E-documents: RBI initiative needed

EXIM MATTERS

Many readers have responded to last week's column on the new rules for letters of credit (known as UCP 600) asking for more information. Some have also sent in questions that I try to answer here.

Quite a few queries from readers relate to eUCP. The new rules contain 12 articles covering presentation of electronic records alone or in combination with paper documents. These articles are referred to as eUCP version 1.1. They essentially supplement UCP 600. A credit subject to eUCP is also subject to UCP 600, and eUCP will prevail only to the extent that they would produce a result different from UCP 600.

Indian banks have not yet adapted to the possibility of presentation of electronic documents. But, quite a few shipping companies are geared to issue electronic bills of lading.

Even the other agencies like the insurance companies, chambers of commerce and inspection agencies can quickly gear themselves to issue electronic documents. It calls for a decisive lead from Reserve Bank of India and some major banks. Once a decision is taken to accept electronic records, the trade and other banks will follow suit and meet the new requirements.

UCP 500 has a definite provision that letters of credit must be precise and complete and that banks must avoid unnecessary details in the credits. This direction is missing in the UCP 600 but it does say that banks must avoid calling for underlying copies of contract.

Exporters and negotiating banks had to cope with great difficulties when documents were lost after negotiation, as the issuing or confirming banks used to refuse payment on the grounds that they have not received the documents complying with the conditions in the credit.

The new UCP 600, in a significant addition, says that if any bank has negotiated a complying presentation and forwarded the documents to the issuing or confirming bank, reimbursement can not be refused. Banks need to note this point very carefully.

The new rules say that banks can reject a document only in case the data in the document, when read in the context of the credit, the document itself and international standard banking practice, conflicts with itself, any other document or the credit, and not merely on the grounds of contents not being identical or consistent.

One of the readers "� a banker "� has asked whether this will bring in an element of subjectivity. I do not think objectivity can be sacrificed at all but do think that the bankers will have to apply their mind and then determine whether the documents presented meet the criteria of a complying presentation as defined in the new rules.

The new rules do say that in documents other than the invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit. The description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit.

The new rules say that a clean transport document is one bearing no clause or notation expressly declaring a defective condition of the goods or their packing. The word "clean" need not appear on a transport document, even if a credit has a require-ment for that transport document to be "clean on board".

e-mail: tncr@sify.com