Escrow Money under SPA can’t be attached for Company’s tax dues – Delhi HC

Part share sale consideration kept with Bank as ‘Escrow’ under Share Purchase Agreement (SPA), cannot be demanded by AO towards tax liabilities of the Company whose shares are transferred; A company is independent entity completely distinct from its shareholders; Neither SPA nor Escrow Agreement provides for any contingency which would enable company whose shares are being transferred to receive funds; Escrow money kept to adjust change in valuation of Company in case tax liability is demanded by Revenue; But the Company can claim any sum from the parties to Escrow Agreement; AO’s action of initiating garnishee proceedings u/s 226(3) to recover money kept as ‘Escrow’ with bank is erroneous : Delhi HC in AAA Portfolios P. Ltd. & Ors.

Complete text of judgement AAA Portfolios-Del HC