Hello Aishwarya Upadhye
Welcome to Microsoft Q&A Platform, thanks for posting your query here.
Firstly, apologies for the delayed response on this.
I checked with internal team on this,
- There is no encryption between the VM and MABS, it is also not encrypted on Disk.
- The data is encrypted during transit and storage in the recovery services vault using a KEK-DEK pattern utilizing the passphrase provided by the customer.
Hope this helps.