On the terms of the Letter of Credit (LC), can the Bill of Lading (BOL) in import export business be surrendered?

Under the terms of the Letter of Credit (LC), can the Indian exporter or the seller surrender the Bill of Lading (BOL) and make arrangements to send the Original Bill of Lading (OBL) message in order to release the container without insisting on the Original Bill of Lading (OBL) at the destination port.

Generally under Letter of Credit (LC) in import export business, the Original Bill of Lading (OBL) along with other documents is submitted with the negotiating bank by the beneficiary of Letter of Credit (LC). The beneficiary bank then arranges to send the documents to the Letter of Credit (LC) opening bank. The Letter of Credit (LC) opening bank then delivers the documents to the buyer or the importer after the documents are accepted and approved by the bank.

Is the Original Bill of Lading (OBL) required to be submitted in the Letter of Credit (LC) transactions?

As understood, a Letter of Credit (LC) document is an assurance given by the Indian importer’s or the buyer’s bank to remit the amount to the seller or the exporter through the seller’s/exporter’s bank on or before the date of maturity, as per the agreed terms and conditions of the business contract between both the parties. 

All Letter of Credits (LC) regarding import and export trade is taken care under the guidelines of “Uniform Customs & Practice for Documentary Credits of International Chamber of Commerce” (UCP 600). According to the business contract entered into by both the parties (buyer and seller), the time period of the credit is decided. Based on this time period, the time to effect payment by the opening bank (buyer’s bank) is determined based on different tenure periods of Letter of Credit (LC).

Once the shipment is ready, the exporter or the seller prepares a docket with all the required documents according to the terms of the Letter of Credit (LC). This docket of documents will then be submitted to the exporter’s or the seller’s bank along with the original Letter of Credit (LC). The bank then verifies all the documents and ensures that all the documents are in place in accordance with the terms and conditions of the Letter of Credit (LC). These documents will be then sent to the buyer’s or the importer’s bank and finally it will reach the buyer or the importer post necessary approvals. After this process, the export sales amount according to the said documents will be transferred to the exporter’s or seller’s bank. This is the final procedure under the Letter of Credit (LC) at sight.

In some situations, the overseas bank may demand a credit period to pay the amount for sales, for example 30, 60, 90, 120 days and so on. However, as per the rules and regulations of the Government, the total time period of the credit should not exceed more than 180 days. Generally, the credit period is calculated from the date of shipment – i.e. the date of Bill of Lading (BOL) or Airway bill (AWB).

Under the Letter of Credit (LC) terms and conditions, can the Original Bill of Lading (OBL) be surrendered at the loading port?

The terms and conditions of the Letter of Credit (LC) are mutually decided and agreed upon by both the parties (Buyer & Seller). In case the exporter or the seller agrees for a credit period under the Letter of Credit (LC), then the buyer or the importer remits the amount of goods or services to the seller or exporter only after the delivery of goods or services at the final destination port. In cases like these, the seller or the exporter may agree to surrender the Bill of Lading (BOL) in situations or circumstances mutually agreed upon by both parties. If the business contract of sale agrees to surrender the Bill of Lading (BOL) at the loading port, the said clause is added in the terms and conditions of the Letter of Credit (LC). If the surrender of Bill of Lading (BOL) is mentioned in the Letter of Credit (LC), the surrender of the Bill of Lading (BOL) can also be done at the loading port.