Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective

Letter of credit (LC) is a payment mechanism which is used to facilitate trade. One of the fundamental principles that govern the LC operation is principle of strict compliance. This principle indicates that in order to be paid; seller’s documents must strictly comply with the LCs’ requirement. Th...

Full description

Bibliographic Details
Main Authors: Othman, Ahmad Azam, Che Hashim, Rosmawani
Format: Conference or Workshop Item
Language:English
English
Published: 2012
Subjects:
Online Access:http://irep.iium.edu.my/38356/
http://irep.iium.edu.my/38356/
http://irep.iium.edu.my/38356/1/3rdICBER2012_Proceeding_Strict_Compliance.pdf
http://irep.iium.edu.my/38356/4/000_000_3rdICBER2012_Proceeding_Content.pdf
id iium-38356
recordtype eprints
spelling iium-383562015-01-08T09:35:21Z http://irep.iium.edu.my/38356/ Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective Othman, Ahmad Azam Che Hashim, Rosmawani K Law (General) Letter of credit (LC) is a payment mechanism which is used to facilitate trade. One of the fundamental principles that govern the LC operation is principle of strict compliance. This principle indicates that in order to be paid; seller’s documents must strictly comply with the LCs’ requirement. This practice seems peculiar to the inherent nature of the contract of sale where the goods are customarily considered to be the only “factor” in making a payment. On the other hand, in LC transaction, banks are confined to handling financial and papers only, as provided by the UCP, “Bank deals with documents only”. Accordingly, payment for the goods is not honored upon compliance of the goods sold but it is paid on compliance of seller’s documents. Likewise, it is established that commercial banks worldwide, including Malaysian banks, adopt the same approach in dealing with documents in Islamic LC. The aim of this paper is to look at this practice which is originally conventional, from Shariah’s perspective. In order to determine the permissibility of stipulating such condition (a condition that payment in LC is honoured only upon compliance of documents) from Shariah’s point of view, it is imperative to study the position of Islamic law relating to freedom of stipulating condition in sale contracts. Among other things, this paper discusses the origin of the principle of strict compliance in LC transactions and the rationale of its application. Furthermore, it highlights Shariah issues in the principle of strict compliance in LC. Last but not least, it focuses on the views of the Muslim jurists in the issue of freedom of stipulating condition in sales contract. It is only by looking into the basic principles highlighted by the Muslim jurists on this issue; the permissibility of strict compliance principle can be ascertained. 2012-03 Conference or Workshop Item PeerReviewed application/pdf en http://irep.iium.edu.my/38356/1/3rdICBER2012_Proceeding_Strict_Compliance.pdf application/pdf en http://irep.iium.edu.my/38356/4/000_000_3rdICBER2012_Proceeding_Content.pdf Othman, Ahmad Azam and Che Hashim, Rosmawani (2012) Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective. In: 3rd International Conference on Business and Economic Research (3rd ICBER 2012, 12 - 13 March 2012, Bandung, Indonesia. http://www.internationalconference.com.my/proceeding/icber2012_proceeding/icber2012_proceeding.html
repository_type Digital Repository
institution_category Local University
institution International Islamic University Malaysia
building IIUM Repository
collection Online Access
language English
English
topic K Law (General)
spellingShingle K Law (General)
Othman, Ahmad Azam
Che Hashim, Rosmawani
Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
description Letter of credit (LC) is a payment mechanism which is used to facilitate trade. One of the fundamental principles that govern the LC operation is principle of strict compliance. This principle indicates that in order to be paid; seller’s documents must strictly comply with the LCs’ requirement. This practice seems peculiar to the inherent nature of the contract of sale where the goods are customarily considered to be the only “factor” in making a payment. On the other hand, in LC transaction, banks are confined to handling financial and papers only, as provided by the UCP, “Bank deals with documents only”. Accordingly, payment for the goods is not honored upon compliance of the goods sold but it is paid on compliance of seller’s documents. Likewise, it is established that commercial banks worldwide, including Malaysian banks, adopt the same approach in dealing with documents in Islamic LC. The aim of this paper is to look at this practice which is originally conventional, from Shariah’s perspective. In order to determine the permissibility of stipulating such condition (a condition that payment in LC is honoured only upon compliance of documents) from Shariah’s point of view, it is imperative to study the position of Islamic law relating to freedom of stipulating condition in sale contracts. Among other things, this paper discusses the origin of the principle of strict compliance in LC transactions and the rationale of its application. Furthermore, it highlights Shariah issues in the principle of strict compliance in LC. Last but not least, it focuses on the views of the Muslim jurists in the issue of freedom of stipulating condition in sales contract. It is only by looking into the basic principles highlighted by the Muslim jurists on this issue; the permissibility of strict compliance principle can be ascertained.
format Conference or Workshop Item
author Othman, Ahmad Azam
Che Hashim, Rosmawani
author_facet Othman, Ahmad Azam
Che Hashim, Rosmawani
author_sort Othman, Ahmad Azam
title Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_short Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_full Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_fullStr Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_full_unstemmed Principle of strict compliance in letter of credit: a comparative study from legal and Shariah perspective
title_sort principle of strict compliance in letter of credit: a comparative study from legal and shariah perspective
publishDate 2012
url http://irep.iium.edu.my/38356/
http://irep.iium.edu.my/38356/
http://irep.iium.edu.my/38356/1/3rdICBER2012_Proceeding_Strict_Compliance.pdf
http://irep.iium.edu.my/38356/4/000_000_3rdICBER2012_Proceeding_Content.pdf
first_indexed 2023-09-18T20:55:06Z
last_indexed 2023-09-18T20:55:06Z
_version_ 1777410251047305216