SAMPLE CASE STUDIES – International Business
Case Study 1 - Documentary Credit M/S Auto India
Introduction M/S Auto India is a public limited company; they manufacture SUVs (sports utility vehicle), in technical collaboration with General Motors of USA. The company has established their manufacturing base at Ranjangaon in Pune. They have acquired an area of 250 acres and the total project cost is estimated at Rs 1500 crores. As per the projections, the company is slated to achieve a 25% market share in the Indian market, within a period of two years. Out of the total project cost, 49% is brought in by General Motors and the rest is tied up with financial institutions, international banks ...view middle of the document...
The Bank’s head office transmitted the credit through Swift network as
instructed by its Pune branch to General Motors, Detroit, through The American Bank, New York. Advising Bank The American Bank, New York advised the credit to General Motors, Detroit on receipt of the swift transmission. Credit Along with other conditions, the credit clearly stated that the negotiating bank was to forward the documents directly to Global Bank’s head office at Pune. Beneficiary After export of the consignment, General Motors, Detroit presented the documents under the credit to The American bank, New York. Negotiating Bank The American Bank, New York, examined the documents presented by General Motors and determined that they were in compliance with the terms and conditions of the credit. The American bank negotiated the documents and forwarded the documents, as per the credit terms, to the HO of Global Bank in Pune and claimed reimbursement from International bank, New York. Reimbursing Bank International Bank, New York honoured the reimbursement claim by crediting the current account of the American Bank, New York and debiting the account of Global Bank, Pune, in its books. Issuing Bank Head Office Global Bank’s Head Office, at Pune, received the documents and after internal registration of the documents, forwarded the documents to its Pune Branch by inter-office mail.
Issuing Bank Branch On receipt of the documents by the Pune branch of Global Bank, they examined the documents and determined that they were discrepant. They were (a) 60 units were shipped instead of 50 units, thereby overdrawing the credit value by USD 2000 (b) Inspection certificate by Auto Inspection Council, USA is not submitted, as per credit terms. Global Bank contacted Auto India for waiver of the discrepancies.
Applicant Auto India requested for copies of the documents to be forwarded by fax and after reviewing the same, they refused to waive the discrepancies.
Issuing Bank Branch Global Bank, Pune Branch instructed its HO to transmit an authenticated swift to The American Bank, New York stating that Global Bank had rejected the documents for the noted discrepancies, requesting the American Bank’s instructions as to disposal of the documents, and demanding a refund of the funds reimbursed. Issuing Bank Head Office The HO of the Global Bank sent the authenticated swift message to the American Bank, New York, as instructed by its Pune Branch. Negotiating Bank On receipt of the swift notification advising that Global Bank had rejected the documents for the stated discrepancies, the American Bank informed Global Bank that it did not accept the rejection of the drawing since the Global Bank did not comply with UCP 600 sub-article 14 for standard examination of documents. Therefore, Global Bank was said to be stopped from dishonouring its irrevocable obligation. Issuing Bank Global Bank, Pune Branch responded by stating that they acted in accordance with UCP article 14, since...