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SMEToolKit: NON-PAYMENT OF LC DUES BY OPENING BANK

Query Resolution

24th November, 2010

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 Contents

Query Summary ........................................................................................................................................ 3

Resolution ................................................................................................................................................. 3
About Us ................................................................................................................................................... 4

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Query Summary

Client Name: Oripol Industries Limited Client Delivery Manager: 91-02-4

Query Date: 17/11/2010 Query Type: Free, SMEToolkit India

Business Result Area: Operational Excellence SLA*: Not Applicable

*SLA (Service Level Assurance) is only applicable for our premium members

Query Description:
“The opening bank received all export documents as per terms of irrevocable sight LC without
discrepancy; but not making the payment after even 30 days of receipt.

What are the ways and means available to the exporter for taking legal action against the
opening bank?”

Resolution
Summarizing the above query, the opening bank which is the issuing bank here has provided a
letter of credit (LoC) on behalf of the importer in favor of the client. Once the letter of credit is
opened by the issuing bank, the advising bank (who has a prior arrangement with the opening
bank) would have informed the exporter (client) that a letter of credit has been opened in his
favor and would have also informed him of the terms & conditions of LoC.

If the letter of credit is an “Unconfirmed LoC”, then the issuing bank (opening bank) is
responsible for payment to the exporter through the advising bank. In case the letter of credit is
“Confirmed LoC”, the advising bank upon the submission of necessary documents will make the
payment to the exporter without waiting for any confirmation from the issuing bank.

In the present case, we are assuming that the letter of credit is “Unconfirmed LoC” as the
payment is being withheld by the Issuing bank. If that is not the case, and if the letter of credit
is a “Confirmed LoC”, then it is the responsibility of the advising bank to make the payment. If
this bank does not make the payment upon submission of all the necessary documents, a
complaint can be filed with the Banking Ombudsman1. This can be filed online at
www.bankingombudsman.rbi.org.in

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In case of Unconfirmed LoC, if the issuing bank is not making the payment on time, then the
exporter has the right to proceed legally against the issuing bank based on the terms &
conditions mentioned in the letter of credit. If this bank has a presence in India, the Banking
Ombudsman route can be used to file a complaint against this bank.

If the issuing bank does not have any presence in India, the client can approach the
“International Center for Letter of Credit Arbitration2” (Email: arbitration@icloca.org) for
resolving the dispute with the opening bank. However under this route, the bank must also
provide its consent to be part of the arbitration.

We can provide you with a more concrete solution, if you could provide the details of the terms
& conditions associated with the letter of credit issued by the opening bank.

Note:
1. The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank
customers for resolution of complaints relating to certain services rendered by banks. The
Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation
Act, 1949 by RBI.
2. The International Center for Letter of Credit Arbitration was founded as a result of an
initiative from within the letter of credit community. The Center has been created after
extensive consultation with corporate, legal and banking representatives throughout the
world. The Center has two main purposes, namely, to act as an administrative authority and
a resource center for information, training, and research for letter of credit related disputes.

About Us
 SME ToolKit
The SME Toolkit is a joint project of IFC (International Finance Corporation), a member of the
World Bank Group and ICICI Bank. The Toolkit website has been created as an online resource
centre to empower Indian SMEs and help them become globally competitive
http://india.smetoolkit.org/india/en

 365BusinessDays
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DISCLAIMER:
All due care has been taken in the preparation of this report to ensure that the information, estimates,
opinions, suppositions, suggestions, and recommendations contained here-in are factually correct and
accurate to the best of our knowledge, at the time of generating and publishing this report. In particular as
our Query Resolution service is not based on any Primary Data collection and analysis, there can be inherent
challenges in the depth and scope of the issues it can address. We, at 365BusinessDays, accept no liability for
any loss or damage or unforeseen consequential loss or damage that may arise from the use of the
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