Criminal conspiracy and diversion of funds - A legal understanding

By

Sakshi Shairwal

Tejal Tapaswani Nagauri

Ever since the creation of money, commercial thieves have developed various kinds of ways to steal money that is not owned by them. In some cases, the person is already in ownership of the money as the owner has handed it over to him with it. If that person uses the money for his own use, this is identified as misappropriation of funds. It is also seen as stealing money. For instance, the curator of a club who deflects club funds to his own account has misappropriated and stolen the money. Commercial fraud including public funds is a matter of severe civic concern and is a matter of governance. At the moment, fraud as explained in the Law of Contract is only a public wrong. Commercial fraud is far too complex to be looked at just as civil or contractual wrong. If an act of forgery, cheating, and criminal violation of trust or misappropriation of funds or accounts is included in the fraud, it is an offence.

Fraud as such is not seen as a criminal offence in India. If any kind of fraud is committed in a mutual contractual situation or otherwise whether including public or personal fund, also an act of cheating or if such an act includes criminal conspiracy, impersonation, forgery, criminal breach of trust, misappropriation of funds, or destruction or falsification of documents for unfair gain, then and only then, such fraud can be considered as an offence.

When it comes to a case of misappropriation, the prosecutor is recommended to prove the following aspects:-

Intention – A person should knowingly embezzle the money, and can not commit the crime by making an error or mistake. It does not include physically actually taking away the money. It would be adequate to prove that the accused had the intention of performing an action that would lead to the misappropriation of funds.

Control without ownership – The owner of the property, be it an organization, a person, or a group, delegated or gave the money to the defendant, or otherwise permitted the defendant control over it. The defendant shall rightfully have possession but without ownership.

Conversion – During embezzlement of funds with the intention to return the money later to the actual owner is still guilty of embezzlement. It is also not taken into consideration if the misappropriation of funds only lasted for a short period of time.

Relying upon the fact as to how the crime is charged, and the situation of the case, a misappropriation of funds conviction can result in significant punishments. A public employee who steals public funds is frequently punished more harshly compared to the private citizens. Stealing of funds is not just a commercial offence, but a criminal offence as well, as it is a breach of trust which needs to be looked upon as a punishable offence.

The Apex Court in the case of Bikram Chatterji v. UOI has explained the misappropriation of funds and has called it a ‘serious fraud’. The Apex Court has also mentioned the following situations which shall be taken to mean as “siphoning of funds”:

I.) Utilization of short-term working capital funds for long-term reasons, which is not in conventionality with the terms of sanction of the loan availed;

ii.) Organizing borrowed funds for purposes/activities or creation of assets other than those for which the loan was approved;

iii.) Transmitting borrowed funds to the subsidiaries/group companies or other corporates by whatever modalities;

Iv.) routing of funds through any bank/financial institution, other than the lender or members of consortium without prior permission of the lender;

V.) Investment in other companies by way of acquiring equities/debt instruments without prior approval of the lender(s);

Vi.) The shortfall in the deployment of funds vis-à-vis the amounts disbursed/drawn and the difference not being accounted for.

In the matter of Indranil Mukherjee v. Jayeeta Mukherjee & Ors., the High Court of Calcutta demonstrated that the court has authority to pass an injunction order and in so doing restrict the defendants from extracting & embezzling any kind of money present in different deposits of distinct descriptions either in the joint name or individually in the name of the defendant solely. The RBI additionally cleared that the term ‘siphoning of money, must be interpreted to happen if any funds taken from monetary institutions/banks are used for functions non-related to the operations of the borrower, to the damage to the fiscal health of the entity, or of the person who is lending. The decision as to whether a specific instance leads to misappropriation of funds would have to be a decision of the lenders on the basis of objectives, facts, and situations of the case.

The finance ministry has notified chiefs of public sector financial institutions that they could suffer charges of criminal conspiracy if loan debtors are found deceitfully misusing funds whilst in the middle of bankruptcy resolution. The consultative team is more of a restriction the government is attempting to create to make sure those willful defaulters planning to divert or steal funds do not get any kind of help from the banks. The lending financial institutions are asked to present complete transaction lists for the last 5 years of the “suspect accounts”. As per the reports of the finance ministry, it has been realized that “defaulters, whilst tracking bankruptcy resolution, administer to silently divert the funds and the banking field is too exhausted to understand and act on them.” Advertisers of different companies are supposedly using associate organizations to steal funds. For the same reason, the accounting books of all the financial organizations going through debt resolution are being verified by the Serious Fraud Investigation Office (SFIO).

https://www.criminaldefenselawyer.com/resources/criminal-defense/white-collar-crime/misappropriation-of-funds.htm

https://www.business-standard.com/article/finance/funds-diversion-may-be-criminal-offence

https://ibbi.gov.in/August%202001,%20Dr.%20N.L.%20Mitra%20Committ

e%20Report%20on%20Legal%20Aspects%20of%20Bank%20Frauds.pdf

http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S1727-37812017000100025

https://www.mondaq.com/india/fund-management-reits/827984/strengthing-of-laws-against-wilful-defaulters

https://uk.practicallaw.thomsonreuters.com/w-009-8768?

transitionType=Default&contextData=(sc.Default)&firstPage=true

https://www.indiatoday.in/business/story/bank-heads-to-face-criminal-conspiracy-charge-for-npa-fraud-1321096-2018-08-23

For any information kindly reach out to us on saksharlawassociates@gmail.com