 TERMS OF TRADE:-

 MEANING:-

 The reciprocal link between the value of a country's imports and exports is represented by its
Terms of Trade (TOT). It shows the proportion between the cost of goods and services that a
country exports and the cost of goods and services that it imports. Stated differently, TOT
calculates how much of a nation's exports may be used to finance how much of its imports.

 PAYMENT TERMS:-

 documentation details how and when customers pay for your goods or
services.

i. Cash in advance:-
 Prepayment or Advance Payment is made before shipment, ensuring the seller receives funds
before delivering the good

ii. Cash on delivery:-

 Payment on Receipt or COD requires payment upon delivery, where the buyer pays for the
goods at the time of receipt

iii. Letter of credit:-

 A Bank Guarantee or Documentary Credit ensures payment upon presentation of documents,
providing a secure payment method for international trade.
 iv. Open Accounts:-
 Credit Terms or Open Credit allows payment after shipment, without a bank guarantee,
relying on the buyer's creditworthiness.

v. Net Terms:-
 Payment Terms or Credit Period specifies a deadline for payment, such as Net 30 (payment
due within 30 days), Net 60 (payment due within 60 days), or Net 90 (payment due within 90
days)

vi. Installment Payment:-

 An installment payment plan allows you to split your total into smaller, manageable
payments. This flexible payment option lets you pay a fixed amount at regular intervals,
making it easier to budget and plan your finances. By choosing an installment payment plan,
you can avoid paying a lump sum upfront and instead spread the cost over some time.

 PAYMENT MODES:-

i. Cash:- Physical money used for transactions.

ii. Debit Card:- A card that deducts money from your bank account.

iii. Credit Card:- A card that allows you to borrow money to make purchases.

iv. Mobile Payment:- Use your phone to make payments

(e.g. Apple Pay, Google Pay).

v. Online Banking:- Transferring money or making payments through your bank's website or app.

vi. Digital Wallet:- Storing your payment information securely for quick online payments
(e.g. PayPal)
  LETTER OF CREDIT:-

 MEANING:-
 A bank's assurance to pay an exporter for goods or services is known as a Letter of Credit if specific
requirements are fulfilled. The buyer (importer) may be assured that the items will be delivered by
the agreement, and the seller will feel secure in knowing they will be paid.

 USE OF Letter Credit:-

 "Letters of credit play a crucial role in international trade by minimizing risk between buyers and
sellers who may not have an established relationship. Using a letter of credit, importers can ensure
that their payment is only released to the supplier once the goods have been shipped and verified,
providing a secure and trusted mechanism for conducting global trade transactions. This added layer
of security and verification helps build trust and confidence between parties, facilitating the smooth
exchange of goods and services across borders."
  Types Of Letter Of Credit:-

1. Sight letter of credit:-

 A sight Letter of Credit (LC) is a financial instrument that guarantees payment to the seller upon
presentation of documents confirming the delivery of goods or services, ensuring secure and timely
payment. Once the seller meets the terms and conditions specified in the LC, the buyer's bank is
obligated to make payment to the seller, usually through a corresponding bank in the seller's country,
minimizing the risk of non-payment. In essence, a sight LC ensures that the seller receives payment
immediately upon delivering goods or services, as long as the terms of the LC are met, providing a
secure and efficient way for sellers to receive payment from buyers in international
trade transactions.

2. Usance Letter Of Credit:-

 A Usance Letter of Credit (LC) provides flexibility to the importer, allowing payment to be made
within a predetermined timeframe, typically ranging from 30 to 120 days, after receiving the goods,
unlike sight LCs which require immediate payment upon presentation of documents. This means
that the importer can take possession of the goods and then pay for them later, usually within a
specified number of days, giving them more time to sell the goods or generate revenue before
making payment, making it a more flexible and convenient option for international
trade transactions.

3. Revocable Payment Letters:-

 A Revocable Payment Letter is a type of payment arrangement that can be canceled or modified by
the bank at any time without prior notice, offering minimal security for the seller. Unlike other
payment methods, this type of letter does not provide a guarantee of payment, allowing the bank to
withdraw or alter its commitment to pay the seller at any moment, making it an unreliable and rarely
used option for international trade transactions, as it leaves the seller vulnerable to non-payment.

4. Irrevocable Payment Letters:-

 An Irrevocable Payment Letter is a secure and reliable payment method that ensures the seller
receives payment, as it cannot be canceled or modified by the bank without the seller's explicit
consent. This type of letter provides a binding commitment to pay the seller, giving them confidence
and protection in international trade transactions, and is therefore widely used and preferred over
revocable payment letters, as it guarantees payment and minimizes the risk of non-payment.

5. Confirmed Letter of Credit:-

 A confirmed Letter of Credit (LC) offers an added layer of security for the seller, as a second bank,
the confirming bank, joins the issuing bank in guaranteeing payment, providing a double assurance
of payment. This means that two banks are now legally bound to ensure the seller receives payment,
reducing the risk of non-payment and offering enhanced protection and peace of mind for the seller
in international trade transactions.
6. Unconfirmed Letter of Credit:-

 An unconfirmed Letter of Credit (LC) puts the seller at a higher risk, as it relies solely on the issuing
bank's promise to pay, without a second bank guaranteeing payment. This means that if the buyer or
issuing bank defaults, the seller has no additional recourse or protection, leaving them vulnerable to
non-payment and potential financial loss in international trade transactions.

7. Negotiable Letter of Credit:-

 A negotiable Letter of Credit (LC) is a type of deferred payment LC that allows the seller to obtain
payment from any bank, not just the issuing bank, by presenting the LC and required documents,
making it easily transferable and negotiable. This flexibility provides the seller with greater access
to financing and liquidity, as they can negotiate the LC with any bank, increasing their options for
receiving prompt payment in international trade transactions.

8. Non- Negotiable Letter of Credit:-

 A non-negotiable Letter of Credit (LC) is a type of LC that is irrevocable and inflexible, meaning its
terms cannot be changed or canceled, and it cannot be transferred or negotiated with any bank. This
type of LC is used in international trade and includes specific language indicating that it is not
negotiable, providing a strict and binding commitment to pay the seller, with no room for
modifications or flexibility.

9. Standby Letter of Credit:-

 A Standby Letter of Credit (SBLC) serves as a financial safety net for exporters,
providing a guarantee of payment in case the buyer fails to fulfill their contractual
obligations. If the buyer defaults, the bank will make the payment to the exporter,
ensuring they receive the payment they are due. In essence, an SBLC provides a
secure and reliable backup plan, giving exporters peace of mind and protection
against non-payment risks in international trade transactions.

10. Red Clause Letter of Credit:-

 A Red Clause Letter of Credit is a type of payment guarantee that provides an

advance payment to the seller, typically a percentage of the total amount before the
goods are shipped or services are rendered. This partial payment, similar to a down
payment, gives the seller added security and motivation to expedite the transaction,
knowing they have already received some payment. This arrangement facilitates a
smoother and faster transaction process, providing a win-win situation for both the
buyer and seller in international trade.
 11 Revolving Letter of Credit:-

 A Revolving Letter of Credit (LC) is a flexible and efficient payment guarantee that enables multiple
transactions and repeated withdrawals, up to a predetermined limit, with automatic replenishment of
funds, making it an ideal solution for managing ongoing business transactions. This type of LC
allows for continuous use, eliminating the need for separate LCs for each transaction, and
streamlining the payment process while ensuring security and reliability for both buyers and sellers.

Clause 33 (UCP 600): "Revolving Credit" - The credit is automatically reinstated after each drawing, up to a specified
maximum amount and expiration date.
Additionally, RLOCs often include clauses such as:
Clause 34 (UCP 600): "Cumulative" - The unused amount can be carried over to the next period.

Tolerance:-
These clauses are specific to Revolving Letters of Credit and are not typically found in Irrevocable Letters of Credit.
Remember that UCP 600 is the standard set of rules for Documentary Credits, and the specific clauses may vary
depending on the bank's terms and conditions.

In a Revolving Letter of Credit (LC), tolerance refers to the allowed variation in the amount of each drawing or
shipment compared to the original LC value. This flexibility enables the seller to make shipments with minor
deviations in value without needing to amend the LC.

Tolerance is usually expressed as a percentage (e.g., 5%) and can be applied in two ways:

1. Value tolerance: The allowed variation in the value of each drawing or shipment. For example, if the LC value is
$100,000 with a 5% tolerance, the seller can make shipments worth between $95,000 and $105,000.

2. Quantity tolerance: The allowed variation in the quantity of goods shipped. For example, if the LC specifies
1,000 units with a 5% tolerance, the seller can ship between 950 and 1,050 units.

I. Article 30: Tolerance in Credit Amount

II. Article 31: Tolerance in Quantity
III. Article 32: Tolerance in Weight
  FEATURES:-

i. Irrevocable:- A letter of credit (LC) is irrevocable, meaning that once it has been
issued, it cannot be canceled or changed without the seller's consent. This provides the
seller with confidence that the payment is secure and cannot be unilaterally terminated
by the buyer.

ii. Specific:- An LC is specific, meaning it is only good for a specific transaction or deal.
This ensures that the LC is used for the intended purpose only and prevents it from
being used for other transactions.

iii. Primary Payment Method:- The bank pays the seller directly, making the LC a
primary payment method. This eliminates the risk of non-payment by the buyer, as the
bank is responsible for making the payment.

iv. Guarantee:- The bank guarantees payment to the seller, providing high security. If the
buyer fails to pay, the bank is responsible for making the payment, ensuring that the
seller receives the payment due.

v. Document-based:- Payment relies on specific documents, such as an invoice, bill of

lading, or certificate of origin. This ensures that the seller has completed their
obligations before payment is made, providing a level of assurance for the buyer.

vi. Time-bound:- Payment must be made within a set time frame, ensuring that the seller
receives payment on time. This prevents payment delays and ensures that the seller
can plan their finances accordingly.

vii. Secure:- An LC reduces risk for the seller, ensuring payment and providing a high
level of security. This gives the seller peace of mind and protects against non-payment,
allowing them to focus on fulfilling their obligations.

viii. Flexible:- An LC can be transferable or assignable, allowing the seller to transfer the
LC to another party if needed. This provides flexibility and allows the seller to adjust
their financing arrangements as needed.
  PROCESS OF LETTER OF CREDIT:-

 ENTITY:-

1. Applicant:-
 Th e applicant is the party that requests and instructs the issuing bank to open a letter of credit in favor
of the beneficiary. This party is typically the importer or buyer of goods and/or services, but can also be
a confirming house, acting as an intermediary between the buyer and seller. The confirming house may
be located in a third country or the seller's country and plays a crucial role in facilitating international
trade transactions.

2. Beneficiary:-
 The beneficiary is the party entitled to receive payment under the letter of credit, provided they can
present the required documentary evidence. It's important to note that the letter of credit is a distinct
and separate transaction from the underlying contract between the buyer and seller. All parties involved
in the letter of credit deal are in documents, not goods. The issuing bank is not liable for the
performance of the underlying contract but rather is responsible for examining the documents presented
to ensure they meet the terms and conditions of the credit.

3. Issuing Bank:-
 The issuing bank is the bank that issues the letter of credit, guaranteeing payment to the seller if
compliant documents are presented. The bank's liability to pay and be reimbursed by the customer
becomes absolute upon completion of the terms and conditions of the letter of credit. The issuing bank
has a reasonable amount of time, usually a few days, to honor the draft after receiving the documents.
 During this time, the bank will examine the documents to ensure they meet the credit terms, and if so,
will make payment to the seller.

4. Advising Bank:-.

 The advising bank is a foreign correspondent bank of the issuing bank that advises the beneficiary of
the letter of credit. The advising bank plays a crucial role in verifying the authenticity of the letter of
credit and ensuring that it is valid. The beneficiary may wish to use a local bank as the advising bank to
ensure that the letter of credit is legitimate. In addition to advising the beneficiary, the advising bank is
also responsible for sending the documents to the issuing bank.

5. Confirming Bank:-

 The confirming bank adds an extra layer of security to the letter of credit by verifying its authenticity
and guaranteeing payment to the seller. This provides additional assurance to the seller that they will
receive payment, even if the buyer or issuing bank defaults. The confirming bank's guarantee gives the
seller added confidence in the transaction, knowing that they have an additional layer of protection.

6. Nominating Bank:-

 The nominating bank is a bank that pays the seller on behalf of the buyer, acting as an intermediary for
payment. The nominating bank is usually nominated by the confirming bank or the issuing bank and
plays a crucial role in facilitating the transaction process. By paying the seller on behalf of the buyer,
the nominating bank makes it easier for the seller to receive payment and helps to streamline the
transaction process.

 PROCESS [HOW IT WORKS]:-

Step 1: Buyer and Seller Agree on a Contract:-
The buyer and seller negotiate and agree on the terms of the sale, including price, quantity, delivery date,
payment terms, and goods description. The seller requires a letter of credit to ensure payment.

Step 2: Buyer Applies for a Letter of Credit:-

The buyer applies to their bank (the issuing bank) for a letter of credit in favor of the seller. The buyer
provides the necessary information, including the seller's name, amount of credit, expiration date, goods
description, and payment terms.

Step 3: Issuing Bank Issues the Letter of Credit:-

The buyer's bank approves the application and issues the letter of credit, which includes the seller's name,
amount of credit, expiration date, goods description, payment terms, and the bank's undertaking to pay the
seller. The issuing bank forwards the letter of credit to the seller's bank (the advising bank).

Step 4: Advising Bank Verifies and Notifies the Seller:-

The seller's bank verifies the authenticity of the letter of credit and notifies the seller of its receipt. The
advising bank ensures that the letter of credit is valid and meets the seller's requirements.

Step 5: Seller Ships the Goods and Prepares Documents:-

The seller ships the goods to the buyer and prepares necessary documents, including commercial invoices,
bills of lading, insurance certificates, packing lists, and certificates of origin. The seller ensures that the
documents comply with the terms of the letter of credit.

Step 6: Seller Presents Documents to Bank:-

The seller presents the documents to their bank (the nominated bank) for examination and forwarding to the
issuing bank. The nominated bank reviews the documents to ensure they comply with the letter of credit.

Step 7: The Nominated Bank Examines and Forwards Documents:-

The nominated bank examines the documents to ensure they meet the terms of the letter of credit. If
compliant, the bank forwards the documents to the issuing bank.

Step 8: The Issuing Bank Examines and Pays the Seller:-

The issuing bank examines the documents and makes payment to the seller if they are compliant. The bank
ensures that the documents meet the terms of the letter of credit and that the seller has fulfilled their
obligations.

Step 9: Buyer's Account is Debited:-

The buyer's account is debited for the amount of the letter of credit. The buyer's bank ensures that the buyer
has sufficient funds to cover the payment.

Step 10: Buyer Takes Delivery of the Goods:-

The buyer takes delivery of the goods and verifies their quality and quantity. The buyer ensures that the
goods meet the terms of the sale contract.

Step 11: Seller Receives Payment:-

The seller receives payment from the issuing bank, guaranteeing payment on the due date.

 What is SWIFT?

 The full form of SWIFT is Society for Worldwide Interbank Financial

Telecommunications.

 SWIFT is a global messaging network that enables financial institutions to securely and
efficiently exchange financial messages and instructions. It powers most international money
and security transfers, allowing banks and other financial institutions to quickly and
accurately send and receive information related to financial transactions.

 SWIFT acts as a middleman, facilitating the exchange of financial messages between banks,
and making it possible for individuals and businesses to conduct international financial
transactions. By providing a secure and reliable messaging platform, SWIFT plays a critical
role in enabling global financial transactions and generates revenue by charging its member
banks and financial institutions for the use of its services.
  GUIDELINES:-

 International Chamber of Commerce (ICC):-

History:-

 "The International Chamber of Commerce (ICC) was started in 1919, just after World War I. Its goal was
to promote peace and stability through international trade and economic cooperation. For over 100 years,
ICC has worked to improve the global economy, increase international trade, and boost economic
growth. As the world has changed, ICC has adapted and continued to advocate for open markets, free
trade, and the important role of business in driving economic progress."

Role:-
 "The International Chamber of Commerce (ICC) plays a vital role in fostering global trade and
investment, equipping businesses to navigate the complexities and opportunities of globalization. ICC's
primary focus areas include establishing universal standards, resolving disputes through arbitration, and
shaping policy. Additionally, ICC offers a range of essential services, including dispute resolution,
training programs, combating commercial crime, and streamlining customs procedures."

Mission:-

 "ICC's mission is to empower businesses to make a positive impact on people's lives every day,
everywhere. Believing that business can be a force for good, ICC works to create a global environment
where companies of all sizes and industries can grow and succeed, driving economic growth, creating
jobs, and improving society. By fostering a supportive and inclusive business ecosystem, ICC aims to
help businesses contribute to a better world for all, where economic progress goes hand-in-hand with
social progress and environmental sustainability."

Values:-

1. Inclusivity:-
 ICC believes that everyone should have an equal chance to participate in business, regardless of their
size, industry, or location. This means creating opportunities for all businesses to grow and succeed and
promoting diversity and inclusion in the business community.

2. Integrity:-
 ICC thinks that businesses should always act with honesty and transparency. This means being truthful
in all interactions, keeping promises, and being accountable for actions. By doing so, businesses can
build trust and credibility with their customers, partners, and the wider community.

3. Innovation:-
 ICC encourages businesses to be creative and try new things. This means embracing new technologies,
ideas, and sustainable practices to drive growth and success. By innovating, businesses can stay ahead of
the curve, solve real-world problems, and make a positive impact on society.

ICC's Global Reach:-

 The International Chamber of Commerce (ICC) is a global body that represents businesses
worldwide, promoting trade, investment, and economic growth. With a presence in 170 countries,
ICC is a truly international organization that brings together businesses of all sizes and sectors. Its
membership base of 45 million businesses makes it a powerful voice for the business community,
advocating for policies that support economic development and job creation.

 ICC plays a crucial role in shaping global trade policies and standards, working closely with
governments, international organizations, and other stakeholders. Its expertise and influence help to
simplify and streamline international trade, reducing barriers and increasing opportunities for
businesses to grow and succeed. Through its various initiatives and programs, ICC also provides
businesses with the tools and resources they need to compete in the global marketplace.
  ICC's global network of offices and chapters provides a local presence and support to its members,
offering a range of services and expertise to help businesses navigate the complexities of
international trade. From dispute resolution and arbitration to trade finance and insurance, ICC
provides practical solutions to the challenges faced by businesses operating in a rapidly changing
global economy. By promoting open trade, investment, and economic growth, ICC helps to create
jobs, stimulate economic development, and improve living standards around the world.

ICC's Main Activities:-

i. Dispute Resolution:-

 ICC resolves business conflicts quickly and fairly, offering arbitration and mediation services that help
businesses move forward efficiently, saving time and money, reducing stress and uncertainty, and finding
solutions that work.

ii. Rule Setting:-

 ICC sets clear rules for international trade, making trade easier and more efficient, providing a playbook
for businesses to follow, reducing confusion and errors, saving time and resources, and helping
businesses succeed.

iii. Policy Advocacy:-

 ICC shapes trade policy with governments and organizations, promoting economic growth and business
success, creating a favorable business environment, supporting entrepreneurship and innovation,
encouraging global trade and investment, and driving economic progress.

Services and Initiatives:-

i. Trade finance and insurance:-

 ICC's Trade Finance and Insurance solutions help businesses trade securely and efficiently. This means
that companies can buy and sell goods and services with confidence, knowing that they are protected
against risks like non-payment or loss. ICC's solutions make trade finance and insurance easier to access
and use, so businesses can focus on growing and succeeding.
ii. Supply chain and logistics:-

 ICC's Supply Chain and Logistics expertise helps businesses manage their supply chains and logistics
more effectively. This means that companies can get their products to market faster, cheaper, and more
reliably. ICC's solutions optimize every step of the supply chain, from sourcing to delivery, so businesses
can improve their competitiveness and customer satisfaction.
iii. Business integrity and anti-corruption:-

 ICC's Business Integrity and Anti-Corruption initiatives promote ethical business practices and combat
corruption. This means that companies can operate with integrity, transparency, and accountability,
which is essential for building trust and credibility. ICC's solutions help businesses prevent corruption,
bribery, and other unethical practices, so they can maintain a good reputation and contribute to a fair and
just business environment.

iv. Trade facilitation and customs reform:-

 ICC's Trade Facilitation and Customs Reform efforts simplify and streamline trade procedures and
customs processes. This means that companies can import and export goods more quickly, easily, and
cost-effectively. ICC's solutions reduce the complexity and bureaucracy of trade, so businesses can save
time and money, and focus on growth and innovation.

v. Digital economy and e-commerce:-

 ICC's Digital Economy and E-commerce initiatives support the growth of digital trade and e-commerce
globally. This means that companies can take advantage of online opportunities, reach new customers,
and expand their business globally. ICC's solutions help businesses navigate the challenges of digital
trade, from cybersecurity to data privacy, so they can succeed in the digital economy.

Benefits of Membership:-

i. Global Connections:-
Join a vast network of 45 million businesses in 170 countries, opening doors to new partnerships and
opportunities. By connecting with businesses from diverse industries and regions, you can explore new
markets, find potential customers, and build strategic partnerships, enabling you to expand your global
reach and grow your business.

ii. Business Growth:-

Enhance your business skills and knowledge to stay ahead in the competitive global market. ICC offers
training, resources, and expertise to help you upskill and reskill, enabling you to adapt to changing
market conditions and make informed business decisions. This empowers you to drive business growth,
improve performance, and stay competitive in the global economy.

iii. Policy Influence:-

Shape international trade policies and regulations that impact your business. As an ICC member, you
can contribute to policy discussions, share your expertise, and influence decision-making processes that
shape the global trade landscape. This enables you to have a say in the rules that govern international
trade, ensuring that your business interests are represented and protected.

iv. Dispute Resolution:-

Resolve business disputes efficiently and effectively with ICC's expert arbitration services. ICC's
dispute resolution services provide a swift and cost-effective way to resolve conflicts, helping you
protect your business relationships and reputation. This ensures that any disputes are handled promptly
and fairly, minimizing the risk of damage to your business.
v. Exclusive Benefits:-
Enjoy discounts on ICC events, reports, and publications to stay updated on industry trends and best
practices. ICC members receive exclusive discounts on events, reports, and publications, providing
access to valuable insights, research, and networking opportunities that help you stay ahead in the
industry. This enables you to stay informed, connected, and competitive, giving you an edge in the
global market.

 The Uniform Customs And Practice For Documentary Credits (UCP):-

 The UCPDC (Uniform Customs and Practice for Documentary Credits) is a set of rules that guide
how banks and financial institutions issue Letters of Credit, which help companies finance
international trade. These rules, agreed upon by the International Chamber of Commerce, provide a
standardized framework for trade finance, making it easier and safer for businesses to buy and sell
goods across borders.

Amendments:-

 1933 (UCP 82):-

 The first version of the rules was published by the International Chamber of Commerce (ICC).
  The ICC created the first set of standardized rules for documentary credits, providing a
framework for international trade finance.

 1951 (UCP 151):-

 First revision of the rules.

 The ICC updated the rules to reflect changes in international trade practices and to clarify
ambiguities in the original version.

 1962 (UCP 222):-

 Second revision of the rules.

 The ICC made significant changes to the rules, including the introduction of new articles and
the revision of existing ones, to adapt to the growing complexity of international trade.

 1974 (UCP 290):-

 Third revision of the rules.

 The ICC updated the rules to address issues related to the increasing use of documentary credits
in international trade, including the introduction of new types of credits and the clarification of
existing rules.

 1983 (UCP 400):-

 Fourth revision of the rules.

 The ICC made major revisions to the rules, including the reorganization of articles and the
introduction of new provisions, to reflect changes in international trade practices and to improve
the efficiency of documentary credits.

 1993 (UCP 500):-

 Fifth revision of the rules.

 The ICC updated the rules to address issues related to the increasing globalization of trade,
including the introduction of new types of credits and the clarification of existing rules.

 2007 (UCP 600):-

 Sixth revision of the rules.

 The ICC made significant changes to the rules, including the introduction of new articles and
the revision of existing ones, to reflect changes in international trade practices, such as the
increasing use of electronic documents and the need for greater flexibility in documentary
credits.
  2019: ICC releases an updated supplement for the electronic rules (eRules) of the Uniform
Customs & Practice for Documentary Credits.

 The ICC introduced new electronic rules to complement the UCP 600, providing a framework
for the use of electronic documents and digital signatures in documentary credits.

Key Elements for UCP 600:-

i. Definition of key terms that are prevalent in international trade (e.g. honoring [of payments],
applicants, banking days, presentation)
ii. How international trade documents (Letters of Credit) can be signed and acknowledged by all parties
iii. The difference between documents, goods, and services (and which parties deal with these)
iv. Which parts of a Letter of Credit are negotiable and non-negotiable
v. How credit works, and how payment is made
vi. How banks can communicate the confirmation of goods (teletransmission)
vii. Transportation of the goods, modes of transport, and who bears responsibility
viii. How to deal with discrepancies, waivers, and giving notice
ix. The provision of original documents or electronic copies
x. Bills of Lading
xi. Insurance and covering the cost of goods
xii. Loss of shipping documents in transit

 ARTICLES:-

40A: Form of Documentary Credit - The type of Letter of Credit (e.g. Irrevocable, Revocable)

31C: Date of Issue - The date the Letter of Credit was issued

31D: Date and Place of Expiry - The date and location where the Letter of Credit expires

50: Applicant - The party (usually the buyer) who applies for the Letter of Credit

59: Beneficiary - The party (usually the seller) who benefits from the Letter of Credit

32B: Currency Code, Amount - The currency and amount of the Letter of Credit
41D: Available with.....By... - The bank where the Letter of Credit is available, and the method of
payment (e.g. sight, usance)

42C: Draft at.... - The location where the draft (a type of check) is payable

42A: Drawee - The party (usually a bank) that honors the draft

43P: Partial Shipments - Whether partial shipments are allowed

43T: Transhipment - Whether transshipment (transfer of goods from one vessel to another) is
allowed
44E: Port of Loading - The port where the goods are loaded

44F: Port of Discharge - The port where the goods are unloaded

44C: Latest date of Shipment - The last date by which the goods must be shipped

45A: Description of Goods - A brief description of the goods being sold

46A: Documents Required - The documents required to be presented (e.g. commercial invoice, bill
of lading)

47A: Additional Conditions - Any additional conditions or requirements

71B: Details of Charges - The details of any charges or fees

48: Period of Presentation - The time period within which the documents must be presented

49: Confirmation Instruction - Instructions for confirming the Letter of Credit

78: Instruction to the Paying/Accepting Bank - Special instructions for the bank paying or accepting
the draft

 INCOTERMS:-
1. EXW - Ex Works:-

 Just packing and making the items available at the seller's location are the seller's responsibilities.
From that point to the destination, including the cost of loading the cargo, the buyer is fully
responsible for any risk and expenses.

2. FCA - Free Carrier:-

 Only delivery to the specified location is the seller's responsibility. Loading is the seller's
responsibility. As soon as the item is delivered to the designated location, the buyer assumes risk and
expense. The buyer should unload.

3. FAS - Free Alongside Ship:-

Delivering the products to the port alongside the vessel is the seller's responsibility. Cost and risk are
transferred to the buyer at this moment.

4. FOB - Free On Board:-

The products that are placed into the vessel belong to the the seller. As soon as the cargo is carried into
the vessel, risk and expense are transferred.

5. CFR - Cost and Freight:-

Freight charges to the specified port of destination or location are paid for by the seller. As soon as the
cargo is carried into the vessel, risk is transferred.

6. CIF - Cost, Insurance, and Freight:-

 Insurance and freight charges to the specified port of destination or location are covered by the seller. As
soon as the cargo is carried into the vessel, risk is transferred. In the buyer's name, the Seller shall get the
minimum insurance coverage compliant with Institute Cargo Clauses (C).

7. CPT - Carriage Paid To:-

The charges and transportation to the location are arranged by the seller. After the item is delivered to
the first carrier, the customer assumes all risk.

8. CIP - Carriage and Insurance Paid to:-

On behalf of the buyer, the seller organizes the buyer's transportation, expenses, and insurance to the
specified location at the destination. After the item is delivered to the first carrier, the customer assumes
all risk. To comply with insurance Cargo Clauses (A) or a similar provision in the buyer's name, the
seller must have comprehensive insurance coverage.

9. DAP - Delivered at Place:-

At the destination, the seller delivers the items to the designated location. Until the products are prepared
for offloading at the specified location of destination, the seller bears all expenses and risks.

10. DPU - Delivered at Place Unloaded:-

Until the products are unloaded at the planned destination, the seller bears all expenses and risk factors.
Import customs procedures are the buyer's responsibility.

11. DDP - Delivery Duty Paid:-

The products are delivered by the seller to the specified location. Until the products are prepared for
unloading at the designated destination, the seller is responsible for all expenses, including import duties
and dangers.

Transport by Sea and Inland Waterways

 DOCUMENTATION:-

 The following Documents are required for the process of a Letter of Credit.

1. Bill of Lading
2. Commercial Invoice
3. Packing List
4. Certificate of Origin
5. Certificate of Analysis
6. Insurance
 1. Bill of Lading (BOL):-

 A document confirming goods have been received by a carrier (e.g., shipping company) and lists the
contents, weight, and destination.
 Issued by the Carrier (Shipping Line, Airline, or Freight Forwarder)

 NEED:-
 A Bill of Lading (BOL) is required in Letter of Credit (LC) documents to prove shipment,
describe goods, verify quantity and weight, and transfer ownership. It serves as evidence of
shipment and receipt and is necessary for customs clearance and insurance claims. The BOL
ensures the seller has fulfilled their obligations and the goods have been shipped as agreed
upon. It provides a secure and reliable way to conduct international trade.
 2. Commercial Invoice:-

 A document issued by the seller, listing goods sold, prices, and payment terms, used for
customs clearance and payment processing.

ABC.LTD

 NEED:-

 The commercial invoice is a document that is used mostly in international trade transactions. It is a
commercial document required by customs to determine the true value of the imported goods, for
assessment of duties and taxes. The commercial invoice is necessary for both the seller and the
buyer.

3. Packing List:-
  A detailed list of items packed in a shipment, including quantities, weights, and packaging details.
 Issued by the Beneficiary (Seller or Exporter)

ABC.LTD

 NEED:-

 It helps the Customs broker when entering the listed goods in their country's import database, as it
contains important information. It serves as a guide for the receiver/buyer when counting the product
that they received. It serves as a supporting document for reimbursement under a letter of credit.
 4. Certificate of Origin:-

 A document certifying the country of origin for goods is often required for customs clearance and trade
agreements.
 Issued by the Chamber of Commerce or Export Authority in the beneficiary's country.

 NEED:-
 The main requirement for a Certificate of Origin is for clearing customs. If the goods,
exported/imported do not come with a Certificate of Origin, the Customs officer tasked
with checking the goods will not allow the goods to leave the warehouse.
 5. Certificate of Analysis (COA):-

 A document providing detailed information about the quality, composition, and properties of goods,
often required for regulated products.

 NEED:-

 The main purpose of a COA is to assure customers, manufacturers, and suppliers that the
product they are dealing with meets their agreed-upon standards.
 6. Insurance:-

 A policy protecting against loss or damage to goods during transportation, providing financial
coverage for the seller and buyer.

 NEED:-

 Your business will need to provide insurance certificates with your application for a letter of credit
for the goods you receive. You can request this paperwork from the seller or exporter, and it covers
your company against potential issues with goods.
  ADVANTAGES & DISADVANTAGES:-

 BUYER’S PERSPECTIVE:-
ADVANTAGES DISADVANTAGES
1. Secure Payment: L/C ensures payment to the 1. Costly: L/C involves additional costs, such as
seller only upon meeting the terms and conditions. bank fees.

2. Quality Control: L/C requires the seller to meet 2. Complexity: L/C can be complex to understand
specific quality standards. and manage.

3. Timely Shipment: L/C ensures timely shipment 3. Limited Flexibility: L/C terms are binding,
of goods. leaving little room for negotiation.

4. Reduced Risk: L/C minimizes the risk of non-

payment or fraud.

 SELLER’S PERSPECTIVE:-
ADVANTAGES DISADVANTAGES
1. Guaranteed Payment: L/C ensures 1. Stringent Terms: L/C requires meeting
payment upon meeting the terms and strict terms and conditions.
conditions.

2. Reduced Risk: L/C minimizes the risk of 2. High Bank Fees: L/C involves significant
non-payment or fraud. bank fees.

3. Increased Credibility: L/C can enhance the 3. Delayed Payment: L/C payment can be
seller's credibility. delayed if documents are not in order.

4. Access to New Markets: L/C can facilitate 4. Limited Control: L/C terms are binding,
trade with new buyers. limiting the seller's control

 ISSUES:-
 Buyer's Side:-
1. Discrepancies in Documents: mistakes or discrepancies in the seller's documentation, which might
cause payment to be delayed or rejected.

2. Late Shipment: The seller breaks the shipment date, which results in potential penalty fees and
delays.

3. Quality Issues: Receiving goods that are insufficient or misrepresented might cause disagreements and
even rejection.

4. Incorrect or Incomplete Documents: Seller fails to deliver necessary documentation or provides

documentation that is erroneous or inadequate.

5. Payment Delays: The buyer experiences cash flow problems as a result of the Bank's payment delays
or nonpayment.

Seller's Side:-
1. Unreasonable Conditions: Buyer places unnecessary or unreasonably extremely strict terms in the
Letter of Credit.

2. Delayed Payment: The buyer's bank causes problems for the seller's cash flow by delaying or not
making the payment.

3. Discrepancies in Documents: The buyer's bank rejects documents that have little inaccuracies or
mistakes in them.

4. Unfair Rejection: Unjustified rejection of products or papers by the buyer results in conflicts and
possible losses.

5. High Bank Fees: The buyer's bank reduces the seller's profit margins by charging excessive fees for
Letter of Credit services.

 Buyer’s credit:-

 "A buyer's credit, also known as trade credit, is a financing arrangement where a seller allows a
buyer to buy goods or services on credit and pay later with interest, providing short-term financing
and allowing the buyer to purchase without Advance payment."
facilitator LOU lender

Indian bank Loan repayment Foreign Bank

loan
Request of Loan Nosta A/C
LOU Repayment [Indian Bank] Payment

Buyer/Importer Seller/Exporter
Delivery of Goods

 COST FACTOR IN BUYER’S CREDIT: -

 1. Sofr(USA),Shibor(China)& Euribor(Europ) :-
SHIBOR
SOFR O/N 1.8940%
1W 1.8940% EURIBOR
SOFR 5.34% 2W 1.9480% 1 WEEK 3.5950%
1 MONTH 5.34209% 1 MONTH 1.8780% 1 MONTH 3.5720%
3 MONTH 5.35655% 3 MONTH 1.8970%
3 MONTH 3.6620%
6 MONTH 1.9570%
6 MONTH 5.38808% 9 MONTH 1.9880% 6 MONTH 3.6350%
INDEX 1.14803% 1 YEAR 2.0070% 12 MONTH 3.5220%
2. Interest Cost
3. GST
4. Lou Commission
5. SWIFT Charges

 Example:-

LC
LC % LC @60 DAYS LC @90 DAYS
CHARGES@SIGHT

MONTHS 3 5 6
Amount in USD 62400 62400 62400
Exchange rate 83.50 83.50 83.50
Amount in Rupees 5210400.00 5210400.00 5210400.00
LC Charges @0.0625%Per month 976950.00 1628250.00 1953900.00
GST 18.00% 937872.00 937872.00 937872.00
Total charges 1914822.00 2566122.00 2891772.00
Charges(A) 1914822.00 2566122.00 2891772.00
SWIFT Charges(B) 1000+GST 1180.00 1180.00 1180.00
Total LC charges(A+B) 1916002.00 2567302.00 2892952.00

BUYERS
BUYERS CREDIT BUYERS CREDIT
BUYERS CREDIT % CREDIT
@60 DAYS @90 DAYS
@30 DAYS
MONTH 1 2 3
Amount in USD 62400 62400 62400
Exchange rate 83.50 83.50 83.50
Amount in Rupees 5210400.00 5210400.00 5210400.00
LIBOR +INT(PA)(C) 5.30% 23012.6 46025.2 69037.8
GST(D) 937872 937872 937872
BPS PA(E) 1.25% 5427.5 10855 16282.5
LOU comm PA(F) 1.00% 4342 8684 13026
SWIFT Charges(G) 500+GST 590 590 590
GT(C+D+E+F+G) 971244 1004026.2 1036808.3
 OPTION - 1[LC @SIGHT +60 DATS BC] OPTION - 2 [LC @SIGHT +90 DAYS ]
LC @SIGHT 1916002.00 LC @SIGHT 1916002.00
60 DAYS BC 1004026.2 90 DAYS BC 1036808.3
TOTAL 2920028.20 TOTAL 2952810.30

OPTION - 3[ LC @60 DAYS] OPTION - 4 [ LC @90 DAYS ]

LC @60 DAYS 46025.20 LC @90 DAYS 2892952.00
TOTAL 46025.20 TOTAL 2892952.00

OPTION - 5 [ LC @SIGHT ] OPTION - 6 [ LC @SIGHT +30 DAYS BC]

LC @SIGHT 1916002.00
LC @SIGHT 1916002.00 30 DAYS BC 971244.1
TOTAL 1916002.00 TOTAL 2887246.10

OPTION - 7 [ DP @SIGHT +30 DAYS BC ] OPTION - 8 [ DP @SIGHT +60 DAYS BC]

DP @SIGHT 1916002.00 DP @SIGHT 1916002.00
30 DAYS BC 971244.1 60 DAYS BC 1004026.2
TOTAL 2887246.10 TOTAL 2920028.20

OPTION - 9 [ DP @SIGHT +90 DAYS BC]

DP @SIGHT 1916002.00
90 DAYS BC 1036808.3
TOTAL APPLICATION:- 2952810.30
  The modus operandi of inland LC bill discounting involves the following
steps:

1. Presentation: The seller presents the LC bills to the bank for discounting.
2. Verification: The bank verifies the authenticity of the LC and the bills.
3. Calculation: The bank calculates the discount amount based on the LC amount, discount rate, and
tenor.
4. Payment: The bank pays the seller the discounted amount (net proceeds) immediately.
5. Assignment: The bank assigns the LC bills to itself, becoming the beneficiary.
6. Collection: The bank collects the full LC amount from the buyer on the due date.
7. Reconciliation: The bank reconciles the transaction, and the seller is not involved further.

By discounting the LC bills, the seller gets immediate payment, and the bank assumes the risk of
collection from the buyer. This process facilitates liquidity and cash flow management for the seller.

 LC bill discounting in foreign LC works similarly to inland LC, with some

additional steps:

 In this case of bill discounting credit risk of funding, the bank is dependent on the creditworthiness
of the buyer.
 In international trade funding, banks are not comfortable with these kinds of credit risks as buyer
resides in some other countries.
 To mitigate this kind of credit risk a concept of LC bill discounting has come into force.
 In which the credit risk has been shifted from the buyer [importer] to the Lc issuing bank.
 And creditworthiness of a bank is always far superior to a buyer.
 So, In simple terms, the funding bank can play safe without worrying about the default risk of the
buyer.

 Whenever a trade occurs, the seller gives the buyer a credit period [30,60&90 days]. During this
period, the seller has to face a shortage of working capital. To sort – out this problem, lc discounting
is used.

 In the letter of credit discounting process, the bank purchases the documents or bills of the exporter. The
price at which the bank purchases the bill is less than the actual bill value. The bank collects the amount from
the buyer as in the agreement.
  LC Bill discounting Process flow[inland & foreign]:-
 [ownership transfer of bill]:-
7.] Seller sells
the LC
1.] Shipment sent
IMPORTER EXPORTER

2.] submit
4.] Send bill 8.] After the Bill
5.] BILL
WITH LC deducting the WITH LC&
and LC
for margin, the other
accepted
acceptance bank makes Documents
the payment

6.] Bill With LC send

ISSUING FUNDING
BANK BANK

3. send a bill WITH LC

 [collection of money from buyer]:-

IMPORTER

10.] Send
document 11.]
s for payment
repaymen made
t

12.] Payment transferred to

the funding bank
ISSUING FUNDING
BANK BANK

9.] Send bill with lc for payment

 Annexure
(This application should be Stamped/ Franked for Rs.100/- or as per the Stamp Act of the place of issuance of the L/C on /
before the application date)

APPLICATION AND GUARANTEE FOR ISSUE OF IRREVOCABLE DOCUMENTARY

LETTER OF CREDIT
The Branch Head,
Axis BANK LTD,
Branch
Dear Sir,
I/We request you to establish with your correspondents in (Country) Documentary credit as per the details
below:

40A:*** TYPE OF L/C IRREVOCABLE

50: NAME AND ADDRESS OF PRAKASH CHEMICALS AGENCIES PVT LTD
THE APPLICANT Prakash House, 39/40 Krishna Industrial Estate, Gorwa Road, Vadodara - 390016
GUJARAT-INDIA
31D :
*** DATE & PLACE OF 21/10/2023, KOREA
EXPIRY:

59 :
*** NAME AND ADDRESS OF
LG CHEM, LTD
THE BENEFICIARY
LG TWIN TOWERS,128, YEOUI-DAERO, YEONGDEUNGPO-GU

SEOUL, KOREA

32B:
*** CURRENCY & AMOUNT USD 32960.00
OF CREDIT IN FIGURES
AND IN USD THIRTY-TWO THOUSAND NINE HUNDRED SIXTY ONLY
39A: #
PERCENTAGE CREDIT 0.00
AMOUNT TOLERANCE
39B:
# MAXIMUM CREDIT USD 32960.00
AMOUNT
39C:
ADDITIONAL AMOUNTS
COVERED (USANCE
INTEREST)
41a : CREDIT AVAILABLE
(A/D) WITH
***
ACCEPTANCE DEF PAYMENT NEGOTIATION SIGHT PAYMENT
CREDIT AVAILABLE BY

42c:
DRAFTS AT AT SIGHT 90 DAYS FROM THE DATE OF
SHIPMENT
42a:
DRAWEE
43P:
PARTIAL SHIPMENTS PERMITTED
43T:
TRANSHIPMENTS PERMITTED
44A:
SHIPMENT FROM ANY PORT IN THE REPUBLIC OF KOREA
44B : PIPAVAV, INDIA
SHIPMENT TO
44C:
LATEST DATE OF 30/09/2023
SHIPMENT
45A:
QUANTITY AND
32 MT ACRYLIC ACID
DESCRIPTION OF
GOODS PRICE - USD 1030 PER MT
(BRIEF DETAILS) FOB
CFR CIF
CONTRACT TERMS: ………………… ……………….
(Please mark) Others(Specify
( As PER INCOTERMS 2010)

Capital Goods Non-Capital Goods

*** IMPORT
LICENCE/OGL
DETAILS

*** IMPORT EXPORT 3405005698

CODE NO.

46A: DOCUMENTS SIGNED DRAFTS FOR 100% OF THE INVOICE VALUE. SIGNED
REQUIRED
COMMERCIAL INVOICE (S) 3 COPIES

Kindly mention the payment term in the

Commercial Invoice.

FULL SET OF SIGNED "ON BOARD" OCEAN BILLS OF LADING MADE OUT TO ORDER AND BLANK ENDORSED MARKED
FREIGHT PREPAID/FREIGHT PAYABLE AT DESTINATION EVIDENCING SHIPMENT OF MERCHANDISE DESCRIBED ABOVE. BILLS
OF LADING MUST STATE THE FULL NAME AND ADDRESS OF BOTH APPLICANT AND AXIS BANK LIMITED AS PARTIES TO BE
NOTIFIED.
OR
AIRWAY BILL (ORIGINAL PLUS THREE COPIES) ISSUED BY AIRLINE OR ITS AGENT MADE IN THE NAME OF AXIS BANK
LIMITED FOR ACCOUNT APPLICANT EVIDENCING THE CURRENT AIRFREIGHT OF GOODS. AIRWAY BILLS SHOULD BE MARKED
“FREIGHT PREPAID/TO COLLECT”. AIRWAY BILLS MUST STATE THE FULL NAME AND ADDRESS OF THE APPLICANT AND AXIS
BANK LIMITED AS PARTIES TO BE NOTIFIED. AIRWAY BILL MUST INDICATE THE FLIGHT NUMBER AND DATE.

MARINE/AVIATION INSURANCE POLICY OR CERTIFICATE (ORIGINAL PLUS COPY) DATED NOT LATER THAN THE DATE OF BILLS
OF LADING/ AIRWAY BILL SIGNED AND ISSUED BY INSURANCE COMPANY MADE TO ORDER AND BLANK ENDORSED
IN CURRENCY OF THE CREDIT FOR 110 % OF CIF INVOICE VALUE, COVERING INSTITUTE CARGO CLAUSE (A), WITH EXTENDED
COVER FOR TRANSHIPMENT RISKS, IF APPLICABLE, THEFT, PILFERAGE, BREAKAGE AND NON-DELIVERY, INSTITUTE WAR
CLAUSE (CARGO) AND INSTITUTE STRIKES CLAUSE (CARGO), INSTITUTE TRANSIT CLAUSES FOR WAREHOUSE TO WAREHOUSE
COVER WITH CLAIMS PAYABLE IN INDIA.

SIGNED PACKING LIST IN TRIPLICATE

Comprehensive Economic Partnership agreement to be issued by Korea Chamber of Commerce and

Industry.

SHIPPING COMPANY’S OR THEIR AGENT’S CERTIFICATE (IN DUPLICATE) STATING THAT THE CARRYING VESSEL NAMED IN
THE BILL OF LADING BEFORE AND AT THE BEGINNING OF THE VOYAGE DUE DILIGENCE WILL BE EXERCISED TO MAKE THE VESSEL IS
SEAWORTHY, NOT MORE THAN TWENTY-FIVE YEARS OLD, HAS BEEN APPROVED UNDER INSTITUTE CLASSIFICATION CLAUSE
(CLASS MAINTAINED EQUIVALENT TO LLOYDS 100 A1) AND HAS BEEN REGISTERED WITH AN APPROVED CLASSIFICATION
SOCIETY (CERTIFICATE TO SPECIFY THE NAME OF THE CLASSIFICATION SOCIETY).

A CERTIFICATE IN DUPLICATE ISSUED BY THE SHIPPING COMPANY OR THEIR AGENT STATING THAT THE VESSEL MENTIONED
IN THE BILL OF LADING AND THE PORTS FROM/TO WHICH THE GOODS ARE SHIPPED ARE FREE FROM EMBARGOS AND
THAT THERE ARE NO SUBSISTING SANCTIONS IMPOSED ON THE VESSEL/PORT.

BENEFICIARY’S CERTIFICATE TO THE EFFECT THAT ONE ADDITIONAL SET OF NON-NEGOTIABLE DOCUMENTS INCLUDING ONE
COPY EACH OF INVOICE, AWB/BL, INSURANCE DOCUMENTS IF ANY, CERTIFICATE OF ORIGIN HAS BEEN FORWARDED TO THE
APPLICANT BY COURIER AT THE EARLIEST BUT NOT MORE THAN FIVE WORKING DAYS AFTER SHIPMENT.

(ANY OTHER DOCUMENTS AS MAY BE REQUIRED )

47 A: T ADDITIONAL SEPARATE DRAFT AND INVOICE FOR INTEREST AMOUNT REQUIRED
CONDITIONS
THE INVOICE SHOULD QUOTE IMPORT LICENCE/OGL REFERENCE AND CERTIFY THAT THE GOODS SUPPLIED ARE AS PER
PURCHASE
ORDER OF THE APPLICANT. GROSS FOB/CIF/CFR VALUE OF THE GOODS BEFORE DEDUCTION OF AGENT’S COMMISSION,
IF ANY, MUST NOT EXCEED THE MAXIMUM CREDIT AMOUNT.
ALL DOCUMENTS MUST BE IN ENGLISH

ALL DOCUMENTS MUST MENTION OUR L/C NUMBER AND DATE AND THAT THE GOODS ARE FREELY IMPORTABLE
UNDER EXIM POLICY 2009-2014 / ARE IMPORTED UNDER LICENSE NUMBER
(WHICHEVER IS APPLICABLE)

DOCUMENTS PRODUCED BY REPROGRAPIC PROCESS/COMPUTERISED CARBON COPIES ARE NOT ACCEPTABLE UNLESS
MARKED ORIGINAL AND SIGNED.

OTHERS, PLEASE SPECIFY

Please find below details of IEC No., GST NO & E-mail ID to be mentioned in BL:

1) IEC No. : 3405005698

2) GST No. : Gujarat State: 24AACCP6646G1ZF

Maharashtra State: 27AACCP6646G1Z9

3) E-Mail Id: [email protected]

4) PAN NO: AACCP6646G

5) H S CODE: 291611

FOLLOWING NATURE OF DOCUMENTS ARE NOT ACCEPTABLE:-

A. INVOICES ISSUED FOR AMOUNT IN EXCESS OF AMOUNT PERMITTED IN LC

B. SHORT FORM OR BLANK BLACK TRANSPORT DOCUMENTS.
C. BILL OF LADING ISSUED PRIOR TO DATE OF ISSUE OF LC.
D. THIRD-PARTY BILLS OF LADING ARE NOT ACCEPTABLE

OTHER CONDITIONS:

 CERTIFICATE OF ANALYSIS OF SHIPMENT IN DUPLICATE

 SHIPPING LINE SHOULD PROVIDE 14 DAYS FREE DETENTION PERIOD at (PORT OF DISCHARGE /
PLACE OF DELIVERY) SAME HAS TO BE MENTION
ON BILLS OF LADING OR SEPARATE CERTIFICATE FROM SHIPPING LINE TO BE PROVIDED.
 THERE SHOULD NOT BE ANY PCS/EIS/ISPS OR ANY OTHER SURCHARGE IN ACCOUNT OF THE
BUYER/CONSIGNEE

71 B: SPECIFY IF ANY ALL CHARGES OUTSIDE INDIA ARE FOR BENEFICIARY ACCOUNT.
CHARGES ARE TO
BENEFICIARY’S
ACCOUNT

48: PERIOD OF WITHIN 21 DAYS FROM THE DATE BUT NOT LATER THAN THE EXPIRY DATE OF THE LC
PRESENTATION OF
DOCUMENTS

49: *** CONFIRMATION WITHOUT

INSTRUCTIONS

WOORI BANK
57a “ADVISE THROUGH”
BANK LG TWIN TOWER BRANCH

, SEOUL, KOREA

ACCOUNT NO: LGCHQ160

SWIFT CODE: HVBKKRSE

72: SENDER TO RECEIVER

INFORMATION
 *** indicates mandatory fields # Only one of the fields 39A OR 39B is to be filled

I/We hereby declare that the transaction covered under the credit (the “transaction”), does not involve, and is not designed for the purpose of any contravention of
the provisions of the Foreign Exchange Management Act 1999 or of any rule, regulation, notification, direction or order made thereunder. I/We also hereby agree and
undertake to give such information/documents as will reasonably satisfy you about the transaction in terms of the above declaration

We hereby confirm and certify that:

(a) The goods imported/being imported by us under the Credit are not covered under the Prohibited/Negative List of Imports as mentioned current Foreign Trade
Policy and amendments thereto to date.
(b) The goods imported/being imported by us under the Credit are not covered under the Negative List of Imports as mentioned in the current Foreign Trade Policy
and amendments thereto to date and the original license issued by the DGFT is attached herewith. (Strike out whichever is not applicable)
(c) We are eligible to import the above-mentioned goods under the current Foreign Trade Policy in place.
(d) The said goods imported/being imported by us are not restricted for import through specific licensing under the above-mentioned policy and amendments thereto
to date.
(e) ITC(HS) Classification Code No.----------
(f) The carrying vessel and the ports from/to which the goods are shipped as mentioned in our application form and guarantee for the issue of an irrevocable
documentary letter of credit are free from embargos and there are no subsisting sanctions imposed on the vessel/s and the port/s.
(g) In case the goods imported are capital in nature, we confirm that the goods are capital goods as defined in the Foreign Trade Policy issued by DGFT from time to
time
(h) We also confirm that the period of trade credit is well within the operating cycle of the commodity

Trade Credit – Supplier Credit

All in Cost: …………………………………………………..

Period of Credit: …………………………………………………..

Declaration in line with A.P. (DIR Series) Circular No. 23 dated 13 Mar 2019 (Tick whichever is applicable):
We hereby declare that the value of each shipment and presentation under the said Foreign Letter of Credit shall not exceed

( ) USD 150 Million or equivalent per import transaction. - Applicable in case of an importer being oil/gas refining & marketing, airline, and shipping companies

( ) USD 50 Million or equivalent per import transaction Applicable in case of importer being other than oil/gas refining & marketing, airline and shipping companies
 (Any FLC issuance beyond above stated amount will be subject to RBI approval.)

We also undertake to submit the relative Exchange Control Copy of the Bill of Entry / Postal Wrappers to you immediately after clearance of the said
goods, in any case within 3 months from the date of remittance/payment. Further, we declare that the items imported will be used / disposed of as
per the provision contained in the policy / procedure/We further declare that the undersigned has the authority to give the declarations, undertakings,
and instructions as above, on behalf of the Company.

This Letter of Credit is subject to UCPDC 2007 Revision ICC No 600 read along with ICC Document no URR725, ISP98,

AND ISBP LATEST VERSION. Declaration/Undertaking

In consideration of your opening a Letter of Credit as above. I /we hereby undertake to accept and pay in due course all drafts drawn within the terms
thereof, and/ or to take up and pay for all documents negotiated there under on presentation, and in default of my/our so doing you may sell the
goods before or after arrival and I/We undertake forthwith on demand made by you in writing to deposit with you such sum or security or further sum
or security as you may from time to time specify as any security for the due fulfillment of our obligations hereunder and any security so deposited with
you as may be sold by you on your giving reasonable notice of sale to us and the said sum or the proceeds of the sale of the security may be
appropriated by you in or towards satisfaction of our said obligations and any liability of ours arising out of the non-fulfillment thereof.

You are to have a lien on all goods, documents, and policies and proceeds thereof for any obligations or liabilities present or future incurred by you
under or arising out of this credit.

I/ We approve of the negotiation of drafts under this Credit being confined to your branches.

Wherever, based on the reimbursement clause of LC, the negotiating bank has claimed reimbursement and our Nostro account is debited before
receipt of documents/payments, we agree to pay applicable interest from the date of Nostro debit till the date of payment of the import bill.

The relative shipping documents have to be surrendered to me/us against payment /acceptance.

If at any time and from time to time hereafter and at our request you enhance the amount of the Letter of Credit or amend any of the terms thereof
( including extension of the validity of the credit for shipment and/or negotiation of documents), then notwithstanding the amount and the terms
specified in this application, our guarantee shall cover and be deemed to cover the entire amount of the enhanced Letter of Credit issued by you and
other amendments effected thereto and our liability will be for the entire amount of the Letter of Credit to be enhanced and /or amended at our
request. We shall continue to be bound by all other terms and conditions of the application and guarantee notwithstanding such enhancement or
amendments from time to time as you may make at your request in the value and terms of the letter of credit.

We hereby agree and declare that in the event of my/our failing to retire the bills drawn under L/C on due dates in case of usance bills and within 5
banking days from the date of receipt of documents by you in case of sight bills. You shall be at liberty to crystallize the foreign currency rupee liability
thereunder on the due date or on the expiry of the 5th banking day as the case may be and contract rate whichever may be applicable.

I/ We undertake to reimburse you on demand the rupee equivalent so determined together with the interest thereon at the normal rate from the date
of negotiation to the date of crystallization and thereafter at a penal rate as applicable thereof.

You would book forward contracts if, we decide to cover the fluctuations in the exchange rates. I /We undertake to book such forward contracts forms
part of the arrangement by you under the L/c. If I/We book forward contracts with other banks against this Letter of Credit I/we are/am liable to pay
you commission in lieu of exchange as per the rates prescribed by the bank from time to time in addition to swap and interest from the date of
negotiation at the foreign center till the date of credit of proceeds in your Nostro account.

In case I /we do not book the forward contract, I/We undertake to buy the relative foreign exchange in connection with the retirement of
bills/documents, etc under the letter of credit from you at the ruling rate of exchange. In case foreign exchange in connection with retirement is not
being bought from you I/we shall pay commission in lieu of exchange in addition to swap cost and interest from the date of negotiation at the foreign
center till the date of credit of proceeds in your Nostro account.

I/We confirm that we are aware of Axis Bank Ltd’s Sanctions Policy Statement and that Axis Bank, including its subsidiaries and affiliates (“the Group”),
is firmly committed to complying with all applicable sanctions laws (as imposed by UN, US, UK, EU or any other Government and/or Regulatory
authorities) that are legally binding upon the Group and its businesses.

I/We are further aware that Axis Bank Ltd may be unable to process any transactions that involve or have linkages/reference to any sanctioned
countries*/territories*/parties including cases where transshipment is involved

I/We confirm that the shipment and/or transshipment of goods covered under this transaction shall not involve any sanctioned countries /territories
/parties.
*Sanctioned Countries and Territories include Cuba, Iran, Syria, North Korea (also known as Democratic People’s Republic of Korea), Crimea and
Sevastopol (also known as Crimean Autonomous Republic) and Sectorial Sanctioned Countries and Territories include Russia and Venezuela
 OFAC Declaration: In this connection, we declare, confirm, and undertake that:

i) We are aware that (name of the country) is an entity against which sanctions by the Office of Foreign Assets (OFAC) of
the USA are in place. We undertake not to hold Axis Bank Ltd responsible for in any manner whatsoever in nature and hold Axis Bank Ltd
fully indemnified against all losses and damages that may be caused to us on account of the funds remitted under this transaction being
confiscated or blocked or seized by any authority/government/agency.

ii) We further declare that we shall furnish any material information relating to this transaction as required by any
authority/government/agency, now or in the future. Also, we authorize Axis Bank Ltd to make available any of the material information
pertains our transaction to any authority/agency/entity without referring the matter to us.

* I/We further declare that the undersigned has/have the authority to give this application, declaration, and undertaking on

behalf of the firm/company. As per the terms of sanction given by the Bank, we have to provide a margin of % for the

above-mentioned LC.

We authorize you to debit the necessary LC commission / other charges to our operating account number.......................................with your Bank

Yours faithfully, (Signature of the applicant)

Date: 28.08.2023 Name: PRAKASH CHEMICALS AGENCIES PVT LTD

Address: “PRAKASH HOUSE”39/40 KRISHNA

INDUSTRIAL ESTATE, OPP GORWA

BIDC

Vadodara-390016

Account No.: 9170030070254903

*Applicable when the application /declaration /undertaking is signed on behalf of the firm/company

+
  Cost Of Letter Of Credit:-

COST OF LETTER OF CREDIT:-

PARTICULARS AT SIGHT 30 DAYS 60 DAYS 90 DAY

AMOUNT 5179200 5179200 5179200 5179200

[62400*83] [62400*83] [62400*83] [62400*83]

BANK CHARGES 0.250% 0.125% 0.125% 0.125%

MONTHS 3 4 5 6

12948 25896 32370 38844

COM.,GST& SWIFT 1770 1770 1770 1770

TOTAL COST 5193918 5206866 5213340 5219814

  BANK GUARANTEE:-

 Meaning:-

 A bank guarantee is a promise by the bank to cover a debt owed to a third party if the person who asked
for the guarantee can't pay it. The bank takes responsibility for the payment if the person can't meet
their commitment, acting as a backup to ensure the third party gets paid.

 Use of Bank Guarantee:-

 A bank guarantee serves as a safety net, ensuring payment to a third party if the applicant defaults, and
is commonly used to facilitate international trade, secure payments, and support construction projects.
It also covers customs duties, rent and lease agreements, tender bids, loan repayment, performance
bonds, advance payment guarantees, and warranty guarantees, providing a secure way to conduct
business by guaranteeing payment to exporters, contractors, suppliers, and landlords. In essence, a bank
guarantee assumes the risk of payment, giving the beneficiary confidence in the transaction, and is a
vital tool in various business scenarios.
  Types of Bank Guarantee:-

1. Deferred Payment Guarantee:-

 A Deferred Payment Guarantee ensures that the buyer's bank will pay the seller the outstanding
amount if the buyer fails to make payment on time. This guarantee gives the seller peace of mind,
knowing that they will receive payment even if the buyer defaults. It's like having a backup plan to
ensure payment.

 Example: A buyer purchases goods from a seller, but the buyer's company faces financial difficulties
and can't make the payment. The bank will step in and pay the seller the outstanding amount, thanks
to the Deferred Payment Guarantee.

2. Financial Bank Guarantee:-

 A Financial Bank Guarantee covers financial obligations, such as late payment fees or penalties. If a
project is delayed or incomplete, the bank will step in and cover the financial losses. This guarantee
ensures that financial obligations are met, even if the project faces challenges.

 Example: A contractor is building a house, but the project is delayed due to unforeseen
circumstances. The bank will cover the late payment fees or penalties, thanks to the Financial Bank
Guarantee.

3. Performance Guarantee:-

 A Performance Guarantee ensures that a project will be completed as promised. If there are any
delays or issues with performance, the bank will compensate the affected party financially. This
guarantee gives the project owner confidence that the project will be completed to their satisfaction.

 Example: A contractor is building a bridge, but the project is delayed due to poor workmanship. The
bank will compensate the project owner for the delays and any additional costs incurred, thanks to
the Performance Guarantee.

4. Supply Bidding Process Guarantee (Bid Bond):-

 A Supply Bidding Process Guarantee, also known as a Bid Bond, ensures that the winning bidder
will follow through with their contractual obligations. If they fail to do so, the bank will compensate
the project owner. This guarantee ensures that the project owner is protected in case the winning
bidder defaults.

 Example: A company bids on a project, but after winning the bid, they realize they can't fulfill their
obligations. The bank will compensate the project owner for any losses incurred, thanks to the
Supply Bidding Process Guarantee.

5. Guarantee of Payment:-
  A Guarantee of Payment ensures that the buyer will pay the seller the agreed-upon amount. If the
buyer defaults, the bank will step in and make the payment. This guarantee gives the seller
confidence that they will receive payment fo r their goods or services.

 Example: A buyer purchases goods from a seller, but the buyer's company faces financial difficulties
and can't make the payment. The bank will step in and pay the seller the outstanding amount, thanks
to the Guarantee of Payment.

6. Guarantees of Advance Payment Return:-

 A Guarantee of Advance Payment Return ensures that if the seller receives an advance payment but fails
to fulfill their contractual obligations, the bank will return the advance payment to the buyer. This
guarantee protects the buyer's advance payment in case the seller defaults.
 Example: A buyer pays an advance payment to a seller for goods, but the seller fails to deliver the goods.
The bank will return the advance payment to the buyer, thanks to the Guarantee of Advance Payment
Return.

7. Open-Ended Bank Guarantee:-

 An open-ended bank guarantee is a flexible and ongoing promise by the bank to cover payment risks,
with no specific end date or limit, providing continuous assurance to the beneficiary until the contract is
completed or the guarantee is canceled. It's like an insurance policy that stays in effect until the contract
is finished or the bank is told to cancel it, giving the beneficiary ongoing protection and assurance. This
type of guarantee remains valid until the bank receives a written request to cancel it or until the
underlying contract is fulfilled, making it a reliable and long-term solution for securing
payments and contracts.

 Features:-

1. Bank's Payment Promise:-

 The bank guarantees payment to the beneficiary if the principal defaults. This means the bank takes on
the payment risk, assuring the beneficiary. The beneficiary can claim payment from the bank if the
principal fails to pay.

2. Legal Contract:-

 The bank guarantee is a legally binding contract between three parties: the bank, the principal, and the
beneficiary. This contract outlines the terms and conditions of the guarantee, including the guaranteed
amount and validity period. The contract is enforceable by law.

3. Time-Limited:-

 The guarantee has a specific validity period, which can range from a few months to several years. The
guarantee can be renewed or extended beyond its initial maturity date if agreed upon by the parties
involved. This ensures the guarantee remains valid for the duration of the contract.
4. Collateral Optional:-

 The principal may or may not need to provide collateral to secure the guarantee. Collateral can be in the
form of cash, assets, or other securities. The bank may require collateral to minimize its risk, but this
depends on the specific terms of the guarantee.

5. Secures Business Deals:-

 The guarantee ensures payment or performance under a commercial contract. This assures the
beneficiary that they will receive payment or compensation if the principal defaults. The guarantee
enables businesses to enter into contracts with confidence.

6. Builds Trust:-

 The guarantee provides assurance, building trust and confidence between the principal and beneficiary.
The bank's guarantee reduces the risk of non-payment, allowing parties to enter into contracts with
greater confidence.

7. Facilitates International Trade:-

 The guarantee enables cross-border transactions with payment assurance. This facilitates international
trade by reducing the risk of non-payment, allowing businesses to expand globally.

8. Protects Beneficiary:-

 The guarantee ensures the beneficiary receives payment or compensation if the principal defaults. The
beneficiary can claim payment from the bank if the principal fails to pay, minimizing financial loss.

9. Negotiating Power:-

 The guarantee enables the principal to negotiate better terms with the beneficiary. With the bank's
guarantee, the principal can negotiate more favorable contract terms, such as lower interest rates or
extended payment terms.

10. Flexible Guarantee:-

 The guarantee can be tailored to meet specific needs and requirements. The bank can modify the terms
and conditions of the guarantee to suit the contract, ensuring the guarantee meets the needs of all parties
involved.
  PROCESS:-

 Entity:-

i. Applicant:-

The Principal (Applicant) is the party that requests the bank guarantee, typically a buyer or importer
seeking to secure a transaction with a seller or exporter. They ask their bank to issue a guarantee in
favor of the beneficiary, providing a layer of security and assurance that the obligations will be met.

ii. Issuer:-

The Bank (Issuer) is the financial institution that issues the bank guarantee, usually the principal's
bank. They assume the responsibility of paying the beneficiary if the principal fails to fulfill their
obligations, providing a secure and trusted international trade and commerce framework.

iii. Beneficiary:-

The Beneficiary is the party in whose favor the guarantee is issued, typically a seller or exporter.
They benefit from the guarantee, which assures that they will receive payment or compensation if the
principal fails to meet their obligations, reducing the risk of non-payment and financial loss.
iv. Guarantor:-

The Guarantor (Bank) is the bank that provides the guarantee, taking on the responsibility of paying
the beneficiary if the principal fails to fulfill their obligations. They promise to pay the beneficiary,
providing a secure and trusted international trade and commerce framework.

v. Counter-Guarantor:-

The Counter-Guarantor (Bank) is an additional bank that may be involved as a counter-guarantor,

providing an extra layer of security and assurance. They may be required in certain transactions, such
as high-value or high-risk deals, to provide the beneficiary added protection and peace of mind.

vi. End-User:-

The end-user is the party that ultimately benefits from the guarantee, often the buyer or importer.
They may be the principal or a third party, and they benefit from the security and assurance provided
by the guarantee, which reduces the risk of non-payment and financial loss and facilitates
international trade and commerce.

 Process:-

i. Application:-

 The principal requests a bank guarantee from their financial institution, submitting required
documents and information, which the bank evaluates and decides whether to approve, notifying the
principal of the outcome, and initiating the guarantee process if accepted.

ii. Terms and Conditions:-

 The bank issues the guarantee with specific requirements and obligations, outlining the rules and
responsibilities, specifying the guarantee amount, duration, and beneficiary details, which both the
principal and beneficiary must understand and agree to, ensuring all parties are aware of their roles.

iii. Fees and Collateral:-

 The principal pays a fee to the bank for issuing the guarantee, typically a percentage of the
guarantee amount, and may also need to provide security, such as assets or cash, to protect the bank
in case of default, which is returned when the guarantee is fulfilled.

iv. Guarantee Issuance:-

 The bank provides the guarantee to the beneficiary, usually in the form of a document, assuring that
the principal's obligations will be met, allowing the beneficiary to seek payment or compensation if
the principal fails to fulfill their obligations, and providing financial protection.
 v. Presentation:-

 The beneficiary presents the guarantee to the bank when seeking payment, providing the necessary
documents, which the bank verifies, confirming the principal's default, and processing the payment
according to the guarantee terms.

vi. Verification:-

 The bank confirms the guarantee, verifies the principal's default, reviews the terms and conditions,
ensures the principal has failed to meet their obligations, and confirms the beneficiary's right to
payment, before processing the payment.

vii. Payment:-

 The bank makes payment to the beneficiary according to the guarantee terms, usually in the
specified currency, ensuring timely payment, providing financial security, fulfilling the bank's
obligation under the guarantee, and enabling the beneficiary to use the funds for their business
needs.

viii. Claim:-

 The bank may seek reimbursement from the principal for the amount paid, issuing a claim notice,
requiring the principal to reimburse the bank within a specified timeframe, with interest and fees,
and may take legal action if the principal fails to reimburse.

ix. Settlement:-

 The principal settles the amount with the bank, including interest and fees, reimbursing the bank for
the amount paid to the beneficiary, providing additional security if needed, and finalizing the
guarantee process once the principal settles the amount.

 MARGIN MONEY & BANK CHARGES:-

 Bank guarantees are given either at a 100% margin or against a portion of the margin, which is
retained as FDR. If a business is required by a government agency to provide a one-time guarantee, it
will generate a 100% margin FDR and ask the bank to issue the BG against that FDR.

 If the firm often provides the BG to contractors, authorities, merchants, etc., it is advised to ask the
bank to set a limit that will be reviewed regularly. By the terms and conditions and bank norms, the
branch advances the proposal subject to the necessary collaterals. The business must provide the
margin money, which is subject to sanctioning authority permission. Typically, the margin amount
falls between 10% and 25% of the BG.
 As an illustration, consider a real estate corporation that must consistently provide assurances to the
local authorities to get a license for the development of each new residential and commercial project.
Their limitations are often set by the banks, who block the limit up to the BG amount and provide the
margin in the form of FDR.
  For this BG service, the bank charges a commission, which is once more contingent upon bank
policies and sanctioning authority permission. The commission and the BG's tenure are related.
Certain banks charge the whole fee at the time of BG issuance, whether it is for one or five years.
Therefore, it is often advised that a request for quarterly commission payments be made at the time
of approval.

 One further point to note is that the bank charges commission on a quarter-by-quarter basis, meaning
that if the BG is canceled after three or five days, the commission will be charged for six months
rather than three months and five days. Rather than charging a commission quarterly, some banks
charge it for six months or a year. However, we have the option to seek quarter basis costs at the time
the request is moved.

 Eligibility Criteria:-

i. Financial Stability:-

The applicant must demonstrate a consistent and stable financial history, with no record of defaults
or late payments.

ii. Banking History Review:-

The bank will examine the applicant’s past banking relationships, including their account
management, loan repayment history, and overall banking behavior.

iii. Credit Assessment:-

The bank will evaluate the applicant's creditworthiness based on their credit score and report from
reputable credit bureaus.

iv. Liquidity Evaluation:-

…………...The bank will assess the applicant's financial liquidity, including their cash flow, assets,
and liabilities, to ensure they have sufficient funds to meet their obligations.

v. Credit Rating Analysis:-

The bank will consider the applicant's credit rating from recognized agencies, which provides a
comprehensive view of their credit health.

vi. Guarantee Specifications:-

The bank will review the details of the guarantee, including:

a. Duration:- The length of time the guarantee is valid.
b. Amount:- The total value of the guarantee.
c. Beneficiary Details:- The party is entitled to receive the guarantee.
d. Currency:- The currency in which the guarantee is issued.
vii. Security Requirements:-

In some cases, the bank may require the applicant to provide additional security, such as:
a. Collateral Pledge:- Assets pledged as security, like property or equipment.
b. Third-Party Guarantee:- A guarantee from a separate party, like a parent company.
c. Letter of Credit:- A separate letter of credit to cover the guarantee amount.

 Limits:-
 In a bank guarantee, the limit refers to the maximum amount of money that the bank is willing to
guarantee or cover in case the applicant defaults on their obligations. This limit is typically specified in
the bank guarantee document and is usually a fixed amount.

 The limit of a bank guarantee can vary depending on the specific requirements of the guarantee and the
creditworthiness of the applicant. The bank will assess the applicant's financial stability, credit history,
and other factors to determine the appropriate limit for the guarantee.

Some common limits of bank guarantees include:

i. Financial limit:- The maximum amount of money that the bank will pay out in case of default.
ii. Time limit:- The duration of the guarantee, after which it expires.
iii. Coverage limit:- The percentage of the total amount that the bank will cover in case of default.

 For example, a bank guarantee may state: "We guarantee payment up to a maximum of $100,000 for 12
months." In this case, the limit is $100,000, and the guarantee is valid for 12 months.
  DOCUMENTS:-

1. Application form:-

 The application form is the starting point for the Bank Guarantee process. It provides essential
information about the applicant, the beneficiary, and the guarantee requirements, such as the amount,
validity, and purpose.

2. Sanction letter:-

 The sanction letter is issued by the bank after approving the application. It outlines the terms and
conditions of the guarantee, including the guaranteed amount, validity, fees, and any collateral
requirements.

3. Country risk assessment report:-

 The country risk assessment report evaluates the creditworthiness of the beneficiary's country and provides
information about the country's economic and political stability. The bank uses this report to assess the
country's risk and potential impact on the guarantee.

4. Underlying contract:-

 The underlying contract is the primary agreement between the applicant and the beneficiary. The bank
requires a copy of this contract to ensure that the guarantee supports a legitimate and legally binding
agreement.
  BENEFICIARY FORMATE
Bid Number: GEM/2020/B/69497/EMD
Dated: 29-10-2020

Format for EMD Bank Guarantee

Beneficiary:

test

Hq, Dedicated Freight Corridor Corporation of India Ltd., NA, Ministry of Railways

(Nilesh Kumar Pal)

(hereinafter referred to as Beneficiary / Government)

Date: ….......................................... [Insert date of issue of BG](To be inserted by issuing bank) …….

BANK GUARANTEE No.: … [Insert guarantee number] …(To be inserted by issuing bank)...........

BANK GUARANTEE Amount: 200,000.00

Bid / RA No.: GEM/2020/B/69497/EMD

Applicant / Bidder:

Hemant Sharma
M/S BKTESTING pvt.ltd,
Rohini Office, 101, Flat no 101 1 Rohini, West Delhi DELHI 110087

Guarantor: …. [Insert name and address of the issuing Bank] ….(To be inserted by issuing bank)...

Whereas Applicant / Bidder is willing to submit its bid against the above referred Bid / RA by the

Beneficiary on behalf of President of India/Governor of State/Chairman, CMD, Secretary, Commissioner, etc. of

Central/State PSUs/Departments for the supply of Goods and/or Services and as per Bid / RA conditions,
Applicant is required to submit a Bank Guarantee as EMD.

At the request of the Applicant, we as Guarantor, hereby irrevocably undertake to pay the Beneficiary
any sum or sums not exceeding in total an amount of 200,000.00 (Two Lakh Rupees ).

1. If the Bidder withdraws or amends, impairs, or derogates from the bid in any respect within the period
of validity of this bid.
 2. If the Bidder has been notified of the acceptance of his bid by the Purchaser during the period of its
validity.
If the Bidder fails to furnish the Performance Security for the due performance of the contract.

Fails or refuses to execute the contract.

We undertake to pay the Beneficiary up to the above amount upon receipt of its first written demand, without
the Beneficiary having to substantiate its demand, provided that in its demand the Beneficiary will note that the
amount claimed by it is due to it owing to the occurrence of one or both the two conditions, specifying the
occurred condition or conditions.

This guarantee will remain in force up to and including 45 days after the period of bid validity up to
200,000.00 (Two Lakh Rupees ) and any demand in respect thereof should reach the Bank not later than
the above date.

Dated .................
For...........................................................................
(Indicate the name of the Bank) Signature..................................................................
Name of the Officer.................................................
Designation of the officer .......................................
Code no ................................................................... Name
of the Bank and Branch.................................

Advisory: For Applicant and its BG Issuing Bank Branch. Not the
integral part of the Paper BG as above.
It is to be noted that paper PBG will not be operational unless the same is transmitted to the advisory bank
through the SFMS platform. For ready reference and updation of BG in the GEM portal, BG must issue the
bank send the BG advice in the form of message format 760COV via SFMS (structural financial messaging
system) as provided by RBI.

In the event of BG issuing bank not sending the message 760COV or committing any error while capturing
the details at least in the below field, BG confirmation may not happen and subsequent processing may get
stopped.
BG advising message - 760COV via SFMS
Fields Number Particulars
7039 GEM/2020/B/69497/EMD

7025 200000 (Two Lakh Rupees )

7029

23-01-2021

7033 461116
7034 buyer
7035 (Non-mandatory) IDFC0000001
7036 (Non mandatory)
 WORLI, MUMBAI, First floor, Moti Mahal, Dr. Annie
Besant Road, Worli, Mumbai

Please note that your bank while issuing the BG ensures that the above information is correctly captured
as mentioned above in the BG advising message i.e. 760COV

In case of any error by the applicant or BG issuing banker, neither GEM nor its service partners would be
responsible for any consequences whatsoever it may be.
Note:
1) If the issuing bank does not adhere to advisory GeM will not be responsible.
2) PBG shall be issued within 72 hours by the SFMS otherwise the system will not recognize the receipt
for placing the order by the buyer.
3) The bank shall mandatorily use SFMS 760COV message protocol for inland BG.
4) Download the IBA Guide Line of SFMS from https://gem.gov.in/support for the details instructions.

---Thank You---

 Expiry:-
Expiry Date:
- Marks the end of the guarantee or letter of credit's validity
- After this date, the bank is no longer liable to pay
- Typically, the last day of the guarantee or letter of credit's term

Claim Expiry Date:

- Marks the last day for the beneficiary to submit a claim

- If the beneficiary fails to submit a claim by this date, they may lose their right to make a claim

- Typically, 1 year after the expiry date of the guarantee or letter of credit
  Reduction:-

Types of reduction:

1. Partial reduction:
Decreasing the guarantee amount while maintaining the original tenure. For example, the
guarantee amount can be reduced from $100,000 to $80,000 while keeping the original 12-month
tenure.

2. Proportional reduction:
Reducing both the guarantee amount and tenure proportionally. For example, reducing the
guarantee amount from $100,000 to $80,000 and the tenure from 12 months to 9 months.

3. Tenure reduction:
Shortening the guarantee tenure while maintaining the original amount. For example, reducing
the tenure from 12 months to 9 months while keeping the original guarantee amount of $100,000.

 PROCESS:-

1. Request from the applicant to the issuer (bank):

The party that requested the Bank Guarantee (applicant) submits a formal request to the bank
(issuer) to reduce the guarantee amount or tenure. This request should be in writing and provide
justification for the reduction.

2. Review and approval by the issuer:

The bank reviews the request, assesses the applicant's creditworthiness, and evaluates the reasons
for the reduction. If satisfied, the bank approves the reduction and updates the guarantee terms.

3. Amendment to the existing BG agreement:

The bank and applicant sign an amendment agreement modifying the original Bank Guarantee
contract. This amendment outlines the reduced guarantee amount or tenure.

4. Updated documentation reflecting the reduced guarantee amount or tenure:

The bank issues updated documentation, such as a revised Bank Guarantee certificate or letter,
reflecting the reduced guarantee amount or tenure.

Additional considerations:

i. Fees: The bank may charge fees for processing the reduction request.
ii. Collateral: The bank may require additional collateral or security to support the reduced guarantee.
iii. Credit assessment: The bank may reassess the applicant's creditworthiness before approving the
reduction.
iv. Counter-indemnity: The applicant may be required to provide a counter-indemnity agreement to
support the reduced guarantee.
  Advantages & Dis-Advantages:-

Seller’s Perspective:-
Advantages Dis-Advantages
1. Guaranteed Payment:- A Bank Guarantee 1. Cost: The seller may need to pay a fee to the
ensures that the seller receives payment even if the bank for issuing the guarantee.
buyer defaults.
2. Reduced Risk:- The seller's risk is 2. Collateral: The seller may need to provide
minimized, as the bank takes on the responsibility collateral to secure the guarantee.
of payment.
3. Increased Credibility: A Bank Guarantee
can enhance the seller's credibility and reputation.

Buyer’s perspective:-
Advantages Dis-Advantages
1. Protection: A Bank Guarantee protects the 1. Cost: The buyer may need to pay a fee to the
buyer's interests by ensuring that the seller meets bank for the guarantee.
their obligations.
2. Security: The buyer can claim payment from 2. Conditional: The guarantee is usually
the bank if the seller fails to perform. conditional, meaning the buyer must meet specific
requirements to claim payment.
3. Security: The buyer can claim payment from
the bank if the seller fails to perform.

 A Bank Guarantee (BG) can be revoked in the following cases:-

1. Expiry: If the BG has an expiry date, it will automatically terminate on that date, unless it's explicitly
extended or renewed.
2. Fulfilment: If the beneficiary (seller) fulfills all the obligations and conditions specified in the BG, the
guarantor (bank) may revoke the BG.
3. Cancellation: In case of a dispute or agreement between the parties, the BG can be canceled by mutual
consent or by court order.
4. Default: If the applicant (buyer) defaults on their obligations, the bank may revoke the BG.
5. Fraud: If fraud or illegality is detected in the BG or underlying transaction, the bank may revoke the BG.

 CANCELLATION POLICY:-

1. Cancellation by Applicant:- The applicant (the party requesting the guarantee) can cancel the
guarantee by submitting a written request to the bank. The bank may charge a cancellation fee.
 2. Cancellation by Bank:- The bank can cancel the guarantee if:
i. The applicant fails to pay the guarantee fee or other charges.
ii. The applicant violates the terms and conditions of the guarantee.
iii. The bank receives a court order or instruction from a competent authority.

3. Refund of Fee:- If the guarantee is canceled, the bank may refund a portion of the guarantee fee,
depending on the bank's policy.

4. Notice Period:- The bank may require a notice period (e.g., 7-30 days) before canceling the
guarantee.

5. Counter Indemnity:- The applicant may be required to sign a counter indemnity, which holds
the bank harmless for any claims or losses arising from the cancellation of the guarantee.

 EXAMPLE:-

EXAMPLE
BG Amount Rs 10,00,000
period
issue date 18-06-2024
exp date 17-06-2025
claim exp date 16-09-2025
Charges 0.45% PA+GST
Postage 500+GST
SFMS charges 1000+GST
 BG
Amount 10,00,000
charges 4500
GST 810
Postage 500
GST 90
SFMS charges 1000
GST 180
TOTAL 10,07,080
 DIFFRENCE BETWEEN LETTER OF CREDIT & BANK
GUARANTEE:-

BANK GUARANTEE LETTER OF CREDIT

A BG is a commercial instrument. An LC is a commitment Agreement.

It is an assurance given by the bank for a non- It is an assurance given by the bank or any other
performing activity. financial institution for a performing activity.

If any Activities fail, the bank guarantees that the It guarantees that the importer will make the
dues will be paid. payment subject to the conditions mentioned in the
LC.