Explain the terms 'Diversion of funds' and 'Siphoning of funds' with regard to due diligence for banks.

Diversion of funds , would be construed to include any one of the under noted occurrences: utilisation of short-term working capital funds for long-term purposes not in conformity with the terms of sanction; deploying borrowed funds for purposes/activities or creation of assets other than those for which the loan was sanctioned; transferring funds to the subsidiaries/Group companies or other corporates by whatever modalities; routing of funds through any bank other than the lender bank or members of consortium without prior permission of the lender; investment in other companies by way of acquiring equities/debt instruments without approval of lenders; shortfall in deployment of funds vis-à-vis the amounts disbursed / drawn and the difference not being accounted for. Siphoning of funds , should be construed to occur if any funds borrowed from banks/ financial institutions are utilised for purposes un-related to the operations of the borrower, to the detriment of the financial health of the entity or of the lender. The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgment of the lenders based on objective facts and circumstances of the case.