Corporate fund diversion through sham transactions can establish criminal breach of trust, but conspiracy needs conscious participation and guilty intent.

Corporate funds diverted through a sham commercial route without any lawful business purpose can amount to criminal breach of trust when they remain under a director's dominion, even if the money is not personally retained. The Court upheld conviction under Section 406 IPC for accused No. 1 because the documentary trail showed an unsupported false explanation and an impermissible collateral use of company money. By contrast, an employee who merely signed a cheque and approved a voucher in the ordinary course of duty was not shown to have guilty knowledge or conscious participation in a conspiracy, so accused No. 2's acquittal was confirmed.

---

---

Issues: (i) whether the diversion of Rs. 7,00,000 from the company's funds through a circuitous banking route amounted to criminal breach of trust and justified conviction of accused No. 1; (ii) whether the evidence was sufficient to sustain the charge of conspiracy or other criminal liability against accused No. 2.

Issue (i): whether the diversion of Rs. 7,00,000 from the company's funds through a circuitous banking route amounted to criminal breach of trust and justified conviction of accused No. 1.

Analysis: The documentary trail showed that accused No. 1 was a Director and the person in overall charge of the relevant division and bank account, and that the amount was routed through a supplier and then through connected concerns in a manner inconsistent with any genuine advance for business supplies. The explanation that the payment was an advance against raw materials was rejected as unsupported by the records. The Court held that the offence of criminal breach of trust was complete once corporate funds under the accused's dominion were diverted to an impermissible collateral purpose. The Court further found that the accused's explanation under Section 313 was false in material respects and did not displace the prosecution case.

Conclusion: Accused No. 1 was liable for criminal breach of trust and his acquittal was set aside; conviction under Section 406 of the Indian Penal Code was sustained.

Issue (ii): whether the evidence was sufficient to sustain the charge of conspiracy or other criminal liability against accused No. 2.

Analysis: Accused No. 2 was an employee who signed the cheque and approved the voucher in the course of his ordinary duties. The Court held that the material did not establish beyond reasonable doubt that he had guilty knowledge of the dishonest design or that he consciously joined a prearranged conspiracy. The transaction was given the appearance of a legitimate advance, and the record did not show that accused No. 2 derived any benefit from it. In these circumstances, the Court held that it would be unsafe to impute criminal intent to him.

Conclusion: The acquittal of accused No. 2 was confirmed and the conspiracy charge failed.

Final Conclusion: The appeal succeeded only to the extent of converting accused No. 1's acquittal on the breach of trust charge into a conviction with sentence, while the acquittal of accused No. 2 and the conspiracy charge were left undisturbed.

Ratio Decidendi: Where corporate funds under the dominion of a director are diverted through a sham commercial route without lawful business purpose, criminal breach of trust is established even if the money is not personally retained, but a subordinate employee is not liable for conspiracy unless conscious participation and guilty intent are proved beyond reasonable doubt.

---