How to execute Bank Guarantee or LUT with DGFT

Posted on 17 April 2023 Category : For Beginners

The information provided here is part of Import Export Training online

Guidelines to execute Legal Under Taking and BG with DGFT

This post is a guidelines to exporters and importers in India about execution of Legal Under Taking (LUT) and/or Bank Guarantee (BG) with Director General of Foreign Trade, DGFT.

According to Foreign Trade Policy of India, The Bank Guarantee / Legal Agreement is to be executed by the surety Bank (Guarantor)/ importer/exporter (party) on a non-judicial stamp paper for an amount as may be prescribed by the concerned State Government under the Indian Stamp Act, 1899 or State Act, as the case may be. Any stamp duty payable on the B.G./LUT or any document executed there under shall be borne by the party.

If the party is a sole proprietary firm, the Bond/Legal Agreement shall be executed by the Sole Proprietor of the firm, along with his permanent and complete residential address. "In such a case the expression "Importer/Exporter" or "Party" used in the opening paragraph of the Legal Agreement should include his/her heirs, successors, administrators and assignee".

If the party is a partnership firm, the LUT shall be executed in the name of the partnership firm, through the partners to be specified, or the Managing partner, if so specified in the Partnership Deed, along with the address of the partner/Managing Partner, and the place where the Registered Office of the partnership firm is situated. "In that case, the expression "Importer/Exporter" or "Party" used in the opening paragraph of the Legal Agreement should include jointly and severely all the partners, through respective legal heirs, successors, administrators and assignee as well as the portions where body corporate or not having the control of the affairs of the said Firm".

If the party is a Limited Company, the LUT shall be executed by the Managing Director or two Directors of the Company, along with the seal of the Company and also specifying the address of the Registered Office of the Company. Alternatively the LUT shall be executed by a senior executive of the Company of the rank of General Manager and one of the Directors of the Company who have been authorized by the board of Directors for this purpose, along with the seal of the Company and also specifying the address of the Company. In such cases LUT shall be countersigned by the Company Secretary. "In that case, the expression "Importer/Exporter" or "Party" used in opening paragraph of the Legal Agreement should include its successors in business and assignee".

Each page of the Bond/Legal Agreement is to be signed. The importer/ exporter shall also give a separate declaration along with BG/LUT to the effect that in the event of any change in the Customs Duty based on which the BG/LUT is executed for clearance of the imported goods, he shall execute supplementary BG/LUT for the remaining value at the time of clearance of last consignment, failing which he shall be liable to such action as is considered proper by the Regional/ customs authority.

This post is a guideline to exporters and importers in India about execution of Legal under Taking (LUT) and/or Bank Guarantee (BG) with Director General of Foreign Trade, DGFT. If you wish to add your views and experience in executing under Taking (LUT) and/or Bank Guarantee (BG) with Director General of Foreign Trade, DGFT, write below.

Comment below about this post, How to execute Bank Guarantee or LUT with DGFT

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Comments

TARUN: On 27 July 2017 DEAR sir ple explain me about LUT , i m vendor and my party in greatar noida (NSEZ) BEFORE GST I SALE IN I FORM NOW COMPANY WANT LUT AND SECURITY BOND WITH BANK GUARNTEE AS PER EXCISE RULE KINDLY EXPLAIN ME ALL THING I AM WAITED FOR YOUR REPLY

kim: On 27 June 2022 Our detailed offer to provide Bank Guarantee (BG), Standby Letter of Credit (SBLC), as well as other financial instruments, involves the Lender sending alongside the Countersigned Contract, the Irrevocable Corporate Refund Undertaking and Bank Approved Application for the transmission of Swift. The entire procedures for the lease of the Bank Instruments are stated below. TRANSACTION DESCRIPTION: 1. Instrument: Bank Guarantee (BG) or Standby Letter of Credit (SBLC) or Deferred / Documentary Letter of Credit (DLC) or Letter of Credit (LC) 2. Total Face Value: Euro/USD/GBP 1,000,000.00 – Euro/USD/GBP 5,000,000,000.00 3. Issuing Bank: HSBC Bank London, Barclays Bank London, Standard Chartered Bank London, Deutsche Bank AG Frankfurt, 4. Age: One Year and One Day (With the option of Rolls and Extension) 5. Leasing Fee: Based on the Face Value of BG/SBLC/DLC/LC Plus (0.5% + X%) Commission. 1M – 20M: 3.0% + (0.5% + X%) = 3.5% + X% 21M – 100M: 2.5% + (0.5% + X%) = 3.0% + X% 101M – 500M: 2.0% + (0.5% + X%) = 2.5% + X% 501M – 1B: 1.5% + (0.5% + X%) = 2.0% + X% 1B – 5B: 1.0% + (0.5% + X%) = 1.5% + X% 6. Delivery: Bank to Bank Swift MT799 and/or MT760 7. Payment: MT103 8. Hard Copy: By Bank Bonded Courier within 7 banking days after delivery of Swift. TRANSACTION PROCEDURE: 1. The Bearer provides a duly filled and signed copy of the Contract Agreement to the Lender which is further countersigned by the Lender. This thereby automatically becomes a full commercial recourse contract to be lodged by both parties for initiation of the transaction of Swift Transmission. 2. Within three (3) banking days after both parties sign the Agreement, the Lender will issue alongside the Countersigned Agreement a Notary signed and sealed Corporate Refund Recourse Undertaking duly endorsed by the Bank Officer of the BG/SBLC issuing account to the Bearer guarantying to refund to the Bearer all cost incurred by Bearer as the transmission/administrative charges for the transmission of Pre-Advice via Swift MT799 or BG/SBLC/DLC/LC via Swift MT700 or MT760 or both after due execution of the contract and in case of failure on the Lender’s side the Notarized signed and sealed Corporate Refund Recourse Undertaking guarantees that the Lender refunds completely the transmission/administrative fees in addition to a penalty for failure of performance being 1% of the total face value of BG/SBLC/DLC/LC. 3. The Lender further provides to the Bearer a copy of the BG/SBLCDLC/LC Application submitted to the issuing bank and approved by the Issuing Bank Officer confirming the Swift is being prepared to be transmitted. 4. Within three (3) banking days after the Bearer receives the Countersigned Contract Agreement, Irrevocable Corporate Refund Undertaking, Invoice for Payment of the Bank Fees as well as the BG/SBLC Approved Application from the Lender, the Bearer will make payment by direct wire transfer into the Lender’s provided bank coordinates to receive the bank fees, the of the Bank Transmission, Administrative and Handling charges for the Pre-Advice via Swift MT799 or BG/SBLC/DLC/LC via Swift MT700 or MT760 or both as the case may be in the amount of XX, 000.00 USD/EUR 5. Within two (2) banking days after confirmation of receipt of payment of the Bank Transmission, Administrative and Handling Charges for the BG/SBLC/DLC/LC via Swift MT700 or MT760 or Pre-Advice via Swift MT799 or both in Lender’s bank account, the Lender will deliver the Pre-Advice or BG/SBLC/DLC/LC via Bank to Bank confirmation of Swift MT799 or MT760 to the Bearer’s banker including the hard copy of the BG/SBLC/DLC/LC via bank bonded courier in Seven (7) banking days. 6. Bearer sends payment of Leasing Fees via Swift 103 Payment to the Lender deducting the initially paid Bank Transmission, Administrative and Handling Charges, and the brokers their Commission Fees (0.5 +X)% of total Face Value by wire transfer within thirty (30) days upon delivery, confirmation, and verification of BG/SBLC/DLC/LC by MT760 in the Bearer’s provided account and BG/SBLC/DLC/LC hard copy in the Bearer’s provided bank. 7. If the Bearer does not deduct the Bank Transmission, Administrative and Handling Charges from leasing fees paid, the Lender would refund bank charges to Bearer by direct wire transfer within three (3) banking days upon payment of the leasing fees. 8. Any unauthorized calls by any party or its representative lawyers to probes or communication in an improper way to the bank(s) in this transaction shall be prohibited and contract terminated. Should the Bearer default to pay the leasing fees to the Lender and the brokers' commission fees as agreed after 30 banking days of confirmation of BG/SBLC/DLC/LC MT760 in Bearer's bank account, Lender will instruct the issuing bank to put a claim on the BG/SBLC/DLC/LC thereby forcing the Bearer's bankers to return the BG/SBLC/DLC/LC MT760 to the issuing Bank.

chandran: On 02 July 2022 Instead of myself explaining, I have downloaded the details from the net, along with a diagram ,called block diagram for a FPGA. I request you to kindly peruswe the same and advise me,whether you need any further clarifications on the LUT.

How to execute Bank Guarantee or LUT with DGFT

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