Case Study: Selling Bonded Raw Materials to Outside Market

M/S. Scotia Ltd. is a manufacturing concern. The project is financed by XYZ bank in the form of term loan and working capital. All on a sudden, the client started to open sight L/C for raw materials from another bank .It continued to open L/Cs and sold the bonded raw materials to outside market making huge profit and evading large amount of tax. Later on, the regulatory authority detected the case and both the bank and the client fell into problem.

Causes of Failure

A thorough study of the account reveals the following reasons which caused problem to the client and the bank:

• The 2^nd bank did not look into the matter why the client was not opening L/C with its parent bank or the parent bank did not allow him to do so.
• The bank should have judged the scenario why the raw materials under bonded facility were imported with sight L/C and cash retirement basis.