Bills of Lading as Documents of Title: Rights of Third Party Holders Under Indian Law

A bill of lading is more than a receipt for goods shipped. It is a document of title and, in the hands of a third party purchaser or bank, it represents ownership of the goods described in it. Understanding how bills of lading work as documents of title, and what rights a third party holder has under Indian law, is fundamental to international trade finance and cargo transactions.

India's Parliament passed the Bills of Lading Act 2025, replacing the Indian Bills of Lading Act 1856, which was one of the oldest pieces of commercial legislation still in force in India. The new Act modernises the framework and addresses gaps in the old legislation that had created uncertainty in trade finance transactions.

What a Bill of Lading Does

A bill of lading serves three distinct functions. It is a receipt issued by the carrier acknowledging that the goods described have been received for shipment. It is evidence of the contract of carriage between the shipper and the carrier. And it is a document of title, meaning that possession of an original bill of lading gives the holder the right to claim delivery of the goods from the carrier at the destination port.

The document of title function is what makes the bill of lading central to international trade finance. A seller can ship goods, obtain a bill of lading, and use that bill of lading as security for payment by presenting it to a bank under a letter of credit. The bank pays the seller against the documents, endorses the bill of lading, and sends it to the buyer's bank, which releases it to the buyer only after the buyer has paid or accepted liability to pay. The goods cannot be released by the carrier at the destination without presentation of the original bill.

Rights of Third Party Holders

The critical legal question is what rights a third party who acquires a bill of lading by endorsement and delivery has against the carrier. Under the old 1856 Act, the transfer of a bill of lading to a third party transferred to that party all the rights of suit under the contract of carriage, but also transferred the liabilities, including the obligation to pay freight.

The 2025 Act clarifies and updates this framework, addressing situations that the old Act did not contemplate, including multiple original bills, straight bills of lading, and the complications that arise in containerised trade where cargo may change hands multiple times during transit.

Straight Bills of Lading vs. Order Bills

An order bill of lading is made out to the order of the shipper or a named party, and can be transferred by endorsement and delivery. A straight bill of lading names a specific consignee and is not negotiable — it can only be delivered to the named consignee. The distinction matters for trade finance purposes because only an order bill can be used as a negotiable document of title in a letter of credit transaction.

In practice, many carriers and shippers use sea waybills instead of bills of lading for certain trades. A sea waybill is not a document of title and cannot be used in the same way as a negotiable bill of lading. Importers and exporters should ensure they are using the correct type of shipping document for their transaction, particularly where trade finance is involved.

Electronic Bills of Lading

The shipping industry has been moving gradually toward electronic bills of lading, which can be transferred and endorsed digitally through electronic registry systems. The 2025 Act makes legislative provision for electronic bills of lading, giving them the same legal status as paper originals where they are issued through an approved electronic system.

This is a significant step, as the old 1856 Act made no provision for electronic documents and created uncertainty about whether an electronic bill of lading could function as a document of title under Indian law. The practical adoption of electronic bills of lading in Indian trade is still developing, but the legislative framework now supports it.