Emergency Credit Line Guarantee Scheme vis-à-vis Arbitration
The Finance Ministry of India introduced the Emergency Credit Line Guarantee Scheme
(“ECLGS”) or the Guaranteed Emergency Credit Line (“GECL”), a loan for which 100%
guarantee would be provided by National Credit Guarantee Trustee Company (“NCGTC”)
to Member Lending Institutions (“MLIs”)/ Micro, Small, and Medium Enterprises (MSME) of
up to Rs.5 lakh crore, as a part of the Atma Nirbhar Bharat package to mitigate the distress
caused by the COVID-19 pandemic.
In this writeup, we will limit ourselves only to the Financial Institution sector/MLIs and the
process for filing and settlement of claims under this scheme.
In case of MLIs, GECL was extended in the form of additional working capital term loan
facility and non-fund based facility and is applicable to all loans sanctioned under GECL
during the period from May 23, 2020 to March 31, 2023, or till guarantees for an amount of Rs.
5 lakh crores are issued by NCGTC, whichever is earlier.
Under this scheme, as per point 25 of the FAQs (updated as on April 06, 2023) (“FAQs”), on the
invocation of the guarantee by the MLIs, 75% of the guaranteed amount will be paid by
NCGTC within 30 days of an eligible claim being preferred by the MLI concerned. The balance
25% will be paid on conclusion of recovery proceedings or till the decree gets time barred,
whichever is earlier.
For filing a claim under the said Scheme, Point 71 of the FAQs provides that the MLI should
mark the account as NPA in the ECLGS portal within 90 days of the account being classified
as NPA or date of Supreme Court order (March 23, 2021)1, whichever is later. Upon marking
an account as NPA, the MLI may initiate legal action against the said account for recovery of
the amount in default/outstanding amount.
As per Point 81 of the FAQs, “Mere issue of recall notice shall not be construed as initiation of legal
action. Legal action shall be considered as initiated upon filing of application in Lok Adalat/Civil
Court/Revenue State Authority/DRT or after action pursuant to the notice issued under Section 13(4)
of SARFAESI Act, 2002 or after admission of application under NCLT or commencement of
arbitration proceedings or such other action as may be decided by NCGTC from time to time.”
Once the legal action is initiated, i.e Arbitration proceeding is initiated by sending Reference
notice u/s 21 of Arbitration and Conciliation Act, for interim claim, the MLI shall furnish the
details of the account which would include date of NPA, amount in default, status of legal
action etc. in the claim lodgement page available on the above said portal. The detailed
procedure for claim is covered under point 71 of the FAQs. On completion of the recovery
proceedings or till decree gets time barred (Arbitration Proceedings in the present case),
whichever is earlier, the MLI shall submit its claim for the balance 25% of the amount in
default.
It is apt to highlight here erstwhile Point 161 of the FAQs. It stated that arbitration proceedings
per se are not considered as legal actions for recovery of dues. The carve out was made for
low ticket size loans of upto INR 10 lakhs i.e. in such cases, arbitration proceedings . It stated
that for such low-ticket size loans, the filing and payment of interim claim shall be permissible
1
Supreme Court verdict on loan moratorium dated 23rd March 2021
Emergency Credit Line Guarantee Scheme vis-à-vis Arbitration
without insistence on initiation of legal proceedings. Subsequent to filing of an eligible claim,
75% of amount in default pertaining to loan under ECLGS shall be settled for payment by
NCGTC and the balance amount (25% of amount in default pertaining to loan under ECLGS)
shall be paid only after conclusion of recovery proceedings or till decree gets time barred,
whichever is earlier.
However, point 161A provides a clarification w.r.t certain event wherein arbitration
proceedings can be considered as legal action :
“Where MLIs have an arbitration clause in their lending agreements and do not attract the provisions
of the DRT Act in any manner, any action initiated upon commencement of arbitration proceedings
shall be considered as recovery proceedings. It is further clarified that in all arbitration cases under (ii)
above, the final claim filed by MLIs will be honoured only subject to the passing of an Award by the
Hon’ble Tribunal when the Award passed on merits (excluding settlements, which are not permitted
under the Scheme) is duly executed and recovery of money has been made by the MLIs to the satisfaction
of NCGTC under the Scheme.”
