SME: 'Due date of sight bill should be counted from date of presentation'

What a firm seeking supplies from abroad on credit should do in case there is an error in the contractual documents

Q. We had contracted with an overseas party for supply of certain goods on 90 days’ credit. By mistake, he sent the documents payable at sight through banking channels on collection basis. Later, he arranged with his bank (the remitting bank) to send a SWIFT-authenticated message to our bank (the collecting bank), changing the tenure to 90 days. Can our bank act on such an instruction or ask for a bill of exchange at 90 days’ sight, and if our customer does send such a bill of exchange through his bank, will the due date be 90 days from the date of the presentation of the bill of exchange? Does our bank have the option of asking us to put our acceptance on the face of the bill (as received), agreeing to pay on maturity, i.e. 90 days from the date of the presentation of the sight bill?

The collecting bank, i.e. your bank, must, through the remitting bank, call for a bill of exchange at 90 days sight from your supplier and when this is received through the remitting bank, make a presentation to you in accordance with the instructions of the remitting bank and Article 6 of the ICC’s Uniform Rules for Collection (URC 522). The due date will be reckoned at 90 days from the date of presentation, i.e., when the drawee is sighted. The collecting bank will not take recourse to the other option mentioned by you.

Q. Can any Indian entity engaged in any commercial activity open a foreign currency account outside India? Or is the facility available only to exporters?

Regulation 5 of the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015, lists different types of entities who can maintain foreign currency accounts outside India. These include an authorised dealer in India with its branch/head office/correspondent outside India; a branch outside India of a bank incorporated in India; an Indian shipping or airline company; insurance/reinsurance companies registered with the Insurance Regulatory and Development Authority of India to carry out insurance/reinsurance business; an Indian firm/company/body corporate in the name of its foreign office/branch or its representative posted outside India; an exporter who is exporting services and engineering goods on deferred payment terms or executing a turnkey project or a construction contract abroad, and so on. Please refer to the aforementioned Regulation 5 for details.

Q: Can an Indian entity set up a new company and open an office abroad for trading activity? Can the new company remit the money to its office to the extent of 25 per cent of its net worth?

The entity may approach the RBI for necessary permission under Para B.8 of RBI Master Direction on direct investment by residents in a joint venture/wholly owned subsidiary abroad.

Correction: In the Q&A dated February 22, I mentioned that an exporter can enter into a CIP contract and pay the freight separately as a “pure agent”. Please read “FOB” instead of “CIP”. The error is regretted.