STCL Ltd., a company dealing in spices, entered a new business of trading in iron ore and metal scrap in 2004-05. The company undertook third country export of metal scrap with the help of Business Associates(Future Metal Pvt. Ltd. And Future Exim (India) Pvt. Ltd.). in this export, both the buyers and sellers were located overseas. Under the arrangement, the company was to issue Letter of Credit(LCs) in favour of overseas sellers and release shipping documents to buyers on receiving remittance from them
The company failed to safeguard its financial interests as it did not insist on back-to-back LC from buyers. The company did not appoint its own agency for pre-shipment inspection. The sellers exploited these weak linkages and dispatched inferior material (including sand and tyres) instead of proper metal scrap. The sellers received their payments as the company had issued LCs in their favour. As the buyers did not pay in full, the company ultimately suffered a loss of Rs.1167.48 crores, mainly during 2008-09.