### Managing Director liable for siphoning funds despite non-arraying of company as an accused.

The petitioner, Managing Director of Bharat Capital Services Ltd., challenged an order dated 05.12.2022 passed by the CJM, Patna, taking cognizance of offences under Sections 406, 409, 467, 468, 420, and 120(B) of the IPC and Section 3 of the Bihar Protection of Interest of Depositors Act, 2002

The prosecution alleged that the petitioner induced investors to deposit funds under various schemes with promises of high returns or plot allotments, but subsequently misappropriated these funds by diverting them to another entity, B.G.N. Multi State Housing Cooperative Society Ltd., also controlled by him

The petitioner argued the dispute was purely contractual, he lacked individual overt involvement in the Patna branch, and that the company itself had not been arrayed as an accused

1. Whether the criminal proceedings are liable to be quashed on the ground that the dispute is civil/contractual in nature and lacks evidence of fraudulent intent at inception

2. Whether the petitioner can be held vicariously liable as Managing Director in the absence of the company being arrayed as an accused

3. Whether the allegations and subsequent conduct (siphoning of funds) prima facie constitute offences under Sections 406 and 420 of the IPC

The court considered the distinction between a breach of contract and criminal cheating, noting that for Section 420 IPC, fraudulent intent must exist from the inception

It examined the principle of vicarious liability, noting that directors cannot be held liable solely by virtue of their position unless a specific role is attributed to them

Furthermore, it addressed the necessity of impleading the company as an accused in certain circumstances

The Court rejected the petitioner’s contention that the matter was purely civil.

It observed that the specific allegations involved the "premeditated conspiracy" of siphoning investor funds from Bharat Capital Services Ltd. to a new entity, B.G.N. Multi State Housing Cooperative Society Ltd., at the time maturity payments were due

The court relied on a co-accused's statement and the written report to find that the petitioner was directly involved in these "online" operations and the closure of the local office to evade liabilities

Regarding the non-joinder of the company, the court held this was not fatal because the allegations were directed at the petitioner’s individual conduct in acting beyond statutory limits and actively siphoning funds

The court noted that the petitioner's prior deposit of Rs. 82 lakhs during bail proceedings corroborated the existence of substantial claims, and his subsequent conduct prima facie established dishonest intention

It held that the ingredients for Sections 406 (criminal breach of trust) and 420 (cheating) IPC were prima facie made out due to the specific allegations of siphoning funds

The Court further clarified that the omission of the company as an accused can be rectified by the trial court at an appropriate stage under Section 319 CrPC/Section 358 BNSS