When the Enforcement Directorate (ED) announced it had seized ₹12.6 crore in assets belonging to Sahiti Infratec Ventures India Pvt Ltd (SIVIPL), it revealed more than just another real estate scandal. It highlighted a major flaw in how funds are handled in large projects.

The Hyderabad-based developer reportedly raised about ₹842 crore from homebuyers without setting up an escrow account to protect those funds. Investigators found that money intended for construction was allegedly redirected to personal and unrelated business accounts. This development has sparked an important discussion: Why aren’t escrow accounts standard in every major financial transaction?

This issue goes beyond one company. It points to a systemic gap in how large projects, especially in real estate, manage trust and accountability. Let’s explore what this case shows about the crucial role of escrow in safeguarding both capital and credibility.

Understanding Escrow Accounts and Their Importance

An escrow account serves as a neutral, regulated holding area for funds in transactions involving multiple parties. Money remains in this account until specific, agreed-upon conditions are met, such as project milestones or regulatory approvals.

In real estate, for instance, when a homebuyer pays a developer, that money should ideally sit in an escrow account managed by a bank or licensed trustee. It is released only when construction milestones are verified.

This ensures:

• Developers can't misuse funds.

• Buyers can see how their money is used.

• Regulators can monitor compliance and project progress.

Without escrow, the system relies on blind trust, which, as seen in the Sahiti Infra case, can lead to financial disaster.

What Went Wrong in the Sahiti Infra Case

According to a report by the Times of India, Sahiti Infra allegedly collected money from multiple homebuyers for various housing projects in Hyderabad, but did not deposit those funds into escrow accounts. Instead, the money was reportedly spread across several personal and corporate bank accounts.

The ED investigation uncovered a pattern of fund diversion and financial secrecy. This breached regulations under the Real Estate Regulation and Development Act (RERA), which requires that 70% of funds collected from homebuyers must be stored in an escrow account for project construction and land costs.

The results?

• Thousands of homebuyers are left uncertain about project completion.

• The company’s assets are frozen by enforcement authorities.

• The reputation of the entire real estate sector suffers another setback.

This single case highlights why escrow is not just a compliance formality; it is essential for financial discipline and trust in capital-intensive industries.

The Key Lesson: Escrow Protects Everyone

Let’s step back from the legal issues for a moment. Why is escrow so important, not just in real estate but in all capital transactions?

Escrow removes the weakest link in any financial setup human discretion. It brings order, neutrality, and automatic accountability.

Here’s what this means:

For Buyers or Investors:

Escrow protects their money until the promised outcome is met. No matter how convincing the developer or vendor may be, the funds cannot be released until outlined conditions are satisfied.

For Businesses or Developers:

It builds credibility. Holding funds in escrow shows investors, regulators, and partners that the organization prioritizes transparency and compliance two foundations of long-term success.

For Regulators and Auditors:

Escrow creates an audit trail. Every credit and debit from the account is recorded, timestamped, and linked to documents, making compliance enforcement or detection of irregularities much easier.

Escrow in India: More Than Just a Real Estate Requirement

While the Sahiti case highlights misuse in real estate, escrow is relevant across various sectors. Nowadays, regulatory frameworks throughout India from SEBI (Securities and Exchange Board of India) to IRDAI (Insurance Regulatory and Development Authority of India) are pushing for escrow-based transparency in multiple areas.

Capital Markets:
SEBI often requires escrow accounts in IPOs, takeovers, and share buybacks to ensure fair distribution and prevent insider manipulation.

Insurance and Mutual Funds:
Escrow accounts are used to hold customer funds before policy issuance or redemptions, aiding accurate reconciliation.

Government Projects and PPPs:
Escrow accounts help track milestone-based payments and reduce corruption in public-private partnerships.

Fintech and Lending:
Escrow allows secure fund transfers between borrowers, lenders, and service providers, especially in peer-to-peer and co-lending models.

In all these cases, escrow signifies trust without reliance on individuals.

How Digital Escrow Strengthens Compliance

The true breakthrough isn't escrow itself it's the digital systems that support it.

Traditional escrow relied on manual operations that were slow and lacked transparency. With digital escrow platforms and API banking, businesses can now:

• Automate fund releases based on set milestones or API triggers.

• Integrate escrow with ERP and compliance systems for real-time monitoring.

• Generate instant audit logs to meet RERA, SEBI, or RBI requirements.

• Enable multiple-party settlements without human involvement.

Digital escrow doesn’t just secure funds; it enhances accountability.

A Broader Lesson for Businesses

Though the Sahiti Infra case took place in real estate, the message resonates across all industries. Any business handling client funds, milestone payments, or joint capital needs escrow to maintain operational integrity.

Let’s break this down.

1. For Startups and SaaS Providers

When taking advance payments or subscription fees, escrow acts as a guarantee for investors and customers. If service commitments aren’t met, refunds can be automatically processed through the escrow workflow.

2. For NBFCs and Lenders

Escrow accounts streamline the flow of funds between borrowers and lenders, automating EMI payments in line with RBI’s guidelines on digital lending and disbursal.

3. For Large Corporations

Companies engaged in project contracts or supplier payments can use escrow to manage milestones and automate vendor payments, reducing overhead in reconciliations.

4. For Government and Infrastructure Projects

Milestone-based escrow releases ensure transparency in public-private partnership contracts, making sure taxpayer money is spent as intended.

The Trust Deficit Problem

When scandals like Sahiti's arise, the biggest loss isn’t financial but trust. Investors, buyers, and regulators lose faith not just in one company but often in the entire industry.

Escrow aims to restore that trust through transparency and control. It guarantees that even in complex multi-party transactions, everyone can check where funds are, what conditions need to be met, and when payments are made.

That’s why digital escrow solutions are quickly being adopted not only by developers but also by fintechs, e-commerce platforms, and institutional investors looking to ensure good governance.

Regulatory Push for Escrow in India

In recent years, Indian regulators have been progressively tightening escrow requirements:

• RERA: Requires that 70% of homebuyer funds must be placed in escrow for construction.

• RBI: Digital lending guidelines now necessitate escrow accounts to separate borrower and platform funds.

• SEBI: Requires escrow for buybacks, IPO refunds, and takeover payments.

• IRDAI: Encourages escrow structures for claim settlement funds and insurance commissions.

The aim is clear create transparency by design. Escrow acts as a real-time financial control tool that regulators can audit effortlessly.

What the Sahiti Case Teaches About Financial Discipline

Beyond the headlines, the Sahiti case warns about what can happen when financial systems depend only on good intentions instead of structured oversight.

Lack of escrow didn’t just breach RERA rules it put homebuyers at financial risk and harmed the industry’s credibility. The lesson is clear yet profound: compliance isn’t just a formality; it’s a safety measure.

For developers, maintaining escrow means ensuring that funds are spent correctly. For buyers, it brings peace of mind. For regulators, it allows oversight without micromanaging.

Building a Trust-Centered Future with Digital Escrow

As India transitions to a fully digital economy, escrow accounts will become even more vital. Whether it’s tokenized assets, co-lending platforms, or multi-vendor marketplaces, escrow will be the invisible trust mechanism guiding every transaction.

APIs, real-time data sharing, and compliance automation are transforming escrow from a fixed financial product into a dynamic infrastructure tool supporting everything from government payments to private operations.

That’s the real change moving from merely securing money to ensuring accountability.

Conclusion

The Sahiti Infra case serves as a warning about the risks of leaving financial governance to chance. Escrow accounts are not just regulatory requirements; they are the engines of trust in modern business ecosystems.

As transactions grow more complex and involve multiple parties, the capacity to automate, check, and manage fund flows will determine which organizations remain credible and compliant.

Escrow guarantees that the promises made in a contract are financially supported until fulfilled nothing less, nothing more.

And that’s where digital escrow platforms become crucial empowering businesses, regulators, and investors to work together safely, clearly, and efficiently.

Explore how Castler’s Escrow Banking Solutions help enterprises automate secure, compliant fund management across every transaction.