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2024 Supreme(Online)(NCLT) 224
NATIONAL COMPANY LAW TRIBUNAL
Shri Prabhat Kumar,, Justice V.G. Bisht (Retd.), J
UNION OF INDIA – Appellant
Versus
GEETANJALI GEMS LTD & 88 ORS – Respondent
COMP.APPL - 1393/2019
Adv. Rahul Lakhiani a/w Adv. Dhanshree Gaikaowari, Adv. Mohammed Varawala i/b Adv. Rubina Khan, Adv. Shyam Kapadia a/w Adv. Bharat Jain, Adv. Aditya Sikka a/w Adv. Onshi
The Tribunal clarified that an interim order does not apply to an Escrow Account, directing the release of funds to former shareholders after tax claims are settled.
Headnote:(A) Companies Act, 2013 - Clarification of interim order applicability - The Tribunal clarified that the interim order dated 23.02.2018 does not apply to the Escrow Account held by Yes Bank, which contains an Escrow Amount of INR 3,00,00,000/- related to a Share Purchase Agreement - The Escrow Amount was to safeguard against claims prior to the sale of shares and should be released to the former shareholders upon resolution of tax claims - The Liquidator is directed to claim outstanding tax dues from the Escrow Account. (Paras 1, 17)
(B) Escrow Agreements - The terms of the Escrow Agreement dictate the release of funds, emphasizing the joint responsibility of the Purchaser and Seller to notify the Escrow Agent for fund disbursement - The Tribunal held that the Respondent Yes Bank holds the funds in trust for both parties, contingent upon tax liabilities being settled. (Paras 16, 17)
Facts of the case:
The Applicant, a former shareholder of Rhythm House Private Limited, sought clarification on the applicability of an interim order regarding an Escrow Amount deposited with Yes Bank as part of a Share Purchase Agreement. The amount was intended to cover potential claims against the company prior to the sale of shares. (Paras 1-2)
Findings of Court:
The Tribunal found that the interim order does not extend to the Escrow Account and directed the Liquidator to settle tax dues from the Escrow Amount, allowing for the release of remaining funds to the Applicant. (Paras 17-18)
Issues: The main issues included the applicability of the interim order to the Escrow Account and the procedure for releasing funds from the Escrow Account. (Paras 9, 17)
Ratio Decidendi: The Tribunal reasoned that the Escrow Agreement's terms govern the release of funds, and the interim order does not affect the Escrow Account, which is to be managed according to the agreement's provisions. (Paras 17)
Result: Miscellaneous Application allowed and disposed of accordingly.
Per: Prabhat Kumar, Member (Technical)
1. The present Miscellaneous Application MA ( CA ) 1393 of 2019 is filed in Company Petition CP No. 277 of 2017 by the Mr. Mehmood Mahomedhussein Curmally in the matter of M/s Gitanjali Gems Ltd. & Ors. seeking following relief;
- a) That this Hon’ble Tribunal be pleased to clarify, confirm and/or declare that the Order dated 23.02.2018 (Annexure ‘R’ hereto), does not apply to the monies (i.e. Escrow Amount) deposited in the Escrow Account bearing No. 008266200001430 with the Yes Bank Limited, the Respondent herein;
- b) That, in the alternative to prayer (a), should this Hon’ble Tribunal determine that the Order dated 23.02.2018, inter-alia attaching assets of Respondent No. 7, is applicable to the Escrow Account, this Hon’ble Tribunal be pleased to pass an Order vacating the attachment in so far as it relates to the Escrow Amount/Escrow Account in Escrow Account bearing no.
008266200001430 with the Yes Bank;
- c) For interim and/or ad-interim reliefs in terms of prayer (a) and/or (b) above;
- d) For costs of the present Application;
- e) For such further and other reliefs as the nature and circumstances of the case may require.
2. The Applicant is erstwhile shareholder and director of Rhythm House Private Limited and had vide a Share Purchase Agreement dated CP (I&B) No. 277 OF 2018 Page 3 of 12
15.05.2017, alongwith other the then shareholders of the Company had sold their entire shareholding to Firestar Diamond International Private Limited (i.e., Respondent No. 7 to the above Company Petition). As per the terms of the Share Purchase Agreement, an amount of INR 3,00,00,000/- (Indian Rupees Three Crores) ("Escrow Amount"), forming part of the total consideration of INR 32,00,00,000/- (Indian Rupees Thirty-Two Crores) ("Total Consideration") payable by Respondent No. 7 (to the Company Petition) to the Former Shareholders, was deposited with the Respondent herein as an Escrow Agent. The agreement of even date entered into with the Escrow Agent specified that the said Escrow Amount of Rs.3,00,00,000/- was to be kept in fixed deposits for a limited period and the interest accruing on the fixed deposits was to be paid to the Applicant annually.
3. During 27.06.2017 to 04.07.2017, the Respondent No.7 deposited the Escrow Amount in 6 (six) fixed deposits in the name of the Applicant herein, with Yes Bank Ltd., which were to mature on 31 March, 2018, and to be renewed immediately thereafter as per the terms of the Share Purchase Agreement read with the Escrow Agreement.
4. On 11.07.2017, the Applicant herein received an email from a representative of the Respondent Bank herein confirming the details of the fixed deposits in his name.
5. During 27.02.2016 and 01.08.2017, the Deputy Commissioner of Income Tax has already assessed the income of the company for the Assessment Years 2015-16 and 2016-17. For the Assessment Year 2015-16, the Income Tax Department accepted the taxes paid by the Company as correct and passed consequent orders whereas for the Assessment Year 2016-17, the Income Tax Department has issued a refund of Rs. 83,347/- and as such, there are unlikely to be any further claims against the Company for the period prior to the "Closing Date" of the transaction.
- CP (I&B) No. 277 OF 2018
- Page
4 of 12
6. On 16.03.2018, pursuant to the investigation initiated inter-alia against Respondent No. 11 to the above Company Petition and his group of companies, the Applicant herein received a letter from the Serious Fraud Investigation Office (SFIO) of the Ministry of Corporate Affairs, incorrectly addressed to the Applicant in his capacity as Director of the Company, requesting for various details pertaining to the Company. On
26.03.2018, the Applicant responded to the aforesaid letter dated 16th March, 2018, by which the Applicant inter-alia informed the SFIO of the execution of the Share Purchase Agreement and the change in directorship and shareholding of the Company pursuant thereto.
7. On 19.04.2018, the App
