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Analysis Of Letter Of Credit As An Financial Instrument And Its Legal Development

Buying or selling something carries a certain amount of danger, particularly if you're unfamiliar with the company you're dealing with. Even if you have reliable business partners, unexpected events may trigger major disruptions with severe financial consequences. There are, luckily, ways to and the risk. When it comes to negotiating payment terms, confidence is key. On the riskier end of the continuum, trade may be performed on open account terms, where the seller accepts the risk of not being paid.

A Letter of Credit, or LC, is a less costly payment system that helps foreign trade and a number of other transactions go more smoothly. Buyers and sellers can save money by using a letter of credit.

Buyers and sellers may reduce their risk, ensure prompt payment, and be more secure in the delivery of goods or services with a letter of credit. Learning about the various forms of letters of credit will help you determine which one to use and better understand what you're dealing with.

However, working with letters of credit has a number of disadvantages, as they are not available to anyone and require a number of professional procedures, making the whole process very difficult and time-consuming. The researcher will test the reliability, credibility, and validity of using Letters of Credit in International Transactions in the Research Paper.

Research Methodology
The research approach used in this study is doctrinal methodology. There were no surveys conducted for this study; instead, data was gathered from primary sources such as acts and laws, as well as secondary sources such as journals, books, and blogs. The knowledge comes from reliable and legal sources. In addition, the location where data was collected is specified in the final work.

The study is doctrinal rather than empirical, and it is focused on the hypothesis given above, which is only an assumption made by the researcher in his project, and there is no definitive proof of it. As the research progresses, it will become apparent whether the hypothesis holds true or is debunked. The citation style used in this project will be Oscola fourth edition, with footnotes instead of endnotes, and all citation rules will be followed in the project. The study for this project is divided into the following sections:

Structure of Research Paper
  • Review of Literature
  • Statement of Problem
  • Hypothesis
  • Research Questions
  • Objectives of the Research

Review Of Literature
Research Papers
  • Vladimir Anatole ich's A Letter of Credit as an Instrument to Reduce Risks and Increase the Quality of Foreign Trade Transactions[1]
    This research paper was about the history of international trade and the role of letters of credit in promoting international trade in various countries such as Russia, India, and others. It was useful in understanding the history of letters and then commenting on the current state of affairs.
     
  • Trade Finance Fundamentals International Trade Payment Strategies [2]
    Daniele Giovannucci is the author of this article. This research paper discussed a variety of payment methods, but the commercial letter of credit was particularly useful for the research and material, as it improved the reader's understanding of the letter of credit and its applications.
     
  • Letter of Credit Risk Analysis Using the Principles of "Independence" and "Strict Compliance" Yan Hao Ling Xiao, Yan Hao Ling Xiao, Yan Hao Ling[3].
    This research paper, which was published in the international Journal of Social Science, discusses in detail the practical aspects of letter of credit and the risk associated with letter of credit to the exporter and importer, as well as the other important aspects of letter of credit and enforcement involved in these processes.

United Nations Documentary In Commodity Trade
These are the United Nations guidelines for international letter of credit transactions, which in several ways explore the technicalities involved in international business.

Documentary Credit Law: An Indian Perspective[4]
This is a study in international trade law. Documentary credits are the most common method of payment for goods in international trade. In India also these instruments are used both in national and international trade. The law governing these transactions remains haphazard. This study identifies the deficiencies in the regulatory framework for documentary credits in India

Books
  • Avatar Singh- Contracts and Specific Relief & Pallock&Mulla is a book by Avatar Singh and Mulla[5].
These books improve one's understanding of the Indian Contract Act's basic principles, as well as a brief understanding of letters of credit, as well as the concepts of bank guarantee and indemnity.

Online Sources
A number of online sources such as websites, articles are being used in the research that would be cited in bibliography

Statement Of Problem
There are a number of advantages and disadvantages to using letters of credit in international transactions, which leaves businesses undecided on whether to use them or not. Additionally, the lack of a specific law on letters of credit poses concerns.

Hypothesis
The positives of a credit letter clearly outnumber the drawbacks. Despite the fact that many foreign rules have been developed, developing a single unified law on documentary credits has proven problematic due to the complexities of international trade.

Research Questions
  • The researcher will try to answer the following questions in this research paper
  • What is the meaning of a letter of credit?
  • What are the basic terms for a letter of credit?
  • What are the various types of credit letters?
  • What are the benefits and drawbacks of using a letter of credit?
  • In a foreign transaction, how does a letter of credit work?
  • What are laws surrounding letter of credit?

Objectives Of Research
The study's goals are as follows:
  • To read more about letters of credit and their meaning in international transactions
  • To weigh the benefits and drawbacks of using a letter of credit
  • To compare the benefits and drawbacks of a letter of credit in order to comment on its reliability.
  • To analyses the legal position of letter of credit in various countries

Introduction To The Credit Letter
A letter of credit is a paper that assures the seller that the buyer can pay the seller. It is issued by a bank which assures that the vendor is paid on time and in full. If the buyer is unable to make such a deposit, the bank pays the whole or residual balance on the buyer's behalf. A letter of credit is a document that is given in exchange for a promise of securities or currency.

Banks usually charge a premium, which is typically a portion of the letter of credit's size/amount. Letters of credit are a secure payment system in international trade because of reasons such as distance, different laws in each region, and the lack of personal communication during international trade.

Letters of credit used in financial transactions are governed by the International Chamber of Commerce's Uniform Customs and Practice for Documentary Credits. A Letter of Credit, also known as a Documentary Credit, is a commitment made by a bank on behalf of the buyer (applicant/importer) to pay the seller (beneficiary/exporter) a certain amount in the negotiated currency if the seller submits all relevant documentation by a certain date. A Letter of Credit/Documentary Credit is a widely used device for trade settlements all around the world.

It is a bond between buyers and sellers that strengthens the buyer's reputation by inserting his banker's promise to pay, while sellers must ship designated goods and present shipping documents to banks before receiving payment. Thus, in foreign trading, where buyers and sellers are located in two separate countries, or even continents, the letter of credit serves as a useful tool, assuring sellers of products of payment and buyers of shipping documentation as required by the credit agreement.

It's a formal promise from an issuing bank to the beneficiary to pay within a certain time frame in exchange for the presentation of documents that specifically follow the credit terms. As a result, as long as the exporter delivers the documentation in full accordance with the loan, the possibility of nonpayment by the buyer is passed to the issuing bank (and the confirming bank if the letter of credit is confirmed). It's important to note that with a letter of credit agreement, the sides are dealing with paperwork, not goods. with the bank's payment guarantee, as long as the credit terms are met. The importer will use the letter of credit to ensure that all contractual documentary specifications are fulfilled by making them provisions of the letter of credit.

Having a brief idea now about what exactly is letter of credit let's look at the various definition of letter of credit and try to a draw a comprehensive description of the term.

"An open letter of order, in which one person (usually a merchant or a banker) asks some other person or persons to advance moneys or offer credit to a third person named therein, for a certain sum, and agrees to refund the same to the person advancing the same, or grant bills drawn upon himself, for the same amount," according to an early period Story. When it is addressed to all retailers or other people in general, requesting such an advance to a third party, it is called a general letter of credit; when it is addressed to a specific person by name, requesting such an advance to a third person, it is called a special letter of credit[6]."

A documentary letter of credit is described by Hart as follows: "Where the bank undertakes to accept draughts against documents of title to commodities, with details of the merchandise in respect of which the bills are to be drawn being specified, it is a "documentary Credit." [7]"

Davis came up with a revised definition." "A letter in which one person (usually a merchant or banker) guarantees another person (who is either identified in the letter, or to whom the letter is supposed to be shown and who is" he describes it.[8]

"A letter of credit is in essence an obligation by a banker to follow draughts drawn under the credit by the credit beneficiary in compliance with the terms laid down therein," according to Halsbury's Laws of England.

" Letters of credit is an engagement by a bank or other individual made at the behest of a client that the lender will honor draughts or other requests for payment upon complying with the terms stated in the credit," according to Black's Law Dictionary.

In, the court attempted to define a letter of credit."

"A typical letter of credit transaction consists of three separate and independent relationships: an underlying sale of goods contract between the buyer and the seller, an agreement between a bank and its customer (buyer) in which the bank agrees to issue a letter of credit, and the bank's subsequent commitment to pay the beneficiary (seller) if such documents presented to the bank are presented. Importantly, the bank's reimbursement duty to the recipient is principal, direct, and unaffected by any claims arising from the underlying selling of goods transaction."

Let's take a look at the stakeholders interested with a letter of credit and get a better picture of the idea.

Parties Involved In International Trade/Credit Transactions/Letter Of Credit
  • The buyers/importers or the claimant whose LC is opened on their behalf
  • The LC beneficiary or the sellers/exporters,
  • The LC is established by the opening bank (buyers bank).
  • The advising bank (the bank in the seller's country), which serves as the issuing bank's agent and authenticates the LC,
  • The confirming bank is the bank that agrees to pay on behalf of the issuing bank.
  • The bank that is negotiating (sellers bank or bank nominated by the opening bank),
  • The negotiation or verifying bank is reimbursed by the reimbursing bank. It's possible that the advising, verifying, and bargaining banks are all the same.

Types Of Credit Letters
  • Letter of Credit for Commercial Transactions
    A commercial letter of credit, also known as a documentary credit or an import/export letter of credit, is a regular letter of credit that is widely used in foreign trade. When any of the terms of the deal have been reached, a bank serves as an impartial third party to release assets.
     
  • Letter of Credit on Standby Transactions
    This form of letter of credit is unique in that it guarantees payment if anything goes wrong. A standby letter of credit, rather than facilitating a contract, compensates when something goes wrong. Standby letters of credit are identical to commercial letters of credit except that these are only payable if the payee (or "beneficiary") may show that they did not get what was promised in a contract. Standby letters of credit are a type of policy that guarantees you'll be billed and that services will be completed satisfactorily.
     
  • Letters of Credit, Confirmed (and Unconfirmed)
    When a letter of credit is confirmed, payment is guaranteed by another bank (presumably one that the recipient trusts). Exporters may be wary of a bank that offers a letter of credit on a buyer's behalf. If the exporter is unfamiliar with the bank, for example, the seller will be skeptical that the payment will ever come. As a result, the exporter could request that the letter be confirmed by a bank in their home country. If the issuing bank fails to pay, and the exporter meets all of the letter of credit's conditions, the verifying bank must pay the exporter.
     
  • Letters of Credit Followed by Letters of Credit
    Intermediaries can bind buyers and sellers using back-to-back letters of credit. This convoluted tactic employs two letters of credit to ensure that each side is paying separately: the customer pays the intermediary, and the intermediary pays the seller. A "master" letter of credit may be used by the final buyer and the broker, with the intermediary and supplier using a letter of credit depending on the master letter.
     
  • Revolving Letters of Credit
    They are a type of credit that can be used again and again. For several payments, a revolving letter of credit is helpful. If a buyer and seller anticipate doing business again, they may choose not to obtain a new letter of credit for each purchase (or for every step in a series of transactions). This form of letter of credit requires companies to use a single letter of credit for many loans before it expires, which may be three years or less.
     
  • Letter of Credit on Sight
    Payment is made under a sight letter of credit as soon as the beneficiary provides the relevant bank with suitable documentation. The bank has several days to review the records and ensure that they comply with the letter of credit's conditions. The bank must pay automatically if the papers are in good condition.
     
  • Letter of Credit with Deferred Payment
    Pay does not occur directly until the certificates are approved for this kind of letter of credit. Before the purchaser collects money, a certain amount of time must pass. A deferred payment letter of credit is obviously a better option for buyers than for sellers, since it gives the buyer enough time to detect a flaw in the seller's behavior. Word or usance letters of credit are other names for these letters.
     
  • Letter of Credit with a Red Clause
    A red clause allows the recipient to get cash right away. The buyer consents to the issuance of an unsecured loan as part of the letter of credit, which functions as an advance payment. The money will then be used by the vendor or beneficiary to purchase supplies, produce merchandise or complete jobs, and send goods to the buyer.
     
  • Letter of Credit (Irrevocable)
    A letter of credit that is irrevocable cannot be modified without the consent of all parties involved. Since revocable letters of credit do not have the protection that most beneficiaries need, almost all letters of credit are now irrevocable.
     
The concept of an irrevocable credit was established in 1951 by Article 5 of the U.C. P[9]. "Irrevocable credits are a definite undertaking by an issuing bank and constitute the engagement of that bank to the beneficiary or, as the case may be, to the beneficiary and bona fide holders of draughts drawn there under that the provisions for payment, acceptance, or negotiations included in the credits will be duly fulfilled provided that the documents or, as the case may be.

Letter Of Credit Application/Process
Now its talk of about steps in letter of credit transactions
  • Sales Agreement
    The purchase contract is a written arrangement between the buyer and seller that lays down the terms of the deal that both sides have agreed to. A summary of the items, the quantity, the unit price, the terms of delivery, the time allowed for shipping and display of records, the currency, and the mode of payment should all be included in the contract.
     
  • Agreement & Application
    When filled out and signed, the bank's letter of credit application and arrangement forms form a loan and repayment deal between the issuing bank and the consumer. That is also the issuing bank's guidance to the customer.

    The deal, which usually takes the form of a permission to debit the customer's account, is a promise by the customer to repay the issuing bank for drawings paid in accordance with the terms of the letter of credit.
     
  • The Letter of Credit is issued
    The issuing bank prepares the letter of credit and sends it to the advising bank as stated in the application (a branch or correspondent of the issuing bank). According to their customer's orders, the issuing bank instructs the advising bank whether or not to include its validation.
     
  • Advisory Bank
    The advising bank sends the letter of credit to the beneficiary (seller) thus claiming that it has no promise. However, if the advising bank is approached to validate the letter of credit and accepts, it will have a provision promising to honor the beneficiary's draughts if the papers show that any of the letter of credit's terms and conditions have been met.
     
  • Goods transportation
    When the beneficiary receives the letter of credit, he or she can closely review it to ensure that any of the terms and conditions will be met. If this is not practicable, the recipient should insist that the claimant arrange for a letter of credit extension. The beneficiary will be able to assemble and transport the goods until he or she is fully fulfilled.
     
Beneficiary's Presentation of Documents
The beneficiary creates an invoice in the appropriate number of copies, with the goods definition exactly as specified in the letter of credit. The beneficiary obtains the bill of lading and/or other transportation documents from the courier, as well as all other documents required by the letter of credit, and prepares and/or obtains them. These are added to the drafted and addressed to the advising/confirming/negotiating bank, drawn on the bank indicated and for the period specified in the letter of credit.

Documents to be sent to the Issuing Bank
The counselling, confirming, and negotiating bank compares the seller's papers to the letter of credit. If the documents follow the letter of credit's conditions, the receiving bank may deliver them to the authorizing bank, who will demand repayment and compensate the seller. The issuing bank will also search the documentation for conformity before delivering them to the borrower, either against payment or as an agreement to pay on maturity.

Benefits Of A Credit Letter
  • Expanding Your Company Internationally in a Safe Way
    A letter of credit allows trading partners to do business with undisclosed parties or in new business relationships. It assists them in rapidly extending their company into new geographies.
     
  • Exceptionally adaptable
    A letter of credit may be tailored to your specific needs. All trade parties should have terms and conditions that fit their needs and come up with a joint list of clauses. It can also be customized from one exchange to the next if the trading parties are the same.
     
  • Money is given to the seller if the terms are met.
    A letter of credit establishes the issuing bank's independence from the commitments of the trading partners, as well as any conflicts that might arise as a result of those obligations. The bank just has to verify if the beneficiary's papers meet the letter of credit's terms and conditions before paying the maximum sum.
     
  • Buyers may use it as a credit certificate.
    The creditworthiness of the importer or consumer is transferred to the issuing bank by a letter of credit. If an importer is backed by a well-established and larger entity, such as a bank, he can conduct many transactions at once.
     
  • There is no credit risk for the seller.
    In the event that the retailer or importer goes bankrupt, a letter of credit protects the seller or exporter. Since the importer's creditworthiness has been passed to the issuing bank, it is the bank's responsibility to pay the amount specified in the letter of credit. As a result, a letter of credit protects the exporter against the liability of the importer's company.
     
  • For creditworthy parties, it is simple to implement.
    A letter of credit may be written in a matter of minutes. The seller or exporter must present evidence of commodity type and quantity, as well as shipping certificates, to validate his argument that the items have been delivered, according to the original terms and conditions. The advising bank would check the paperwork and process the payment in full.
     
  • In disputed transactions, payment is guaranteed.
    In the event of a disagreement between trade parties, the exporter has the option of withdrawing the funds as agreed in the letter of credit and resolving the issue later in arbitration. The courts characterize the beneficiary's entitlement to the whole sum as "pay now, litigate later."
     
  • Payments made on time result in better cash flow planning.
    A letter of credit ensures that the volume and timing of an exporter's cash flows are both predictable. He can prepare ahead of time for his funding needs, lowering his risk.
     
  • Sellers will get pre-shipment financing.
    A letter of credit may be used to provide pre-shipment finance for the exporter. This aids him in filling any funding holes that might exist.

The Disadvantages Of Letter Of Credit
  • Bank Fee (additional cost)
    The cost of doing business is increased by using a letter of credit. Banks charge a premium for this service, which will rise dramatically if the parties wish to add any extra functionality
     
  • Formalities that take up a lot of time
    In a letter of credit, the necessary paperwork and formalities can be more. This could increase the cost of doing business.
     
  • Misuse Possibility - Fraud Risk
    A letter of credit has complicated laws, and certain well-known buyers or sellers can take advantage of them. A letter of credit exposes the importer to a significant chance of theft. The bank would pay the exporter based on the shipping records rather than the products' real condition. If the standard does not match what was settled upon, a dispute will occur.
     
  • Currency hazard
    A letter of credit is therefore subject to currency risk. In the letter of credit, there would be an agreed-upon currency. At least one of the parties would be using a different currency, putting them at risk from currency fluctuations. It may also be advantageous.
     
  • Time Is Running Out
    A letter of credit has an expiration date, so the exporter has a certain amount of time to supply the goods by whatever means necessary. This haste will also result in a disaster.
     
  • Issuing Bank Risk of Default
    The creditworthiness of the importer is transferred to the issuing bank through a letter of credit. So, even though the issuing bank defaults, the exporter still faces a payment risk. Though the exporter can stop it if the advising bank promises payment, the cost of the letter of credit will rise as a result.

Legal Developments
Documentary credits are said to have been invented in association with the exchange in commodities in the Middle Ages." However, it is commonly thought to have originated only in the nineteenth century. It wasn't commonly used until after World War I." Letters of credit are known to have been used in Renaissance Europe, Imperial Rome, ancient Greece, Phoenicia, and even early Egypt." They were first used in foreign trading to minimize the possibility of expanding credit to uncertain customers. They developed as a mercantile specialization distinct from common law contract principles, according to Richard Schaffer.

The letter of credit was first used to provide currency to an individual in another country, equivalent to the bill of exchange, which eliminated the need to bring money for trade. They were also used by Popes, Princes, and other rulers seeking advancements for their servants in their early forms. To explain where the new documentary credit came from, one must first understand the conventional letter of credit. The below are the main characteristics of a typical letter of credit:

In the United States of America, there has been a lot of change. Perhaps the United States of America is the only country where a statute regulating letters of credit has reached the legislative level. The United States' banks started a more serious effort to establish letter of credit lending in the 1920s. Aside from that, American courts have a heavy propensity to regard documentary credits as mercantile instruments.

When a general usage has been judicially ascertained and developed, it becomes a part of the law merchant, which courts of justice are obliged to know and understand," wrote Lord Campbell. The American Law Institute and the Conference of Commissions on Uniform State Laws collaborated on the Uniform Commercial Code, which governs letters of credit. Letters of credit are dealt with in Article 5 of the code.

It goes over some of the fundamentals of letters of credit. It gives power to vary the terms of an arrangement by excluding statutory terms notwithstanding statutory enactment. States started to implement the U.C.C. in the late 1950s and early 1960s, with the purpose of resolving state jurisdictional gaps. Article 5 was based on a small body of current legislation covering letters of credit at the time, and it made little effort to build on it. In 1995, the United Nations Charter's Article 5 was revised.

The U.C.C.'s amended Article 5 shows that the U.C.P. is the basis for much of the formal specifications and descriptions of letters of credit. As a result, the U.C.C. recognized the need for instrumental uniformity and replied by aligning the Article 5 rules with existing custom and procedure, resulting in sound governance requirements for letters of credit transactions. It has made a significant contribution to the establishment of the legislation regulating letters of credit in other nations.

The laws of the Chamber of Commerce are usually observed and recognized by courts in most countries. The Standardized Customs and Practice for Documentary Credits establishes a series of international rules that commercial banks must adhere to in their letters. These regulations are not the product of policymakers' efforts. They are the work of private bankers who gathered under the auspices of the International Chamber of Commerce's Commission on Banking Technique and Procedure to draught the guidelines and have practice-based interpretations of their purpose. Although the U.C.P. is not legally a statute, it is commonly used by courts in the countries to resolve letter of credit disputes.

India's Development
In India, there is no specific law regulating documentary credit. Apart from the laws developed by associations of traders and trading practices, apply common law contract principles, special rules of indemnity and suretyship. The documentary credit case shows that courts only intervene and issue temporary injunctions under extraordinary cases. The Contract Act of 1872 was used to decide the majority of the proceedings that appeared before the courts. The rights of the parties under the instrument are determined by the courts based on the specific provisions of the arrangement they have entered into. the words in Texaco v. State Bank of India.

The terms of the guarantee were big in Texaco v. State Bank of India. [10]On appeal, the bank agreed to reimburse the beneficiary. It was also decided that the beneficiary's decision on the banks' guarantee liabilities would be definitive and binding. The Calcutta High Court declined to issue an injunction preventing the bank from paying the beneficiary.

The beneficiary's enforceability is determined by the terms of the bank guarantee, according to the court. The guarantor bank cannot be held liable for failing to meet its commitments under the guarantee. The priority granted by Indian courts to guarantee terms can be seen in a decision by the Delhi High Court.

The value granted by Indian courts to guarantee terms can also be seen in a decision issued by the Delhi High Court. On the grounds of non-compliance with the tamis of guarantee, the court declined to prevent the bank from making payment to the recipient. In the Union Bank of India, her bank was required to make the deposit until the beneficiary invoked the guarantee and made a claim. The Kerala High Court took a similar stance when the only prerequisite for invoking assurance was a petition from the government.

When the requirement for invoking assurance was just a claim from the beneficiary, the Kerala High Court took a similar stance. a reason to prohibit the recipient from relying on the guarantee. There was a peculiar word. bank guarantee that the guarantee could be invoked only upon the violation of the particular term, according to Hindustan Construction Co. Ltd v. State of Bihar[11]. It was decided that invoking a bank guarantee had to be done in accordance with the guarantee's terms, or else the invocation would be invalid

The Supreme Court examined the application of the merchants' code of conduct in Federal Bank Ltd v. Engineering Ltd[12]. The court took note of this.

When struggling with letters of credit or bank guarantees, Indian courts have attempted to incorporate the principle of equity. In Harris/ 'lad &Co Ltd v. Sudarshan Steel, the High Court of Delhi noted that, while the law generally states that liability arising out of unilateral commercial credit contracts, such as letters of credit, bank guarantees, and performance bonds, is absolute, the parties' intention as gleaned from a reasonable construction of the language of the particular contract is not. In dealing with documentary credit transfers, Indian courts often observe the mercantile codes of procedure, which are widely agreed.

For egg, in Tara pore & Co. v. Tractors [13]Export Moscow, the Supreme Court affirmed the value of the International Chamber of Commerce's Uniform Customs and Practice for Documentary Credits. In United Commercial the question of the applicability of U.C.P. was posed again in a disagreement over the banker's responsibility arising out of a letter of credit deal. "Banker's commercial credits are virtually without question made subject to the specification named the Uniform Commercial Credit Code, the count noted.

Customs and Practices for Documentary Credits,' which states that the General Provisions and Definitions, as well as the Articles that accompany, "apply on all documentary credit and are binding upon all parties thereto unless expressly agreed upon."

The Supreme Court examined the application of the merchants' code of conduct The UCP would not apply in the absence of incorporation, according to the court. However, it can be seen as part of mercantile customs and traditions. The majority of them are considered common law. In terms of legal standards in documentary credits, India does not tolerate any debate or uncertainty. The courts will not intervene.

The courts would not intervene in the application of these devices. They depend on precedents from other countries that create broader propositions. the Supreme Court declined to use the broader concept of fraud exemption in India. In this case, an injunction was granted against the execution of a bank guarantee.

In India, the Reserve Bank of India also oversees letter of credit transactions. It issues circulars to regulate these transactions from time to time. Banks are allowed to conduct "any kind of letters of credit, warranties, and indemnity business" under the Banking Regulation Act of 1949. Banks are required to comply with Reserve Bank guidelines.

Banks should limit themselves to the issuance of letters of credit, according to Reserve Bank guidance, and exercise due caution in honoring these instruments. principles of the United Conservative Party (UCP). Apart from that, the Foreign Exchange Dealers Association of India, a voluntary trade association, has advised its member banks that all letters of credit opened by them with effect from January 15, 1994 should have the following clause: Unless otherwise expressly specified, this Documentary Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International

In India, the revamped U.C.P.600 7 is yet to be introduced. It is important to take into account the developments that have occurred on a global scale.

Conclusion
After the research we find that the pros of letter of credit are far more than its cons also there are some universal legislations that have been framed for letter of credit but we find there is no specific legislations in countries they follow the general international norm and they are also guided by foreign precedents. Hence the hypothesis assumed in the beginning of the research stands absolutely true.

Bibliography
Research Papers
  • (REVISTA Vol39,2018 Pg31) 'last accessed 3/4/2020
  • Daniele Giovannucc, Basic Trade Finance Tools: Payment Methods in International trade
  • (International Journal of Business of Social Science,Vol4 NO .9 August 2013
  • Sushmita P Malaya, Documentary Credit Law: An Indian Perspective (Cochin University of Science September 2007
Books
  • Dr Avtar Singh, LAW OF CONTRACT (A Study of the Contract Act, 1872) and Specific Relief (12th edition, Eastern Book Company, 34, Lalbagh, Lucknow-226 001 under licence from EBC Publishing (P) Ltd., Lucknow available at
Online Sources
  • cleartax.in/s/letters-of-credit#: ~:text=A%20letter%20of%20credit%20is, on%20behalf%20of%20the%20buyer.
  • efinancemanagement.com/sources-of-finance/advantages-disadvantages-letter-credit
  • www.investopedia.com/terms/l/letterofcredit.asp
  • www.thebalance.com/types-of-letters-of-credit-315040
End-Notes:
  1. (REVISTA Vol39,2018 Pg31) available at<>'last accessed 3/4/2020
  2. Daniele Giovannucc, Basic Trade Finance Tools: Payment Methods in International trade available at <>'last accessed 3/4/2021
  3. (International Journal of Business of Social Science, Vol4 NO .9 August 2013 available at<>'last accessed at3/4/2021
  4. Sushmita P Malaya, Documentary Credit Law: An Indian Perspective (Cochin University of Science September 2007 available at<>,'last iacessed 3/4/2020
  5. Dr Avtar Singh, LAW OF CONTRACT (A Study of the Contract Act, 1872) and Specific Relief (12th edition, Eastern Book Company, 34, Lalbagh, Lucknow-226 001 under license from EBC Publishing (P) Ltd., Lucknow available at'last accessed 3/4/20201'
  6. A. G. Davis, The Law Relating to Commercial Letters of Credit, Sir Isaac Pitman & Sons Ltd., London (1963), p. I.
  7. Herbert L. Ha1t, Law of Banking, Stevens & Sons Ltd., London (1931)
  8.  ibid (n.6)
  9. Uniform Custom Practices Article 5,1951
  10. AIR 1979 Cal 44, (1981) 1 Comply 356 Cal
  11. AIR 1963 Pat 254
  12. 2001 1 SCC 663 : AIR 2000 SC
  13. 970 AIR 1168, 1969 SCR (2) 699

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