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Escrow Accounts in M&A Transactions

Escrow Accounts in M&A Transactions

There has been an increase in participation of third parties in transactions of mergers and acquisitions (M&A), leading to an increase in focus on “Escrow Accounts”. Tune into this video, where LawWiser takes you through the concept of ‘Escrow Accounts in M & A transactions’. Watch Prabhjot Singh explain the role of Escrow Accounts in Mergers and Acquisitions, the laws related to it, and the changes that have taken place through the guidelines released by the RBI.

Introduction –

The deals in mergers and acquisitions have been expanding so far, as diversification and access to technology have become backbone of developments in many firms across the country. Similarly, relatable aspects emerge from a very long time that contains paramount importance to light upon. One such aspect can be defined as “Escrow Account in M & A Transactions. Let us have a brief talk about the topic while understanding the crucial points and recent changes that have taken place.

What is an Escrow Account?

An Escrow Account can be notably defined as a process when a particular portion of funds or assets is trustily kept in the third party’s account.

Uses of Escrow

Account Although Escrow Accounts are in use for mergers and acquisitions and cross-border transactions, the use of such accounts cannot be neglected in the transactions related to financial services and real estate matters.

What can be some situations in which the parties use escrow accounts in M & A Transactions?

1. First and the most obvious reason for using such an account can be highlighted as the extra degree of safety that the parties generally opt for.

2. Secondly, such accounts can be used by the parties who live in different parts of the world.

3. Lastly, an escrow account is used when the transactions contain some percentage of complexity.

For processing with such accounts in mergers and acquisitions, escrow agreements are made for a view to make it much easier and convenient for the parties involved in such deals. Now, we are done with a general overview of the escrow account and its potential uses in mergers and acquisitions. It is essential to connect the threads with the law and recent changes that have taken place in a while.

Escrow Account and Law – Is there any specific act that governs escrow accounts in India?

Currently there are prominent laws which forms the structural part concerning the escrow account such law can be prominently followed in SEBI (SAST) Regulations, 2011.

The regulation 17(1) says that not more than 2 working days prior to the DPA of open offer for acquiring shares, the acquirer shall create an escrow account in respect of security for performance of his obligations.

What are the recent changes that have taken place in the area of escrow accounts?

Some fundamental changes have occurred in the same field through an official circular released by RBI on August 6, 2020, which directly relates to escrow accounts.

As per the notification, RBI has been directed to allow banks to open some accounts fixed under various statutes.

Such “specific accounts” also include escrow accounts, the exact guideline related to the escrow account is stated as Escrow Accounts of payments for specific activities permissible by DPSS(Department of Payments and Settlement Systems) AND RBI under PSS Act, 2007.


While escrow accounts are leading their way to create trust among the citizens, it is reasonable to believe that there are still some improvements needed to make escrow accounts more understandable and approachable for the public. Visit us at www.lawwiser.com

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