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Harish Bhatia (Director)     11 November 2010

ECGC claim paid amount under recourse

Our Preshipment Packing credit  advances were covered under ECGC by our bank. The bank debited our account each month for ECGC monthly premium. In addition, the bank had excessive collateral security by property mortgage. In Dec'08, our bank illegally filed claim with ECGC declaring us as defaulters, inspite of no dues position. They got paid 75% of the outstatanding amount of Rs.40.29 lakhs. The ECGC policy is between the Bank and ECGC.

Now the bank wants to recover this amount by selling our mortgage property to repay to ECGC since they claim that ECGC claims are paid under recourse. We were not aware of this when the advances were sanctioned in 2005. We have told the bank that they cannot recover this claim amount from us since we have paid the monthly premium for this policy. We also told the bank that they cannot recover the balance 25% from us since we paid premium for the entire sanctioned limit of Rs. 40 Lakhs. Bank has filed recovery suit at DRT for recovery of this ECGC claim amount received and lying in suspence account in bank - whereas our Packing credit ledger balance is shown as outstanding of Rs. 30 Lakhs. Our asset code at bank is "Daubtful C" as per bank.

After the claim amounts were received, the bank still maintained our accounts as NPA and contionously refused any debt restructure/ Nursing programme which ultimately induced sickness and bankruptcy to our otherwise healthy SSI-EOU manufacturing unit. There were no dues in any other accounts.

Please advise if my stand is correct. Are there any court judgements on this issue.


 5 Replies

Amardeep Srivastava (Senior Law Officer)     15 November 2010

Dear Mr. Bhatia,

Payment of premium under ECGC policy was the obligation of the bank. Debiting your account for the premium must be a part of the terms and conditions agreed between you and the bank under the loan agreement. This does not make you the beneficiary  of the policy taken by your bank. Further payment of claim by ECGC does not discharge your liability towards your bank. It needs to be noted that the bank is initiating recovery proceedings against you not because of the ECGC's claim payment with recourse but becuase you are liable to make the payment. There are judgments against you on this point.

Harish Bhatia (Director)     15 November 2010

Dear Srivastavji,

Thanks for your prompt reply. If possible, please give citations/details of any judgement. I have discussed with ECGC and some lawyers and I have been told that there are no specific judgements on this point.

The credit sanction letter does not specify that the ECGC premium will be debited to our account. It simply says in one line "The credit facility will be covered by ECGC guarantee".

In any case, the important pont is, why should the exporter pay the premium at all if he is not to be benifitted by claim received amount. If bank is suppose to be beneficiery, the bank should have footed the monthly premium. Why keep exporters in the dark about ECGC policy matters. In addittion to ECGC guarantee the bank has taken collateral security for value far in excess to their exposure.

Amardeep Srivastava (Senior Law Officer)     16 November 2010

Dear Bhatiaji,

I will let u know the citations shortly. As regards the second point that the sanction letter only says "The credit facility will be covered by ECGC guarantee" and does not specifically say that the premium would be debited from your account, you can take up this matter with your bank. But in that case at best you can claim back the premium debited to your account. I will come back to you with the citations.

Harish Bhatia (Director)     16 November 2010

Dear Srivastavaji,

I give below abstract of a RBI guidline from their circular on Rupee export credit. Please give me your opinion.

RBI - DBOD No.DIR. (Exp).BC. 01 /04.02.02/2006-07 July 1, 2006

Circular on Rupee Export Credit

2.6 ECGC Whole Turnover Post-shipment Guarantee Scheme


2.6.1 The Whole Turnover Post-shipment Guarantee Scheme of the Export Credit Guarantee Corporation of India Ltd. (ECGC) provides protection to banks against non-payment of post-shipment credit by exporters. Banks may, in the interest of export promotion, consider opting for the Whole Turnover Post-shipment Policy. The salient features of the scheme may be obtained from ECGC.


2.6.2 As the post-shipment guarantee is mainly intended to benefit the banks, the cost of premium in respect of the Whole Turnover Post-shipment Guarantee taken out by banks may be absorbed by the banks and not passed on to the exporters


The significant point here is, RBI advises banks not to pass on the ECGC premium to exporters towards the Post shipment guarantee of ECGC.


It is intentionally silent about ECGC premium to be charged to exporters in case of ECGC pre-shipment advances guarantee. Therefore, it can be safely concluded that if ECGC premium for pre-shipment advances is charged to the exporter then he should the beneficiary of the claim amount. In short, whoever pays the insurance premium should be the beneficiary. This is the universal law.

Rakesh Jain (retired)     16 March 2014

Dear Shri Bhatia,

What I observe from the site that queries for the same matter have been raised in different names and what I feel different opinions given by the different persons shall make the matter more comlicated. It may create confusion, become difficult to understand, to reach to a logical conclusion and may need further an expert to collaborate the opinions and hten give his opinion.

Opinion given by Shri Srivastava is in found to be correct. As far as contents of the RBI circular with regard to payment of premium is concerned, it may please be noted that it is meant for post shipment advances whereas you owe to bank in respect of pre shipment liability as mentioned in your query.  Normally banks debit the preimium for covering these pre shipment advances to the exporter's account however some banks may looking to the status of the exporter and volume of business may agree to bear on their own. Under the covers obtianed from ECGC, banks being an ensured have an obligation to pay the premium irrespective of wherefrom they pay.  Exporter, the debtor not being a party to the cover obtained by bank does not have any locus standii and so can not derive any benefit therefrom.

As far as citation of case as requested by you is concerned it was decided by the Supreme Court of India in the matter of State Bank of Bikaner & Jaipur vs. Ballabhdas that payment of claim to Bnak by ECGC on account of default of the exporter in repayment of advances does not absolve the debtor (exporter) of its liability to pay back to the bank.

Queries raised with regard to this matter in other names have also been replied.

I hope I have made the position clear and in case of any further clarification if need be I may be contacted.

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