The Meghalaya High Court in the case of M/s Marbaniang Projects Private Limited Versus PNB addresses the issue of non-releasing of amounts deposited in escrow accounts for GST payment.
The bench of Justice H. S. Thangkhiew has directed the respondent, PNB Bank to redeem the matter by taking corrective measures with regard to the facilitation of filing of GST returns, payable by the petitioner Company from the year 2017 onwards, as mandated by law.
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.
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, 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 been paid to the concerned authorities, whereafter it was discovered that the respondent Bank despite the stipulated conditions had adjusted the entire funds towards its debt repayment.
The petitioner contended that Escrow Agreement, it had been specifically provided that withdrawals from the Escrow Account upto the final settlement was that taxes and statutory payments would take first precedence over other dues such as project expenses, payment interest, debt service reserve account and debt repayment. However, the Bank without any intimation, had wrongly adjusted all the rental deposits towards the loan repayment, which is in absolute violation of the said Escrow Agreement.
The bank contended that the GST Authority has not been made party respondent, inasmuch as, the prayer sought is to make good of payment adjusted from the Escrow Account of the GST amount, and that the petitioner had also impugned the notice issued by the GST authorities.
The bank contended that the writ petitioner as reflected from the notice, which required the submission of 9 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 bank stated that the petitioner asserts, cannot hold theBank 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.
The court noted that there is no doubt that the petitioner Company had no control or any right to operate the Escrow Account.
The court held that the GST authorities who have not been made party in the instant proceedings, the same cannot be granted, but is limited only to directing the respondent Bank to redeem the matter by taking corrective measures with regard to the facilitation of filing of GST returns, payable by the petitioner Company from the year 2017 onwards, as mandated by law.
Case Details
Case Title: M/s Marbaniang Projects Private Limited Versus PNB
Case No.: WP(C) No. 178 of 2022
Date: 06.12.2024
Counsel For Petitioner: K. Paul
Counsel For Respondent: S. Dutta
