1. Assignment of debt — Dispute over ECGC claim proceeds — Entitlement under Assignment Agreement — Arbitration award. (Para 2 , 3 , 4 , 5 )
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2026 Supreme(Online)(Del) 17169
IN THE HIGH COURT OF DELHI AT NEW DELHI
V. Kameswar Rao, Vinod Kumar, JJ
Axis Bank Ltd – Appellant
Versus
UV Assets Reconstruction Co – Respondent
FAO(OS)(COMM) 65/2024
Advocates:
For the Appellants/Petitioners: Amit Anand Tiwari, Arjun Garg, Devyani Gupta, Saaransh Shukla
For the Respondents: Dhruv Dewan, Yajur Sharma
For the Appellants/Petitioners: Amit Anand Tiwari, Arjun Garg, Devyani Gupta, Saaransh Shukla
For the Respondents: Dhruv Dewan, Yajur Sharma
Monies received by a bank in a general ledger account but not credited to the specific loan account before the assignment's cut-off date are treated as recoveries occurring after that date, thereby belonging to the assignee ARC.
Headnote:(A) Assignment Agreement - Cut-off Date - Realisations and Recoveries - Monies received by a bank from ECGC and parked in a General Ledger Account, but not credited to the specific loan account before the agreed cut-off date, do not constitute a recovery in the loan account and thus belong to the assignee (ARC) if credited after the cut-off date. (Para 47, 52)
(B) Due Diligence - Constructive Knowledge - The fact that a party paid premiums to an insurance company (ECGC) does not automatically grant the assignee constructive knowledge of a specific claim or settlement; due diligence cannot be a defense against claims that could not be detected from the material actually provided by the assignor. (Para 56, 58)
(C) Limitation - Accrual of Cause of Action - In disputes regarding undisclosed recoveries, the cause of action for recovery accrues upon the date the claimant learns of the recovery and the assignor denies payment. (Para 57)
(D) Arbitration - Jurisdiction - Inter-se disputes between an assignor bank and an assignee ARC can be adjudicated via arbitration even if proceedings regarding the same borrower are pending before the National Company Law Tribunal (NCLT). (Para 59)
Issues: Whether the ECGC claim amount received by the appellant bank but credited to the borrower's account after the cut-off date of the Assignment Agreement constitutes a recovery belonging to the respondent ARC.
Legal Category Hierarchy
- arbitration
- contract law
- banking and finance
- insolvency and bankruptcy
- limitation
Table of Contents
2. Appellant: ECGC amount received before cut-off date is mere book entry. Respondent: Amount credited after cut-off date belongs to assignee. (Para 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 )
3. ECGC amount credited to borrower's account after cut-off date; not mere book entry; due diligence not a defence for undisclosed claim. (Para 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 )
4. Arbitrator's interpretation of contract clauses is final unless perverse or patently illegal; narrow judicial review applies under Section 37. (Para 49 , 61 )
5. Appeal dismissed — Arbitral award and Single Judge judgment upheld — No interference under Section 37. (Para 61 , 62 )
6. Under Section 37, what is the scope of judicial review of an arbitral award upheld under Section 34?
The scope is narrow and circumscribed; courts cannot re-evaluate evidence, review merits, or substitute their interpretation of a contract. (Para 49 )
7. When does an amount received from ECGC and parked in a general ledger account constitute a recovery in the borrower's loan account?
It is not a recovery until credited to the loan account; mere receipt in a general ledger account does not satisfy contractual cut-off date provisions. (Para 47 , 48 , 52 , 53 )
8. Can a due diligence defence estop claims undiscoverable from disclosed material?
No; due diligence cannot be a defence to claims that could not have been detected from the material made available to the assignee. (Para 56 , 57 , 58 )
9. Are proceedings under Section 60(5)(c) of the IBC a bar to arbitration of inter se disputes between assignor and assignee?
No; such proceedings concern different parties and do not affect determination of inter se rights between the assignor and assignee in arbitration. (Para 59 )
JUDGMENT
V. KAMESWAR RAO, J.
1. The appellant has filed the present appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (the Act) challenging an order dated 13.02.2024 passed by the learned Single Judge in OMP(COMM) No.89/2023 impugning an arbitral award dated 19.12.2022.
FACUTAL BACKGROUND
2. The appellant is a bank that had assigned the accounts of Agro Dutch Industries Limited (hereinafter referred to as ‘ADIL’ and ‘the borrower’ interchangeably) to the respondent by way of an agreement dated 26.09.2014 (Assignment Agreement). As per the said agreement, the appellant assigned inter alia, all its rights, title, interest in financing documents, and all agreements, deeds, and documents related to the borrower, in favour of the respondent.
3. Credit facilities were provided by the appellant to the borrower, which underwent Corporate Debt Restructuring in September 2009. The facilities included packing credit facilities, in respect of which the appellant availed a Whole Turnover Packing Credit Guarantee (Pre-Shipment) and Whole Turnover Packing Credit Guarantee (Pre-Shipment) from the Export Credit Guarantee Corporation of India Limited (ECGC). Under the facilities, in the event of non-receipt of export proceeds by the borrower, the appellant would be entitled to file a claim with ECGC. On 31.07.2011, the account of the borrower was classified as a non-performing asset by the appellant bank. On 29.06.2012, a claim was filed by the appellant with ECGC, pursuant to which, a sum of Rs. 4,55,05,457/- was received by the appellant from ECGC. Through subsequent communications, it was discovered by the respondent that although the said amount had been received by the appellant from ECGC on 28.09.2013, an amount of Rs. 3,89,05,457/- was appropriated towards the dues of the borrower on 30.09.2014.
4. The respondent sought the payment of the ECGC claim amount from the appellant under the Assignment Agreement and the same was refused by the appellant, leading to the commencement of arbitration proceedings between the parties.
5. The learned Arbitrator decided the claims by way of the award dated 19.12.2022 and granted the respondent an amount of Rs.3,89,05,457/- with interest at the rate of 12% per annum from the date of the award till the date of payment/realisation. It is the challenge to this award that was rejected by the learned Single Judge by way of the impugned judgment.
SUBMISSIONS ON BEHALF OF THE APPELLANT
6. Mr. Amit Anand Tiwari, the learned senior counsel for the appellant submitted at the outset that the learned Single Judge erred in not appreciating that the award is in contravention of the public policy of India inasmuch as the learned Arbitrator has ignored the terms and conditions of the Assignment Agreement and other material facts.
7. He stated that the Assignment Agreement whereby the appellant had assigned the financial assets to the respondent specifically provided for a cut-off date in terms of Clause 1.1(f), which reads as under:-
“Clause 1.1(f) Cut-off Date means the date of offer i.e., 18.09.2014, being the date with effect from which (including that day), all economic benefits pertaining to the Loans including all realizations and recoveries, If any, made on and after said date shall be for the benefit of the Assignee and shall be passed on to the Assignee””
8. The case of the appellant is that no dues were received in the loan account after the cut-off date of 18.04.2014. The entries in the accounts are merely entries / adjustments in books and are not an indication of money being received after the cut-off date. He stated that the flow of money can be understood in the following manner:-
(1) The proceeds of ECGC claim were remitted by the ECGC on 28.09.2013 and was initially parked in a transit account of the appellant bank being “SL-FUNDS IN TRANSIT”;
(2) The money was then transferred to partition type account being “SL-ECGC CLAIMS SETTLED” on 30.09.2013, in view of the circular da
