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2024 (12) TMI 455 - HC - GSTChallenge to action of the respondent Bank in not releasing the amounts which is deposited in an Escrow Account, for payment of statutory liabilities including GST from the year 2017 onwards till date - maintainability of petition considering that on other disputes arising from the projects, the matter is pending adjudication before the Debts Recovery Tribunal - adjustments made by the respondent Bank to the receivables deposited in the Escrow Account, constitute a breach of the Escrow Agreement or not - petitioner Company had control or the right to operate the Escrow Account or not. Whether the writ petition is maintainable considering that on other disputes arising from the projects, the matter is pending adjudication before the Debts Recovery Tribunal? - HELD THAT - The grievance of the writ petitioner shorn of all other accompanying circumstances, incidents and details is basically with the action and conduct of the Bank in not adhering to the agreed order of withdrawals to satisfy payments for different purposes enumerated therein - Further, the pointed defence taken by the respondent Bank that as the proceedings are pending before the Debts Recovery Tribunal, the writ petition will not be sustainable, is disregarded. This is in view of the fact that the instant writ petition had been instituted against the breach of the Escrow Agreement, as far back as on 13.05.2022, whereas the Original Application No. 103/2023, before the Debts Recovery Tribunal was filed only on 11.03.2023. Therefore, the instant writ petition having been entertained by this Court much prior to the institution of the recovery proceedings by the Bank against the petitioner, it is held that the same is maintainable in its present form. Whether the adjustments made by the respondent Bank to the receivables deposited in the Escrow Account, constitute a breach of the Escrow Agreement? - HELD THAT - GSTR-3B is a summarized return and does not provide itemized invoice details, but is essential for finalizing monthly tax payments and compliance, and the failure to file GSTR-3B for two consecutive tax periods, can lead to a restriction on filing of GSTR 1, impacting compliance and input tax credit for buyers. In the considered opinion of this Court, the GST liabilities arising from the Banks adjustment to loan repayment have resulted in the non-compliance of the statutory requirements, and apart from worsening the financial challenges faced by the petitioner, has also led to the initiation of proceedings against the petitioner by the GST authorities on the non-filing of GSTR-3B and nonpayment of GST under Section 70 of the Central Goods and Services Tax Act, 2017. As such therefore, the action of the respondent Bank in not adhering to the order of payment or withdrawal, as given in the Escrow Agreement is clearly a breach of the same, and the Bank is held liable. Whether the petitioner Company had control or the right to operate the Escrow Account? - HELD THAT - It is seen that the respondent Bank had been adjusting amounts since 2017, from the receivables deposited in the Escrow Account, and also from the statement of the Bank itself on affidavit, whereby it has maintained that the Bank was well within its right to adjust any reasonable amount as deemed fit and proper towards debt repayment. Further, the Escrow Agreement having provided for the Escrow Account to be operated by the respondent Bank, which was required to pay such statutory dues is confirmed by the Bank - in view of the fact that as in the compilation of the Index of Disbursement of Funds as supplied to this Court, it is seen that on 11.06.2019, a request has been made by the petitioner for grant or permission to operate the account, and even as far back as on 22.06.2015, the petitioner had requested the respondent Bank for permission for viewing the account, in order to enable the petitioner to keep track of the accounts and amounts, which have been credited. As such, there is no doubt that the petitioner Company had no control or any right to operate the Escrow Account. The writ petition is allowed.
Issues Involved:
1. Maintainability of the writ petition considering pending adjudication before the Debts Recovery Tribunal. 2. Whether the adjustments made by the respondent Bank to the receivables deposited in the Escrow Account constitute a breach of the Escrow Agreement. 3. Whether the petitioner Company had control or the right to operate the Escrow Account. Issue-wise Detailed Analysis: 1. Maintainability of the Writ Petition: The primary contention regarding the maintainability of the writ petition was the pending proceedings before the Debts Recovery Tribunal (DRT). The respondent Bank argued that since proceedings are ongoing in the DRT, the writ petition should not be entertained. However, the court found that the issues in the writ petition are distinct and pertain specifically to the alleged breach of the Escrow Agreement by the respondent Bank, which led to the non-payment of GST. The court also noted that the writ petition was filed before the initiation of proceedings in the DRT. The non-joinder of GST authorities as a party was deemed not to disable the writ petition, as the core issue was the alleged breach of the Escrow Agreement. Therefore, the writ petition was held maintainable. 2. Breach of the Escrow Agreement: The court examined whether the adjustments made by the respondent Bank to the receivables deposited in the Escrow Account constituted a breach of the Escrow Agreement. The Escrow Agreement explicitly prioritized taxes and statutory payments over debt repayment. Despite this, the respondent Bank adjusted the funds towards debt repayment, leading to the non-payment of GST by the petitioner. This action was found to be in violation of the Escrow Agreement. The court highlighted that the breach of the agreement resulted in the petitioner being unable to comply with GST requirements, adversely affecting its financial standing and leading to proceedings by GST authorities. The court concluded that the respondent Bank's actions were a breach of the Escrow Agreement. 3. Control Over the Escrow Account: The court analyzed whether the petitioner Company had control or the right to operate the Escrow Account. It was established that the respondent Bank had been adjusting amounts from the Escrow Account since 2017 and maintained control over the account. The Escrow Agreement specified that the respondent Bank was responsible for making statutory payments based on instructions from the petitioner. The court noted that the petitioner had requested permission to operate and view the account, which was not granted, indicating that the petitioner had no control over the Escrow Account. This lack of control further supported the petitioner's claim that the Bank's actions were unilateral and contrary to the agreement. Conclusion: The court accepted the petitioner's contentions regarding the breach of the Escrow Agreement and the lack of control over the Escrow Account. However, full relief could not be granted due to the absence of GST authorities as parties in the proceedings. The court directed the respondent Bank to take corrective measures to facilitate the filing of GST returns by the petitioner Company from 2017 onwards. The writ petition was allowed to the extent indicated and disposed of accordingly.
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