I was the manager of the BBD Bagh branch in Calcutta, reporting to the manager - eastern India.
I was always on the lookout for some new business so that I could increase the profits of my branch.
In the process, I came across a non-customer who was importing timber on a ‘collection’ basis from Malaysia via our bank’s Singapore office. To explain, if you import goods under collection and get credit from the seller, all you have to do is sign a bill of exchange and thus ‘accept’ the bill. You will get the goods upfront and pay for it 90 or 120 days later. In the meantime, you can sell the goods, get the money, and pay the bill on the due date.
My branch was getting almost nothing from this business because we were only a post-office. The bill of exchange and related documents came to us from Singapore, and we handed them over to the importer. His bank would handle the transaction and get a fee, plus the profits on foreign exchange.
I wanted this business, so I invited the importer to my office and sat down with him to understand how the business worked.
He was importing huge logs of wood (actually tree trunks) from Malaysia and selling them to plywood manufacturers. The logs were shipped from Kuala Lumpur direct to Calcutta port. The documents would come via Singapore.
I persuaded the importer to let my branch handle these transactions and he agreed.
The very first transaction ran into a problem.
The ship carrying the goods left Kuala Lumpur on a Wednesday morning, bound for Calcutta. The documents were sent to Singapore on Thursday, were processed on Friday and sent by courier to my branch on Monday. They would reach my branch only on Wednesday.
The ship, however, would dock at Calcutta port on Monday evening.
A very agitated importer met me on Monday morning and explained the big problem that had arisen.
The ship was carrying some 5,000 tonnes of logs, of which his portion was about 1,000 tonnes, worth about Rs3 crore.
The logs were stacked in the hold of the ship, and his logs were at the top.
The ship’s derricks would pick up the logs, each weighing some 30 tonnes, and put them on truck-trailers waiting at the quayside.
Now came the hitches:
1. The shipping company required the ‘bill of lading’ before the logs were handed over to the importer, i.e., before the logs were placed on the trucks arranged by him. Unfortunately, the bill of lading was in the courier packet along with the bill of exchange.
2. In any case, the ship had to unload all the logs and sail away. To do that, my importer’s logs would have to be unloaded first.
3. If the importer could not provide the bill of lading, the shipping company would not allow him to take them away and instead simply dump the logs on the dock-side.
4. The clincher: there was no crane in Calcutta port that could lift a 30+ tonne log from the dock-side and put it on a truck. That meant that even if the importer got hold of the logs later, he could not load them on trucks and take them away.
Simply put – there would be one unholy mess!!
I called my contacts in the shipping business in Calcutta and they confirmed that what the importer was saying was correct.
However, there was a solution: in the absence of a bill of lading, the shipping company would accept a ‘shipping guarantee’ issued by a bank. This guarantee basically absolved the shipping company of any liability if it handed over the goods to the importer without getting the bill of lading.
As you can guess, the importer wanted me to issue this shipping guarantee.
This created a problem for me.
Banking law said that my bank was required to get the importer’s signature, by way of ‘acceptance’, on the bill of exchange before handing over the bill of lading or issuing a shipping guarantee.
I would not receive the bill of exchange for another two days.
The importer was desperate. He was ready to sign on any document that I wanted—an undertaking, an affidavit, whatever - to confirm that he would sign the bill of exchange when it did arrive. He had to have the shipping guarantee.
I ran across to Sandersons & Morgan, the leading lawyers in Calcutta, for an opinion.
The lawyers said: no document can substitute the acceptance signature on a bill of exchange. If a bank issued a shipping guarantee without getting the importer’s signature on the bill of exchange, the importer would not have ‘accepted’ the bill and would not be (directly) liable to pay it.
In simple words:
- If I issued the shipping guarantee, I could make the bank liable for Rs3 crore.
- If I did not issue the shipping guarantee, the importer would be in deep trouble.
I went to my boss to ask him what I should do. He listened to the whole story.
He asked, “What is your clean (unsecured) lending limit?”
“Fifty lakh,” I replied.
“So three crore is way beyond your limit.”
Simple math, I thought.
After a couple of minutes of silence, I asked “What do you suggest I do, boss?”
“Your call, mate,” the boss said. “We have not had any conversation about this, understand?”
I did understand.
(I guess you understand, too.)
I went back to the office and signed the shipping guarantee at 5pm on Monday.
The logs were unloaded at 11pm on Monday and taken away by the importer.
On Wednesday morning, the courier arrived with the bill of exchange. I called the importer. He came within 30 minutes and signed the bill.
I was clear!
I called my boss to report the successful completion of the transaction.
“Good to hear that,” he said. “Were you nervous?”
“Not at all, boss,” I replied. “As you had said, it was my call. I took it.”