Kerala High Court Dismisses SEBI Appeal Over Escrow Funds Linked To Atlas Ramachandran

The Kerala High Court on Thursday dismissed a writ appeal filed by the Securities and Exchange Board of India (SEBI) challenging a single judge's judgment in Axis Bank's writ petition against an Income Tax Department recovery order concerning funds lying in an escrow account maintained by late Atlas Ramachandran (M.M. Ramachandran).

A Division Bench of Justice Devan Ramachandran and Justice Basant Balaji held that SEBI, which was not the writ petitioner, could not maintain a collateral challenge against a judgment that merely adjudicated Axis Bank's challenge to the Income Tax Department's order.

SEBI had asserted that the money in question was under its control and could not be released.

“If the SEBI has a claim over the property, it is for them to approach the authorities or to invoke remedies that are available to them in law, but cannot launch a collateral challenge against a judgement which only dealt with the contentions of the bank against Ext.P5 order and nothing else.”, the division bench ruled.

The escrow account was jointly maintained by late M.M. Ramachandran and Atlas Jewellery Private Limited for Atlas Jewellery's open offer to acquire shares of Atlas Jewellery India Ltd.

Axis Bank had filed the writ petition challenging an Income Tax Department order directing it to remit the funds lying in the escrow account towards Ramachandran's income tax liabilities.

Disposing of the writ petition, the single judge declined to express any opinion on SEBI's rights over the escrow funds and permitted the bank to inform the Income Tax Department about the orders passed by SEBI and the Enforcement Directorate.

The single judge also held that it could find no provision of law restraining the Income Tax Department from recovering the tax dues from the escrow account.

The Division Bench observed that the appeal had not been filed by Axis Bank but by SEBI, which contended that the money in question was under its control and therefore could not be released.

Describing the situation as "very curious", the bench observed, "...the SEBI, which is not the Writ Petitioner, has chosen to file the appeal against directions which have been issued against the original Writ Petitioner."

The court emphasised that the single judge had only examined Axis Bank's challenge to the Income Tax Department's order and that no other issue had fallen for consideration. It further observed that the impugned judgment had already afforded sufficient protection by permitting Axis Bank to inform the Income Tax authorities about the orders passed by SEBI and the ED.

For Appellant: Senior Advocate Raju Joseph and Advocate K.M Jamaludheen

For Respondents: Advocates M. Gopikrishnan Nambiar, K. John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C Abraham and Raja Kannan