In a dispute between an export finance company and an issuing bank over a dishonoured letter of credit, a High Court has reaffirmed two settled but frequently litigated principles of documentary credit law: the autonomy of a letter of credit from the underlying sale contract, and the doctrine of strict compliance under the Uniform Customs and Practice for Documentary Credits (UCP 600). The issuing bank had refused payment against a letter of credit opened in favour of Kavery Exports Pvt. Ltd., citing discrepancies in the shipping documents presented, but had issued its refusal notice beyond the five-banking-day window prescribed under UCP 600 Article 14(b), and had not itemised each discrepancy with the specificity Article 16 requires.
The Court held that a bank examining documents under a letter of credit must, within five banking days following presentation, either honour or dishonour the documents, and if dishonouring, must issue a single notice stating each and every discrepancy relied upon along with a clear statement of disposition of the documents. A generic or catch-all discrepancy notice, or one issued after the prescribed window, does not preserve the bank's right to refuse payment: the bank is precluded from later raising discrepancies it did not specify in time.
The Court also rejected the bank's attempt to import disputes about the quality or quantity of goods actually shipped, a matter properly belonging to the underlying sale contract between buyer and seller, into the letter of credit transaction itself. Banks dealing in documentary credits deal in documents, not goods, and their payment obligation turns solely on whether the documents presented comply on their face with the credit's terms.