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TMI Blog2017 (10) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... H KHANNA, J. CA No.2171/2015 1. This application is for directions to the Official Liquidator to issue instructions to Axis Bank to release in favour of the applicant 98.181879% of the amount received from Madhya Pradesh Excise Department (MPED) lying in Escrow account No.910020037830786 on following grounds:- a) On 03.09.2009 the applicant had entered into a Teaming agreement with Tulip Telecom Limited for completion of contract floated by MPED by a tender Bid No.(EC-1/2008) for appointment of agency to provide the teaming key solutions towards commissioning, management and maintenance of data center including managing wide area network with supply and installation of servers, desktop systems and peripherals for implementation of integrated computerization at the State Excise Department; b) the total value of the project was Rs. 20,90,07,000/-, inclusive of all taxes and duties with a warranty of five years. The applicant was entitled to a share of 97.8469% whereas M/s.Tulip Telecom Limited (respondent company in liquidation) was entitled only to 2.1531% of the aforesaid amount; c) both the parties agreed to open an Escrow account in Axis Bank; the payments were to be made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court directed to verify if the contract was complete, and since it is now complete the amount lying therein needs to be apportioned. The applicant in paras 5 and 7 of an affidavit filed in compliance of an order dated 22.05.2017 writes as under:- "5. That the last withdrawal/disbursement was done till February, 2015 and thereafter, amount of Rs. 3,02,82,817/-(Three crores Two lacs Thirty Two thousands Eight hundred and Seventeen only) has come in the Escrow Account and still lying there. The same could not be disbursed / released as the provisional liquidator was appointed on 12.02.2015 and the requisite instructions in terms of clause 3.1 of the Escrow Account Agreement dated 25.09.2010 could not be given. 6. xxx xxxx 7. That as on date an amount of Rs. 12.05 Crores approximately Rs. 8.59 Crores is due to the applicant / Vayam Technologies Ltd from the M.P Excise Department." 3. However, the counsels for the secured creditors argue the State Government was never a part of teaming agreement executed between the respondent and the applicant herein. It is argued the contract dated 03.11.2009 was executed between the Government of Madhya Pradesh acting through its Excise Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment closed pre-petition and debtor held property conveyed by the agreement post-petition, debtor "held only legal title by reason of its failure to release its bill of sale" but held no "equitable interest" under Section 541(d)); In re Brown, 168 B.R. 331 (Bankr. N.D. Ill. 1994). 27. This principle is well-illustrated by bankruptcy escrow cases. If the conveyance of the Surety Cash was not perfected - which HCG strongly contests - it is still not property of the estate because it was held in escrow by third parties. As discussed below, the MTA transaction created, at a minimum, an escrow agreement for the Surety Cash. Indeed, even EMEHC's bankruptcy counsel has described the arrangement here as an "escrow." 5 Funds held in escrow are not part of the debtor's bankruptcy estate. In re NTA, LLC, 380 F.3d 523, 531 (1st Cir. 2004) (applying Illinois law and citing Section 541(d) of the Code); see also FDIC v. Knostman, 966 F.2d 1133, 1142 (7th Cir. 1992); see also In re Atlantic Gulf Communities Corp., 369 B.R. 156, 164 (Bankr. D. Del. 2007); Cedar Rapids Meats, Inc. v. Hager (In re Cedar Rapids Meats, Inc.), 121 B.R. 562 (Bankr. N.D. Iowa 1990). Further, putting the funds into escrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific purpose and the amount is earmarked or segregated in the business of commercial sense of the term though not in the physical sense of the term, the presumed relationship of debtor and creditor is rebutted. It follows that in such cases the bank is the custodian of the amounts entrusted to it in a fiduciary capacity and such amounts are impressed with trust. In such a case, the relationship constituted between the bank and the customer is that of bailor and bailee, trustee and beneficiary. In some of the situations, the bank holds the amount merely as a sort of stakeholder. In such cases, the insolvency of the bank, if any, has no adverse effect on the beneficiary and moneys are refundable to the beneficiary in full. In such a case, such specific amounts held by the bank do not form part of the general assets of the bank and can never be available to its creditors for rateable distribution in the event of the company being wound up. (c) The ratio of three of the judgments of the Supreme Court in the cases listed below must be applied to the facts of each case. No one test is conclusive or decisive." 7. In AAA Portfolios Pvt. Ltd. & Ors. vs. The Deputy Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Escrow Account by the State Government. The bank being a trustee was obliged to release the amount in the manner agreed upon between the parties but could not do so because of these proceedings. The correspondence of MP Government do reveal that it had recognized the applicant being the person responsible for completion of the contract. 10. An email dated 04.11.2010 from Excise Commissioner to Tuilp reads as under:- "Dear Shivdeep, As per the discussion held on 28th October 2010, we are still waiting the status of the hardware distribution at remote locations as discussed, Certificates related to Data Centre and Progress of the remaining work at Data Centre. Request you to provide the required at the earliest. Thanks & Regards Praveen Verma" 11. The relevant portion of letter dated 8.9.2014 of MP Government notes:- "... 4. Hence you are required to clarify whether the UPS in the Headquarter &: Data Centre are working or not? If no backup is being given and due to this it is harming the hardware, networking and loss to caused to any other item then both Tulip Telecom Limited and Vayam Technologies Limited shall be responsible for the same and the recovery shall be made from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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