TaxTMI 
TaxTMI 
2000 (9) TMI 1097
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....it seeking an injunction restraining the defendant from disbursing any amount in its deposit account to anybody. An ex parte ad-interim injunction was granted therein against the defendant directing the defendant not to disburse the amount of Rs.200 lakhs kept in fixed deposit by the plaintiff on 10-10-1996 by way of escrow arrangement. Defendant put in its appearance, and filed its counter in IA No. 1365 of 1999. Subsequently Sri S.R. Kailash (hereinafter referred to as third party) filed three petitions i.e., (i) IA No. 1390 of 1999 to implead him as a defendant in the suit, (ii) IA No. 1391 of 1999 to implead him as second respondent in IA No. 1365 of 1999 and (iii) IA No. 1382 of 1999 to vacate the ex parts ad interim injunction granted against the defendant in IA No. 1365 of 1999. The Court below heard IA No. 1365 of 1999 and the other IAs., filed by the third party separately. 2. In IA No. 1365 of 1999 Exs.A1 to A13 were marked on behalf of the plaintiff and Exs.B1 to B18 were marked on behalf of the defendant. By its order dated 15-12-1999 the Court below, while allowing the petition, and making absolute the earlier ex parte ad interim injunction granted on 30-9-1999, dir....
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....7-9-1999, plaintiff revoked its earlier instructions and gave a mandate to the defendant to credit the amounts standing in its deposit account to its current account, but the defendant, instead of doing so, sent Ex.A12 letter on 28-9-1999 whereby it "assumed itself authority to disburse the amount held to the credit of the plaintiff without any legal rights and is making attempts to debit the account of the plaintiff unauthorisedly taking positions and usurping authority interpreting the business transactions between the company and third parties ignoring the fact that it is a banker of the plaintiff. Since Ex.A12 letter dated 28-9-1999 of the defendant infringed the rights of plaintiff and instructions given, the suit for mandatory injunction to implement the instructions given to the defendant under Ex.A11 letter dated 27-9-1999. 7. The case of the defendant, as seen from the counter-affidavit in IA No. 1365 of 1999, in brief, is that plaintiff failed to disclose all the necessary facts and did not implead the necessary parties to the suit. By Ex.B1 feller dated 10-10-1996, the Chairman and Managing Director of the plaintiff constituted the defendant an escrow trustee, in purs....
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....ter to the Commissioner, Income Tax, and also to the Reserve Bank of India, to stop payment of the amount covered by the draft issued by it, and therefore, the draft issued by it is still not encashed. 8. The Court below by the order under appeal in CM A No. 3422 of 1999, held that Ex.B1 letter dated 10-10-1996 (Ex.B1) is an "unilateral act" of the plaintiff, and since the third party, who is the beneficiary under the said escrow arrangement did not sign the letter, it is not for it (defendant) to "adjudicate upon the terms and conditions of the document that was held by it under the escrow arrangement" and it (defendant) "acted as a Judge adjudicating the dispute giving its own interpretation to clause 8 in the letter dated 10-10-1996, being helped by a legal opinion obtained subsequently, contrary to the instructions of its own customer" and that it (defendant) "appears to have taken undue interest and acted with haste in collusion with S.R Kailas for the reasons best known to it" and since "a perusal of Exs.B13 and B15 smacks foul of the conduct of the defendant and "its patent collusion with" the third party, and that after the defendant "smelt that" the plaintiff is going t....
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....erim injunction sought against the defendant? 11. As seen from Ex.A3, while opening the account with the defendant, the Board Director of the plaintiff authorised Sri P. Venkateshwarlu, Chairman and Managing Director and Sri J.S.R. Prasad, Executive Director, jointly and severally to operate the account and authorised the defendant to "act on the instructions given by the said Directors consistent with the powers vested with them from time to time relating to the affairs or transactions of the company". Ex.B1 is written by the Chairman and Managing Director of the plaintiff. Ex.B1 is not denied or disputed by the plaintiff in the suit though it is referred to in Ex.A11. Keeping these facts and also Ex.A1 resolution, wherein its preamble it is stated that Chairman and Managing Director informed the Board of Directors that an amount of Rs.200 lakhs is kept in Escrow Account with the defendant also, in view it has to be taken that Ex.B1 was written by the Chairman and Managing Director of the plaintiff to the defendant by the authority vested in him by the plaintiff. 12. The Court below which observed in paragraph 11 of the common order in IA Nos.1382, 1390 and 1391 of 1999, tha....
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.... release of shares by the Income Department whichever is earlier. Mr. S.R. Kailas shall keep you informed of the date of release of shares by the Income Tax Department. 7. In the event of the shares not being delivered in part or in full, the balance in the account with the interest thereon shall be remitted to our account at the end of the period so specified as in above. 8. It is clearly understood between the parties to the Agreement that the above instructions are irrevocable during the period specified above and yon are under no obligation, to act according to any further instructions you may receive from us to the contrary, unless agreed by Mr. P Venkateshwarlu. Chairman & Managing Director, Kakatiya Cements Ltd and Mr. S.R. Kailas, in writing. 9. We confirm that on release of monies it shall be the responsibility of only Mr. S.R. Kaials to pay the respective shareholders. (Underlining ours) Thanking you, Yours faithfully, Sd/- (P. Venkateshwarlu) Chairman & Managing Director, Kakatiya Cements Ltd. 13. It is very clear from para 3 of Ex.B1 (extracted above) that the amount of Rs.200 lakhs was deposited by me plaintif....
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....hether the beneficiary in an 'Escrow' arrangement should also figure as a signatory to the said arrangement. For deciding the same, it is necessary to know what 'Escrow' is: In Merriam Webster's 'Dictionary of Law', 'Escrow" is defined a "(1) an instrument, and especially a deed or money or property held by a third party to be turned over to the grantee and become effective only upon the fulfilment of some condition. (2) a fund or deposit designed to serve as an escrow". In escrow: Held as escrow in Trust as an escrow (had $ 100 in escrow to pay taxes). In Websters 3rd New International Dictionary 'Escrow' is defined as "A deed or bond, money or a piece of property delivered into the keeping of a third party by one party to a contract or some times taken from one party to a contract, and put in trust to be returned only upon the performance of fulfilment of some conditions of the contract or to insure such performance or fulfilment by some other disposition". In Black's "Law Dictionary" 'Escrow' is defined as "a legal document (such as a deed), money, stock, or other property delivered ....
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....act deposits money etc., with a Third Party to the contract for a specific purpose, to be given to the Grantee after the conditions mentioned in the contract are fulfilled, which necessarily means that the grantee need not be a signatory to the 'escrow' arrangement. 17. As seen from Ex.B1 plaintiff deposited an amount of Rs.200 Lakhs in "Escrow" deposit with the defendant in connection with the purchase of shares from the third party under the MOU. The said fact is admitted in Ex.A11 also. As stated above for creation of an "Escrow" arrangement it is not necessary that the party, for whose benefit the amount is kept in deposit, should be a signatory to the arrangement. Since the third party with whom the money or deed is deposited is under an obligation to return the same to the grantee after the conditions of the grant are fulfilled, it is necessary for the person holding the money or deed to satisfy itself if the terms and conditions of the agreement are fulfilled or not. Therefore, the observations of the Court below towards the end of para 14 of the order under appeal in CMA No. 3422 of 1999, ".......... it is not for the respondent (defendant) bank to adjudicate upo....
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.... 's case (supra) since deposit of the amount under 'escrow' arrangement is an act of plaintiff, it is binding on it, and is not recallable by it at its whim and fancy, contrary to the terms mentioned in Ex.B1. The effect of Ex.A9 and Ex.A10 would be considered hereunder. 20. The Court below overlooked the undisputed fact that as per Ex.B1 defendant has to transfer the monies proportionate to the shares released by the Income Tax Department, at Rs.5.45 Ps. per share, as and when shares, and blank share transfer forms, are delivered (even without the necessity of verifying the signatures of the holders of the shares), and forward the share certificates and share transfer forms to the plaintiff. So till such time as the shares are released by Income Tax Department and the blank share transfer forms with the released share certificates are sent to the plaintiff, without any doubt, plaintiff continues to be the owner of the money deposited with the defendant. When Income Tax Department releases shares and the third party delivers blank share transfer forms with them to the defendant, defendant is bound to release, at the rate of Rs.5.45 Ps., per share for the shares so re....
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....its constituent is that of a debtor and creditor, are of no help for a decision in this case. The facts in those cases are entirely different from the facts of this case, and the Court in those cases was not either considering or deciding the nature of amounts deposited with a banker under an 'Escrow' arrangement. The Supreme Court in Shanti Prasad Jain v. The Director of Enforcement, [1963] 2 SCR 297, held : "the law is well settled that when moneys are deposited in a Bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not trustee and beneficiary. The banker is entitled to use the moneys without being called upon to account for such user, his only liability being to return the amount in accordance with the terms agreed between him and the customer. And it makes no difference in the jural relationship whether the deposits were made by the customer himself, or by some other persons, provided the customer accepts them. There might be special arrangement under which a Banker might be constituted a trustee, but apart from such an arrangement, his position qua Banker is that of a debtor and not trustee". In....
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....posit in the name of the plaintiff, the defendant is under an obligation, under the provisions of the Income Tax Act, to deduct tax on the interest accrued and send the same to the Income Tax Department. Therefore, defendant rightly deducted income tax on the interest accrued and sent Form No. 16-A, Exs.A4 to A6 certificates to the plaintiff. 23. Since Clause 8 of Ex.B1 mandates the defendant not to act on any contra instructions by plaintiff, unless agreed to in writing by the Chairman and Managing Director of the plaintiff and third party, defendant cannot be found fault in asking the plaintiff, by Ex.A12 (same as Ex.B8) letter, to produce the concurrence of the third party. 24. When the specific case of the plaintiff is that defendant, as a banker, has to follow its instructions scrupulously, and came to the Court on the ground that it failed to follow the instructions given by it in Ex.A11, and sought mandatory injunction to follow the instructions in Ex.A11, a question was posed as to whether the defendant, as a banker, is not bound by the instructions Clause 8 of Ex.B1. The learned Counsel for the plaintiff, probably knowing that ice under the feet of plaintiff was thin....
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....ff has not challenged the validity of either Ex.B1 or the MOU in the suit, and has not sought for a declaration that Ex.B1 is a void document and the MOU is invalid. Without making any reference to Ex.B1 or the MOU plaintiff filed the suit for a mandatory injunction to implement the instructions given by it to the defendant, simply contending that the defendant, as a banker, failed to act as per the instructions given to transfer certain amount from fixed deposit account to the current account. When the MOU between the plaintiff and the third party is not challenged in the suit, the question of applicability of the provisions of the 1956 Act need not and cannot be taken into consideration for a decision in this case. All these apart the agreement relating to purchase of shares is not between plaintiff and defendant. Defendant is only an agent, or a de facto trustee, for payment of money due to third party from the plaintiff. Since the transaction for purchase of shares is not between the plaintiff and defendant the provisions of the 1956 Act can have no relevance for a decision in these proceedings more so when the suit filed by the plaintiff is simplicitor for a mandatory injuncti....
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....ot binding on the plaintiff or is void. Such relief cannot be granted without the plaintiff paying proper Court fees and filing the suit in a proper Court having jurisdiction. If we may say so the Court below also knew that the value of the suit is Rs.200 lakhs, because in Para 15 of the order under appeal in CMA No. 3422 of 1999 it observed that "suit amount is huge and more than Rs.2 crores", and in Para 13 of the common order under appeal and revision in CMA No. 3527 of 1999 and CRP No. 5742 of 1999 it observed : "The suit is filed by the plaintiff against the bank for a mandatory injunction directing it to implement its instructions dated 27-9-1999. It may be that the adjudicating the suit dispute, it may indirectly effect the interest of the petitioner/3rd party. In such case, it is open to the petitioner, 3rd party to file appropriate and properly constituted suit in a competent Court having jurisdiction for declaration of his rights to the amount in dispute. It is also pertinent to note that such a suit if filed, would be beyond the pecuniary jurisdiction of this Court." Thus it is clear that Court below, being fully aware of the fact that the value of the suit i....
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....to the instructions of its own customer'' does not appear to be correct, and if we may say so, is wholly unwarranted. Clause (8) of Ex.B1 is in very plain, simple and unambiguous language. Any ordinary prudent person, without any basic legal knowledge, can easily interpret it, to say that unless and until Sri P. Venkateshwarlu and S.R. Kailas intimate in writing to the contra, defendant is bound only to follow the instructions given in Ex.B1, and need not act on the contra instructions given by the plaintiff alone. Therefore, defendant, which is holding the funds of the plaintiff under an escrow arrangement, writing Ex.A12 letter in reply to Ex.A11 letter of the plaintiff, is very natural, and no motives need or can be attributed to the defendant. Defendant obtained Ex.B10 legal opinion, obviously to find out the legal implication in its writing Ex.A12 reply to Ex.A11 letter of the plaintiff. Therefore, defendant cannot also be found fault with, for its obtaining Ex.B10 legal opinion. We rest with saying that judicial restraint prompts us from stating anything further than observing that the sentence reading "being helped by a legal opinion obtained subsequently" deserves t....
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....al. The order of ex parte injunction in this case is passed against the defendant but not on the officer on whom Ex.B15, letter is served. The person receiving Ex.B15 will have to inform his superiors the time of its receipt, and the action he took, after receipt of Ex.B15. The officer might have put the time of the receipt of the letter for his own remembrance. So, the officer of the defendant by putting time of receipt on Ex.B15, cannot be said to have acted with a 'guilty conscious' and in collusion with the third party, since it is not even the case of the plaintiff that either the said officer, or any other officer of the defendant had knowledge of the injunction before 10.15 a.m., on 1-10-1999 i.e., the time when Ex.B15 was served on the officer of the defendant. It is also noted the case of plaintiff that the third party was present when Ex.B15 was served on the officer of the defendant. Therefore, the Court below was in error in drawing any inference, or an inference of collusion between the defendant and the third party, by reason of the time of receipt of Ex.B15 being mentioned thereon. 30. The surprise or astonishment expressed by the Court below in Para 12 of....
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....the income Tax Department, and marked a copy thereof to the defendant. The third party, who owes a huge amount to the Income Tax Department, and who entered into an MOU with the plaintiff would, as any ordinary prudent person, be in constant touch with the authorities of Income Tax Department and would be knowing when the shares seized would be released. Therefore, the third party writing Exs.B5 and B6 letters cannot be viewed with suspicion. Since 30-9-1999 happened to be a holiday for the amount due for the shares released by the Income Tax Department, as per the terms of Ex.B1, defendant gave a draft on 1-10-1999 in the name of the Commissioner of Income Tax, as per the instructions given to it by the third party. The act of defendant and the Income Tax Department counting shares on a holiday, per se, cannot be said to be the result of collusion between the defendant and the third party, because Income Tax Department is involved therewith. When the shares were released by the Income Tax Department, and when they were counted, are matters which have to be decided after taking evidence during trial, and cannot be decided without evidence. 31. Plaintiff will not be put to any lo....
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....ourt third party, as a person interested in the dispute involved in the suit, can be brought on record as a defendant, even against the wish or resistance of the plaintiff, and can also seek vacation of the ex-parte injunction granted against the defendant, because the injunction in fact effects him (third party) but not the defendant. 34. In view of the conclusion reached by us, it is not necessary to refer to the ratio laid down in Firm of Mahadeva Rice and Oil Mills and others v. Chennemilali Gounder, AIR 1968 Mad 287, Razia Begum v. Sahebazadi Anwar Begum and others AIR 1958 AP 195, U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Lid., [1988] 1 SCR 1124, National Thermal Power Corporation Ltd v. M/s. Flowmore Private Ltd., 7 others, AIR 1996 SC 445, General Electric Technical Sen-ices Company Ine. v. M/s. Punj Sons (P) ltd. and another, [1991] 3 SCR 412, U.P. State Sugar Corporation v. Sumac International Ltd., AIR 1997 SC 1644, Svenska Handlesbanken v. M/s. Jnian Charge Chrome and others, AIR 1994 SC 626, Dwarikesh Sugar Industries Ltd v. Prem Heavy Engineering Works (P) Ltd. and others, AIR 1997 SC 2477, Binny Limited Madras v. Nizam Sugars Limited....