By S&S Co. Advocates & Solicitors · Published 3 November 2026 · Informational content, not legal advice: see our disclaimer
There is no single lawsuit called "siphoning." What you actually file depends on whether the business is a partnership or a company, whether the money has already left the entity or can still be traced, and whether your more urgent need is to stop further transfers or to get a final verdict on how much is owed. In a partnership, the standard combination is a suit for dissolution and accounts under the Indian Partnership Act, 1932, usually paired with an application to freeze assets. In a company, the normal route is an oppression and mismanagement petition before the National Company Law Tribunal, with a criminal complaint added only where the facts show a clean case of entrustment followed by dishonest misappropriation.
This piece sets out those options side by side and the order in which they are usually fought. It does not re-walk the separate question of when a business dispute crosses into cheating or criminal breach of trust as a matter of law; that distinction is covered in our guide on breach of contract versus cheating. The short version for anyone starting out: recovering money that has already moved is slow, and the opening fight is almost always about preserving what is left rather than punishing anyone.
What counts as siphoning, in practical terms
The word covers a range of conduct: routing firm receipts into a personal or a relative's account, inflating expense claims and reimbursements, quietly diverting a client or a contract to a second entity the errant partner secretly controls, paying inflated consultancy or commission fees to a connected party, or simply not depositing cash collections into the firm's books. What these have in common is that someone with access to the firm's money or its business used that access for a purpose other than the firm's benefit.
This is different from a partner who made a bad call that lost money, or a director who backed a deal that failed for ordinary commercial reasons. Courts are generally reluctant to turn business judgment into a lawsuit, let alone a criminal complaint. The first thing worth doing, before choosing a forum, is separating what you can show was diverted away from the business from what was simply lost through poor decisions. The stronger your case rests on specific, traceable diversions rather than a general sense that the numbers don't add up, the better each of the routes below will work.
The partnership route: dissolution and a suit for accounts
Section 44 of the Partnership Act lets a partner apply to the court to dissolve the firm on grounds that include a partner's conduct affecting the business prejudicially, a persistent breach of the partnership agreement that makes it impracticable to carry on in partnership, or conduct otherwise making it just and equitable to dissolve. Where siphoning is established, it typically falls within one of these grounds. The suit is usually combined with a prayer for accounts, so the court can direct a proper reckoning of what came in, what went out, and what each partner is owed once the firm's affairs are wound up.
An unregistered firm does not lose this route. Section 69 of the Act generally bars partners of an unregistered firm from suing each other to enforce ordinary contractual rights, but courts have recognised an exception for suits that are genuinely for dissolution or for rendition of accounts, as opposed to a suit dressed up as dissolution but really seeking a declaration or an injunction on some other point. Keep the suit squarely about dissolution and accounts if registration was never done.
Timing matters more than people expect. Courts have treated a suit for accounts following dissolution as governed by a three-year limitation period running from the date of dissolution, and have been firm that filing the dissolution suit itself does not count as the notice of dissolution; that date has to be fixed under the Act. Waiting too long to formalise the dissolution, even informally through a notice to the other partners, can cost you the accounts claim later.
The company route: oppression and mismanagement at the NCLT
For a private or public company, the counterpart is a petition under Sections 241 and 242 of the Companies Act, 2013, alleging that the affairs of the company are being conducted in a manner oppressive to members or prejudicial to the company's interests. Diverting company funds, routing business to a related entity controlled by the errant director, or paying non-commercial amounts to connected parties are the kind of conduct petitions in this space typically rely on. The provision does not define oppression or mismanagement exhaustively, so the Tribunal looks at the whole pattern of conduct rather than any one transaction in isolation.
Standing is governed by Section 244, which sets numerical shareholding thresholds for who may file, though the Tribunal has power to waive those requirements in an appropriate case. Relief under Section 242 is broad: the Tribunal can regulate the conduct of the company's affairs, order the purchase of shares, remove or restrain directors, and set aside transactions found to be improper, including agreements entered into to the company's detriment. A petition of this kind takes real time to reach final relief, which is why interim protection, covered below, is usually the more urgent fight.
Freezing the money before it disappears
Whichever main proceeding you file, the practical battle is usually about stopping further transfers while the case is pending. In a civil suit, this means an application for attachment before judgment under Order XXXVIII Rule 5 of the Code of Civil Procedure, where you can show the other side is likely to remove or dispose of assets to defeat a future decree, or an application for a temporary injunction under Order XXXIX restraining specific transactions or accounts. Our separate guide on attachment before judgment under Order XXXVIII Rule 5 sets out what has to be shown for that relief in detail.
In an NCLT oppression petition, the Tribunal's power under Section 242 extends to interim orders pending final disposal, and petitioners regularly seek directions restraining further disposal of company assets or further payments to the respondent director while the main petition is heard. None of these orders are granted as a matter of course. Courts and tribunals look for a reasonably specific showing, bank statements, invoices, or an auditor's note, not a general apprehension, and are cautious about freezing an entire business on an ex parte basis. Apply early; assets that have already moved are much harder to trace back.
When a criminal complaint for breach of trust actually helps
Section 316 of the Bharatiya Nyaya Sanhita, 2023, which replaced Section 406 of the former Indian Penal Code, covers a person who was lawfully entrusted with property or given dominion over it and then dishonestly misappropriated or converted it. A partner who manages the firm's bank account, or a director who controls company funds, typically has exactly that kind of dominion, which is why siphoning cases are a recurring fact pattern for this offence.
A criminal complaint does not replace the civil accounting; it runs alongside it and serves a different purpose, usually putting pressure on the other side and sometimes helping trace where money went through the investigation. It is not a shortcut to recovery, and investigations and trials in this area move slowly. Where the complaint is filed mainly as leverage in a civil dispute, rather than on a genuine entrustment and misappropriation, it also risks being quashed later; the test for that, and how courts have applied it to business-partner disputes specifically, is covered in our guide on breach of contract and cheating.
Choosing a forum, and running more than one track
The two civil routes and the criminal route are not mutually exclusive, and it is common to see a civil suit for accounts or an NCLT petition proceeding in parallel with a criminal complaint on the same underlying facts, with neither barring the other. What usually does not work, and increasingly draws judicial criticism, is filing or threatening a criminal complaint purely to extract a better civil settlement rather than because the facts genuinely show entrustment and dishonest misappropriation.
A sensible sequence in most matters is: send a written demand or notice calling for accounts, apply at the same time for interim protection in whichever civil forum fits the structure of the business, and only add a criminal complaint once the facts of entrustment are reasonably clear rather than merely suspected. Do not wait for a criminal investigation to conclude before filing the civil claim; limitation keeps running regardless of what the police or the magistrate are doing, and a dissolution or oppression claim filed late can be dismissed on that ground alone, however strong the underlying facts.
Frequently Asked Questions
Can I remove my partner or co-director myself, without going to court?
Only if the partnership deed or the company's articles already give that power and the exact procedure is followed. An unlawful removal can become the very complaint the other side files against you, so have the deed or articles checked before acting unilaterally, even where the siphoning seems obvious.
How long does an NCLT oppression and mismanagement petition usually take?
There is no fixed timeline, and contested petitions commonly run well beyond a year before final relief, longer if appealed to the NCLAT. This is exactly why most petitioners seek interim orders early rather than waiting for the final hearing to stop ongoing diversion.
Will the police register an FIR for this kind of dispute?
Not automatically. Because these disputes often sit close to the line between a civil disagreement and a genuine breach of trust, complainants frequently file directly before a magistrate instead of relying on the police station to register a straightforward FIR, particularly where the facts need some explanation to show entrustment.
Can an injunction or attachment actually get my money back quickly?
No. These orders freeze assets so they cannot be moved or dissipated further while the case is pending; they do not themselves transfer money to you. Recovery still has to come from a final decree, a Tribunal order, or a settlement reached once the other side sees that the assets are frozen.
Does it matter if our partnership was never formally registered?
It limits some remedies but not this one. An unregistered firm's partners generally cannot sue each other on ordinary contractual claims, but the exception for suits for dissolution and for accounts has been recognised by courts, so that specific route stays open even without registration.
References & Further Reading
The provisions and rulings below were relied on for this guide. The position can change with amendments and later decisions, so check the current text and the latest case law before acting on any of it.
- Indian Partnership Act, 1932, Sections 44 (dissolution by court), 48 (settlement of accounts) and 69 (effect of non-registration, with the dissolution and accounts exception)
- Companies Act, 2013, Sections 241, 242 and 244 (oppression and mismanagement, relief, and standing thresholds)
- Bharatiya Nyaya Sanhita, 2023, Section 316 (criminal breach of trust), corresponding to Section 406 of the former Indian Penal Code
- Code of Civil Procedure, 1908, Order XXXVIII Rule 5 (attachment before judgment) and Order XXXIX (temporary injunction)
- Limitation Act, 1963, Article 5, applied by courts to suits for accounts following dissolution of a partnership
- Related guide on this site: "Attachment Before Judgment Under Order XXXVIII Rule 5"; related guide: "Breach of Contract or Cheating? When a Business Dispute Can and Cannot Turn Criminal"