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TMI Blog2024 (12) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... anying 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 compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the amounts which is deposited in an Escrow Account, for payment of statutory liabilities including GST from the year 2017 onwards till date. 2. The brief facts are that the petitioner Company had approached the respondent Bank for financial assistance, for construction of a hotel-cum-commercial complex, which was approved and a term loan of Rs. 22 Crores was sanctioned. Thereafter, in order to meet the business expansion, an additional term loan of Rs. 8 Crore was sought, which was agreed to by the Bank with the terms and conditions that all cash flows of the business was to be routed through a designated account such as revenue receipts/receivables from the project including deposits, service charges, equity/shareholders contribution and deposited into the Project Escrow Account. Accordingly, an Escrow Agreement was executed on 20.02.2015, by the parties with the condition that further withdrawals from the Escrow Account upto the final settlement under the financing agreements, shall be permitted for the purposes of taxes and statutory requirements. However, the petitioner Company received an email dated 05.11.2020 from one of its tenants, informing that the GST amount had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory payments towards the GST Department, the petitioner Company could not file its GSTR-3B returns, which fell foul of Rule 59 (5) (a) of the Central Goods and Services Tax Rules, 2017, as amended. This Rule it is submitted provides that a registered person shall not be allowed to furnish the details of outward supplies of goods and services or both under Section 37 in Form GSTR-1, if he has not furnished the return in Form GSTR-3B. 6. With regard to the respondent Bank s contention, as to set off being provided under Section 19 (8) of the Recovery of Debts and Bankruptcy Act, 1993, the learned Senior counsel submits that the same is of no relevance, and is immaterial in the instant case, as the relief of prayer sought for by the petitioner Company is towards making good of the payments wrongfully and illegally adjusted by the Bank towards debt repayment. Apart from submitting that the said payments of dues towards GST must be made from the Bank itself, it is contended that the said Section 19 (8) as referred to above, is not applicable, as there is no counter claim being made by the petitioner, and no monetary relief is being sought directly from the respondent Bank. In support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be allowed from any accounts, which are a part of the financial agreement and the respondent Bank is at liberty to adjust any amount out of the receipts to bring down the outstanding debts/dues. The amounts from the Escrow Account it is contended, have not been used for any other purpose, but for adjustment in the loan accounts in terms of the Escrow Agreement. 9. It is also contended that the writ petitioner as reflected from the notice dated 14.06.2021 (Annexure 9 to the writ petition), which required the submission of 9(nine) documents by the petitioner to the GST authorities, which was a pre-condition to the final quantification of GST amount was not complied with by the petitioner, as it failed to file a single GSTR-3B, since the roll out of GST w.e.f. July, 2017. The petitioner he asserts, cannot hold the respondent Bank responsible as the petitioner did not produce any GSTR-3B filings that had been submitted to enable the Bank to take required steps, and further merely on the basis of letters to release the GST amount without providing the actual amount to be released, cannot be permitted. He submits that the petitioner having failed to submit the required documents which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the materials on record, three issues have arisen that are to be considered and adjudicated. They are:- (i) 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. (ii) Whether the adjustments made by the respondent Bank to the receivables deposited in the Escrow Account, constitute a breach of the Escrow Agreement. (iii) Whether the petitioner Company had control or the right to operate the Escrow Account. 13. On the first issue, as can be seen from the submissions recorded above, no doubt proceedings instituted by the respondent Bank, are pending before the Debts Recovery Tribunal in the form of O.A. No. 103/2023, wherein the relief sought for as given in the prayer, is for recovery of the amounts release under 2(two) term loans, and for order of attachment and sale of hypothecated properties and mortgage properties given in the schedule thereto. However, in the considered opinion of this Court, the issue raised in the instant petition is different and distinct, inasmuch as, the issue herein is regarding payment of debt, which was adjusted by the respondent Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een sanctioned overall Term Loan limit of Rs.22.00 crore by Head Office. Whereas M/s Marbaniang Project Pvt. Ltd. has approached the bank for enhancement of limit to Rs.30.00 crore and to which the Head Office of the bank has agreed to enhance and enhanced the limit to Rs.30.00 crore vide sanction letter No.SH/BR/ADV/MPPL/5515/2014-15 dated 03.02.2015 on the following terms and conditions, voluntarily agreed upon by and between both the parties and set forth herein below. Now this Escrow agreement Witnessth as follows:- All the cash flows of the business shall be routed through designated account is to be executed. All revenue receipts/receivables of the project including deposits, service charges etc. drawdown under the facility and equity/shareholders contribution relating to the project, shall be deposited into designated Project Escrow Account, up to final settlement under the Financing Agreement shall be permitted for the following purposes of the project and in the following order: 1. Taxes Statutory payments 2. Project expenses including fees and other dues payable under the agreement related to the project and Operational Expenses 3. Payment of interest 4. Debt service Rese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which includes GST, the inaction of the respondent Bank in not processing and provisioning for the same, had resulted in the petitioner not being able to comply with the requirement of payment of GST, which has had an adverse impact on the tenants who remitted rental amounts, as the input tax credit was not being passed down. The cascading effect that resulted in not provisioning for payment of statutory dues/GST component by the Bank, it appears resulted in the non-payment of rent by the tenants of the petitioner, which also significantly contributed to the petitioner being classified as a NPA in 2019. Paragraph 3 of the affidavit filed by the respondent Bank on 01.08.2023, has infact, also substantiated this position, wherein it is acknowledged that the receivables in the Escrow Account had stopped since 24.07.2021, and that there were no credit deposits from any of the tenants thereafter. 17. Though it has been argued that the Bank on its own cannot calculate or quantify the amount of GST/statutory dues against a particular head or any transaction by a third party, from the Index of Disbursement of Funds and letters from the petitioner to the respondent Bank regarding release ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: 8. That the Deponent submits that the Respondent Bank had been adjusting amounts since 2017 from the receivables deposited in the Escrow Account and the Respondent bank is well within its right to adjust any reasonable amount as deem fit and proper at the relevant time towards service and debt and repayment as is stated in the said Escrow Agreement entered into and executed between and by the Petitioner Company and Respondent Bank and it is clarified that the said Escrow Account is maintained and operated by the Respondent Bank and any statutory payments i.e. taxes if required to be paid to such Statutory Authorities, the same can only be paid by the Respondent Bank on the basis of standing instruction/mandate by the Escrow Account holder i.e. the Petitioner Company and on receipt of connected invoices, tax returns and amounts etc. for proper provisioning and appropriation under appropriate head of the tax in connection thereof ... 19. Though an affidavit has been filed at the hearing stage by the respondent bringing on record an instance where there has been a transaction through the Escrow Account for third party payment through an account payee cheque for RTGS payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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