ECGC proceeds credited to the borrower’s loan account after assignment belong to the assignee.

Axis Bank Ltd. (“Axis Bank”) had extended credit facilities to Agro Dutch Industries Ltd. (“ADIL”), including packing-credit facilities covered by ECGC guarantees.

After ADIL’s account was classified as an NPA, Axis Bank filed claims with ECGC and received ₹4,55,05,457 on 28 September 2013. Of this amount, ₹3,89,05,457 was credited and appropriated to ADIL’s loan account on 30 September 2014.

In the meantime, by an Assignment Agreement dated 26 September 2014, Axis Bank had assigned ADIL’s financial assets, rights and related documents to UV Assets Reconstruction Co. (“UV ARC”), with 18 September 2014 stipulated as the cut-off date for economic benefits, recoveries and realisations.

UV ARC claimed the ECGC amount, contending that it had been credited to ADIL’s loan account after the cut-off date.

The arbitral tribunal awarded UV ARC ₹3,89,05,457 with interest at 12% per annum from the date of the award until realisation.

Axis Bank’s challenge under Section 34 of the Arbitration and Conciliation Act, 1996 was dismissed by the learned Single Judge, leading to the present appeal under Section 37.

Whether the ECGC amount received by Axis Bank in its General Ledger Account before the cut-off date, but credited to ADIL’s loan account after the cut-off date, constituted a recovery or realisation payable to UV ARC under the Assignment Agreement.

Whether the arbitral award was patently illegal, perverse, contrary to the Assignment Agreement, or opposed to the public policy of India so as to warrant interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

Whether UV ARC’s alleged failure to conduct due diligence defeated its claim in respect of the ECGC amount.

Whether the arbitral proceedings were rendered non-maintainable or without jurisdiction because of proceedings before the NCLT under Sections 60(5)(c) and 63 of the Insolvency and Bankruptcy Code, 2016.

Whether UV ARC’s claim was barred by limitation, the cause of action having allegedly arisen on the date of assignment or appropriation of the amount.

Section 37 of the Arbitration and Conciliation Act, 1996 confers a narrower appellate jurisdiction than Section 34; where the arbitral tribunal has adopted a plausible contractual interpretation, courts cannot reappraise evidence or substitute their own view, absent patent illegality, perversity or conflict with public policy.

Section 28 requires an arbitral tribunal to decide in accordance with the substantive law and the terms of the contract, but does not authorise judicial interference merely because another contractual interpretation is possible.

Under Clauses 1.1(f), 1.1(i), 2.1.1, 2.1.2, 4.1(f), 6.2 and 8 of the Assignment Agreement, post-cut-off recoveries and realisations pertaining to the assigned loans, including amounts received under guarantees connected with the financing documents, were for the assignee’s benefit.

The court also applied the principle that due diligence can operate against a claimant only in respect of matters evident from the material disclosed to it.

For limitation, Article 113 of the Limitation Act, 1963 applies where no specific period is prescribed, and limitation begins when the right to sue accrues.

Sections 60(5)(c) and 63 of the IBC do not preclude arbitration of an inter se contractual dispute that does not bind the insolvency forum or third parties.

The court upheld the tribunal’s interpretation that receipt of the ECGC money in Axis Bank’s General Ledger Account was distinct from receipt in ADIL’s loan account.

Although ECGC remitted the amount in 2013, Axis Bank did not credit it to ADIL’s loan account until 30 September 2014, after the 18 September 2014 cut-off date.

Axis Bank had also represented the full outstanding amount in the Assignment Agreement without deducting the ECGC sum, indicating that it did not treat the amount as a recovery in ADIL’s loan account at the time of assignment.

The Assignment Agreement did not exclude the bank’s liability for ECGC monies lying in its General Ledger Account, and the tribunal’s construction of the relevant clauses was at least a plausible contractual interpretation.

The contention that the later credit was merely an internal book entry was not accepted; the court noted that the argument had not been raised before the arbitrator and, in any event, was inconsistent with the legal and accounting consequences of the subsequent appropriation.

The RBI circular and ECGC conditions governing the bank’s relationship with ECGC did not override the rights created between Axis Bank and UV ARC under the Assignment Agreement.

The due-diligence defence also failed because payment of ECGC premiums did not, by itself, reveal that a claim had been made, allowed and received, and the relevant claim documents had not been disclosed to UV ARC.

The NCLT proceedings concerned separate insolvency-related claims and did not prevent adjudication of the inter se dispute between the parties; moreover, the appellant’s counsel had not pressed the objection further before the arbitrator.

The claim was within limitation because UV ARC discovered the appropriation during the CoC proceedings and Axis Bank denied liability on 27 November 2020; the claim filed on 3 June 2022 was therefore timely.

The arbitral award disclosed no perversity, patent illegality, violation of public policy or jurisdictional defect warranting interference under Section 37.

The appeal was dismissed, and the award directing Axis Bank to pay ₹3,89,05,457 to UV ARC with interest at 12% per annum from the date of the award until payment or realisation, as well as the learned Single Judge’s judgment upholding the award, was affirmed.