Escrew Cheque?

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Shashi Kumar C.G.

Shashi Kumar C.G. (Querist)

15 April 2008 What is escrew cheque? How it is different from other cheques?

Amit Sharma

Amit Sharma (Expert)

06 May 2008 An Escrow Account refers to assets or revenue streams held in safe custody as safety against a contingent situation of non-fulfillment of a contract. In simpler words we may say that an escrow a/c is a third party arrangement to ensure performance of certain obligations between certain parties and operated in terms of an underlying agreement. The account will be a current a/c without cheque drawing facility or a Fixed Deposit account, as defined in the terms of the agreement.

Escrow a/c's are typically used for lending arrangements, project financing, Securitisations, M&A's, Buy-back of shares, take-overs, custody, litigations, purchase & sale of land, Source code (used in software) custody, etc. The following reasons enumerate why Escrow accounts are opened:

Provides greater security & comfort
Trapping of identified cash flows
Regulatory requirements
Custody of cash / documents
Ease of monitoring
The funds in the Escrow a/c are held for the benefit of the Beneficiary of the a/c rather than person / company in whose name the a/c is opened. For e.g.. in a borrower lender arrangement, the a/c name is "Borrower - Escrow a/c" and the funds deposited are that of the borrower but the funds are held in the escrow a/c for the benefit of the Lender.

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