Escrow Agreements in India: Securing Transactions with Third-Party Custody
An Escrow Agreement involves a neutral third party (escrow agent) holding assets—typically funds, documents, or source code—until specified conditions are met. In India, escrow arrangements are increasingly common in M&A transactions (holdback escrows), real estate (RERA-mandated project escrows), e-commerce payments, and software licensing.
RERA (Real Estate Regulation Act, 2016) has made escrow mainstream by mandating that developers deposit 70% of project funds in a designated escrow account. For M&A deals, 10–20% holdback escrows for indemnity claims are now standard practice in India.
Types of Escrow Commonly Used in India
Payment Escrow
Holds funds pending delivery or condition fulfilment. Used in real estate, e-commerce, and M&A. Banks (SBI, HDFC, ICICI) commonly act as escrow agents for large transactions.
Document Escrow
Holds share certificates, title deeds, or contracts pending conditions. Common in acquisition closings and property transactions.
Software Escrow
Holds source code for licensee protection. Released if licensor becomes insolvent or fails to support. Growing in India’s SaaS ecosystem.
RERA Project Escrow
Mandated under RERA—70% of buyer payments deposited in escrow. Withdrawals only for land cost and construction with CA certification.
Key Legal Provisions
Escrow arrangements in India are governed by the Indian Contract Act (agency and bailment provisions) and specific sectoral regulations. The escrow agent has fiduciary duties—acting only on written instructions, maintaining separate accounts, and not commingling funds. Indian banks regulated by RBI are the preferred escrow agents for high-value transactions. The interpleader suit mechanism (Order XXXV, CPC) allows agents to deposit disputed assets with the court if parties disagree on release conditions.
Key Takeaways
- ✓ RERA mandates escrow accounts for all registered real estate projects
- ✓ M&A holdback escrows (10–20% of deal value for 12–24 months) are standard in India
- ✓ Use bank escrow agents for high-value transactions—regulated and insured
- ✓ Define release conditions with objective, verifiable criteria
- ✓ Include interpleader mechanism for dispute resolution
Frequently Asked Questions
What are typical escrow agent fees in India?
Bank escrow setup: ₹25,000–₹1 lakh. Annual fee: ₹25,000–₹2 lakhs. Transaction percentage: 0.1–0.5% for large deals. Domain escrow: ₹3,000–₹15,000 per transaction.
Can an escrow agent be held liable for wrongful release?
Yes, an escrow agent who releases assets without verifying conditions, or in breach of escrow instructions, can be held liable for damages. This is why banks are preferred—they have institutional processes and insurance.