Bank Guarantee & Letters Of Credit – Analysis Of The Fraud Exception And Counter Measures To Expand The Same
Heer Kamdar, Jindal Global Law School
ABSTRACT
Transacting business in the commercial world involves an array of risks. Although bank guarantees and letters of credit mitigate such risks to a great extent, there are certain loopholes in the rules and jurisprudence which govern them that are taken advantage of to commit frauds. This paper analyzes the fraud exception and lists certain measures and suggestions to maintain the commercial utility of these financial tools while also enforcing a stricter framework to prevent white collared scams. In the first part, the paper explains the difference between bank guarantees and letters of credit as well as its execution. It goes on to examine the fraud exception and the judicial remedy available in such a case. Towards the end, the paper lists down measures that can be undertaken by various authorities such as courts, regulatory authorities and banks in order to widen the scope of the fraud exception.
