Definition
Document guarantee’s the existence and availability of a given quantity and quality of a commodity in storage for safekeeping; often used in cash and futures transactions instead of having to deliver the physical goods or commodities.
A licensed warehouseman is authorized to issue a negotiable or a non negotiable warehouse receipt. It evidences a contract for storage of goods. It is accepted by the commercial banks as collateral security for grant of loan against the goods stored in the warehouses. A warehouse receipt can be negotiated by endorsement and delivery. The goods covered by a negotiable warehouses receipt can be transferred by an endorsement on the Warehouse Receipt and its delivery to the endorsee.
A person to whom warehouse receipt is negotiated acquires a title to the goods in respect of which such warehouse receipt has been issued. The endorsee gets a right to have the possession of goods covered by such warehouse receipt as per the terms and conditions contained in such receipt. The endorsee also gets a right to have such goods delivered to him or his authorized agent by the warehouseman.
1. Every warehouseman shall, at the time when goods are received by him for deposit in a warehouse, issue a receipt in the prescribed form, contained full particulars in respect of the goods stored in his warehouse by each depositor.
2. A receipt issued by a warehouseman shall, unless otherwise specified on the receipt, be transferable by endorsement, and shall entitle its lawful holder to receive the goods specified in it on the same terms and conditions on which the person who originally deposited the goods would have been entitled to receive them.
How does the warehouse receipt system work?
Warehouse Receipt Systems (WRS) have a long history of use in facilitating commodity trade and finance. Basically, the systems involve the issuing of documents, Warehouse Receipts (WR), as evidence that specified commodities of stated quantity and quality have been deposited at a particular location by a named depositor(s). Depositors may be a producer, a farmer group, a trader, an exporter, a processor or indeed any individual or corporate body.
The issuer of the Warehouse Receipt holds the stored commodity by way of safe custody; implying that the issuer is legally liable to make good any value lost through theft or damage by fire and other catastrophes but has no legal or beneficial interest in the commodity. In case of liquidation, creditors of the issuer will not be able to seek recourse to the commodities stored since legal title remains with the depositor or bona fide holder of the Warehouse Receipt. The only exception is the warehouse operator's lien covering outstanding storage costs.
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