the possibility of expanding
credit to uncertain customers. They developed as a mercantile specialization
distinct from common law contract principles, according to Richard Schaffer.
The letter of credit was first used to provide currency to an individual in
another country, equivalent to the bill of exchange, which eliminated the need
to bring money for trade. They were also used by Popes, Princes, and other
rulers seeking advancements for their servants in their early forms. To explain
where the new documentary credit came from, one must first understand the
conventional letter of credit. The below are the main characteristics of a
typical letter of credit:
In the United States of America, there has been a lot of change. Perhaps the
United States of America is the only country where a statute regulating letters
of credit has reached the legislative level. The United States' banks started a
more serious effort to establish letter of credit lending in the 1920s. Aside
from that, American courts have a heavy propensity to regard documentary credits
as mercantile instruments.
When a general usage has been judicially ascertained and developed, it becomes a
part of the law merchant, which courts of justice are obliged to know and
understand," wrote Lord Campbell. The American Law Institute and the Conference
of Commissions on Uniform State Laws collaborated on the Uniform Commercial
Code, which governs letters of credit. Letters of credit are dealt with in
Article 5 of the code.
It goes over some of the fundamentals of letters of credit. It gives power to
vary the terms of an arrangement by excluding statutory terms notwithstanding
statutory enactment. States started to implement the U.C.C. in the late 1950s
and early 1960s, with the purpose of resolving state jurisdictional gaps.
Article 5 was based on a small body of current legislation covering letters of
credit at the time, and it made little effort to build on it. In 1995, the
United Nations Charter's Article 5 was revised.
The U.C.C.'s amended Article 5 shows that the U.C.P. is the basis for much of
the formal specifications and descriptions of letters of credit. As a result,
the U.C.C. recognized the need for instrumental uniformity and replied by
aligning the Article 5 rules with existing custom and procedure, resulting in
sound governance requirements for letters of credit transactions. It has made a
significant contribution to the establishment of the legislation regulating
letters of credit in other nations.
The laws of the Chamber of Commerce are usually observed and recognized by
courts in most countries. The Standardized Customs and Practice for Documentary
Credits establishes a series of international rules that commercial banks must
adhere to in their letters. These regulations are not the product of
policymakers' efforts. They are the work of private bankers who gathered under
the auspices of the International Chamber of Commerce's Commission on Banking
Technique and Procedure to draught the guidelines and have practice-based
interpretations of their purpose. Although the U.C.P. is not legally a statute,
it is commonly used by courts in the countries to resolve letter of credit
In India, there is no specific law regulating documentary credit. Apart from the
laws developed by associations of traders and trading practices, apply common
law contract principles, special rules of indemnity and suretyship
documentary credit case shows that courts only intervene and issue temporary
injunctions under extraordinary cases. The Contract Act of 1872 was used to
decide the majority of the proceedings that appeared before the courts. The
rights of the parties under the instrument are determined by the courts based on
the specific provisions of the arrangement they have entered into. the words in
Texaco v. State Bank of India
The terms of the guarantee were big in Texaco v. State Bank of India. On
appeal, the bank agreed to reimburse the beneficiary. It was also decided that
the beneficiary's decision on the banks' guarantee liabilities would be
definitive and binding. The Calcutta High Court declined to issue an injunction
preventing the bank from paying the beneficiary.
The beneficiary's enforceability is determined by the terms of the bank
guarantee, according to the court. The guarantor bank cannot be held liable for
failing to meet its commitments under the guarantee. The priority granted by
Indian courts to guarantee terms can be seen in a decision by the Delhi High
The value granted by Indian courts to guarantee terms can also be seen in a
decision issued by the Delhi High Court. On the grounds of non-compliance with
the tamis of guarantee, the court declined to prevent the bank from making
payment to the recipient. In the Union Bank of India, her bank was required to
make the deposit until the beneficiary invoked the guarantee and made a claim.
The Kerala High Court took a similar stance when the only prerequisite for
invoking assurance was a petition from the government.
When the requirement for invoking assurance was just a claim from the
beneficiary, the Kerala High Court took a similar stance. a reason to prohibit
the recipient from relying on the guarantee. There was a peculiar word. bank
guarantee that the guarantee could be invoked only upon the violation of the
particular term, according to Hindustan Construction Co. Ltd v. State of
. It was decided that invoking a bank guarantee had to be done in
accordance with the guarantee's terms, or else the invocation would be invalid
The Supreme Court examined the application of the merchants' code of conduct in
Federal Bank Ltd v. Engineering Ltd
. The court took note of this.
When struggling with letters of credit or bank guarantees, Indian courts have
attempted to incorporate the principle of equity. In Harris/ 'lad &Co Ltd v.
Sudarshan Steel, the High Court of Delhi noted that, while the law generally
states that liability arising out of unilateral commercial credit contracts,
such as letters of credit, bank guarantees, and performance bonds, is absolute,
the parties' intention as gleaned from a reasonable construction of the language
of the particular contract is not. In dealing with documentary credit transfers,
Indian courts often observe the mercantile codes of procedure, which are widely
For egg, in Tara pore & Co. v. Tractors
Export Moscow, the Supreme
Court affirmed the value of the International Chamber of Commerce's Uniform
Customs and Practice for Documentary Credits. In United Commercial the question
of the applicability of U.C.P. was posed again in a disagreement over the
banker's responsibility arising out of a letter of credit deal. "Banker's
commercial credits are virtually without question made subject to the
specification named the Uniform Commercial Credit Code,
the count noted.
Customs and Practices for Documentary Credits,' which states that the General
Provisions and Definitions, as well as the Articles that accompany, "apply on
all documentary credit and are binding upon all parties thereto unless expressly
The Supreme Court examined the application of the merchants' code of conduct The
UCP would not apply in the absence of incorporation, according to the court.
However, it can be seen as part of mercantile customs and traditions. The
majority of them are considered common law. In terms of legal standards in
documentary credits, India does not tolerate any debate or uncertainty. The
courts will not intervene.
The courts would not intervene in the application of these devices. They depend
on precedents from other countries that create broader propositions. the Supreme
Court declined to use the broader concept of fraud exemption in India. In this
case, an injunction was granted against the execution of a bank guarantee.
In India, the Reserve Bank of India also oversees letter of credit transactions.
It issues circulars to regulate these transactions from time to time. Banks are
allowed to conduct "any kind of letters of credit, warranties, and indemnity
business" under the Banking Regulation Act of 1949. Banks are required to comply
with Reserve Bank guidelines.
Banks should limit themselves to the issuance of letters of credit, according to
Reserve Bank guidance, and exercise due caution in honoring these instruments.
principles of the United Conservative Party (UCP). Apart from that, the Foreign
Exchange Dealers Association of India, a voluntary trade association, has
advised its member banks that all letters of credit opened by them with effect
from January 15, 1994 should have the following clause: Unless otherwise
expressly specified, this Documentary Credit is subject to the Uniform Customs
and Practice for Documentary Credits (1993 Revision) International
In India, the revamped U.C.P.600 7 is yet to be introduced. It is important to
take into account the developments that have occurred on a global scale.
After the research we find that the pros of letter of credit are far more than
its cons also there are some universal legislations that have been framed for
letter of credit but we find there is no specific legislations in countries they
follow the general international norm and they are also guided by foreign
precedents. Hence the hypothesis assumed in the beginning of the research stands
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- A. G. Davis, The Law Relating to Commercial Letters of Credit, Sir Isaac
Pitman & Sons Ltd., London (1963), p. I.
- Herbert L. Ha1t, Law of Banking, Stevens & Sons Ltd., London (1931)
- ibid (n.6)
- Uniform Custom Practices Article 5,1951
- AIR 1979 Cal 44, (1981) 1 Comply 356 Cal
- AIR 1963 Pat 254
- 2001 1 SCC 663 : AIR 2000 SC
- 970 AIR 1168, 1969 SCR (2) 699