the story So Far: The Delhi High Court has quashed the First Information Report (FIR) filed by the Economic Offenses Wing (EOW) of Delhi Police and consequent money laundering proceedings initiated by the Enforcement Directorate (ED) against the news portal. newsclick and its editor-in-chief, Prabir PurkayasthaAbove allegations of foreign funding. Calling the action a malicious and arbitrary exercise of power, Justice Neena Bansal Krishna said it was an abuse of the legal process and a threat to free and independent journalism.
What were the allegations against Newsclick?
The proceedings were initiated by two cases registered by Delhi Police’s EOW and ED in 2020. The EOW case arose out of a letter dated June 26, 2020, written to the Ministry of Information and Broadcasting by Sobhan Singh, who was an informant and not an aggrieved party, alleging that PPK Newsclick Studios Pvt. Ltd. Ltd. misappropriated funds and violated foreign direct investment (FDI) norms. The communication was later forwarded by Vijay Kaushik, undersecretary in the ministry, following which the EOW filed an FIR.
It has been alleged in the FIR newsclick An investment of $1.5 million at an increased share valuation was received from Worldwide Media Holdings LLC, a Delaware-based entity in the United States. The investigating agency claimed that the premium at which the shares were issued was intended to circumvent the 26% cap on foreign investment in digital news media. However, the investment agreement was signed in March 2018, and the funds were received in April 2018, more than a year before the 26% cap was introduced via a government press note on September 18, 2019.
It is alleged that newsclick The manipulation of its share valuation also formed the basis of alleged violation under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 (FEMA). According to the rules, shares issued by an Indian entity to a foreign investor should be valued as per internationally accepted pricing methodology and should not be transferred below fair value.
Records also revealed that, before receiving the investment, newsclick In December 2017, it had written to the Ministry of Information and Broadcasting seeking clarification on whether online news portals were subject to the FDI restrictions applicable to print media. In January 2018, the ministry responded that “online publications on websites/web portals do not fall within the scope of print media”.
During the proceedings, reference was made to a status report dated July 26, 2021, which was signed and supplied by Anil Kumar, Assistant Commissioner of Police, EOW. newsclickAdvice of. The report included a response from the Reserve Bank of India (RBI) stating that foreign remittances had come through the automatic route and no FEMA violations were disclosed.
However, on July 29, 2021, the state sought to distance itself from the report and sought permission from the court to file a fresh status report. When a revised report was finally filed on October 4, 2021, the RBI’s observations were removed. EOW still maintained it newsclickDespite being a loss-making entity, it had received FDI at inflated valuations and alleged that the share valuation mechanism was used to circumvent regulatory restrictions. It further claimed that 45% of foreign investment was diverted.
Within a week of the FIR being filed, the ED initiated proceedings under the Prevention of Money Laundering Act (PMLA) by filing an Enforcement Case Information Report (ECIR) similar to the FIR based on the same allegations. The offenses mentioned in the FIR include criminal breach of trust, cheating and criminal conspiracy.
How did the UAPA case against Newsclick come to light?
Apart from proceedings under FEMA and PMLA, Shri Purkayastha and newsclickHuman resources chief Amit Chakraborty also Faced prosecution under the Unlawful Activities (Prevention) Act (UAPA). Both were arrested after a report published by the Special Cell of Delhi Police in October 2023. the new York Times allegations of relations between newsclickFunding and Chinese state-backed propaganda efforts. Mr Chakraborty later turned approver and was released from custody.
Mr Purkayastha remained in Tihar jail for almost seven months, until in May 2024 the Supreme Court declared his arrest illegal and canceled the remand order. The court found that neither he nor his lawyer were informed of the written grounds of arrest before being sent into custody.
A division bench of Justices BR Gavai and Sandeep Mehta said the written information given by the investigating agency as grounds for arrest is “sacred and cannot be violated under any circumstances”. The bench said that failure to disclose the grounds of arrest would be a violation of the fundamental right guaranteed under Article 22(1) of the Constitution, which provides that no arrested person shall be detained without being informed of the grounds of arrest and shall not be deprived of his right to consult and be defended by a legal practitioner of his choice.
Accordingly, Mr Purkayastha was subsequently released on the grounds of not providing “information in writing on the grounds of arrest”, thereby vitiating the arrest and subsequent remand.
What were the court’s findings on alleged FDI violations?
On the allegation of FDI violation, the court said that the transaction was approved amid correspondence issued by RBI. newsclick and Worldwide Media Holdings LLC was sufficient to demonstrate that no violation had occurred. The court argued that the transaction was approved by the same regulator under whose jurisdiction the alleged offense occurred. It also took note of the fact that no FDI limit on digital news media existed at the time the investment was made.
Justice Krishna also rejected the state’s allegation that more than 45% of foreign investment was siphoned off through salary payments, consultancy fees and rents. Citing the financial records of the company, the court said that its expenditure exceeded its revenue during the relevant period.
The judge said, “When a company is operating, especially in the business of digital print media, it is natural to have such expenses. Even if it is accepted that there were overpayments and excessive expenses by the petitioner, it does not disclose any criminal offence. Therefore, the allegation of siphoning off money is not tenable.”
Why did the court find that the offense of fraud and criminal breach of trust does not arise?
With regard to the offense of cheating under Section 415 and criminal breach of trust under Section 406 of the Indian Penal Code (IPC), the court pointed out the absence of any aggrieved party. It said Worldwide Media Holdings LLC, the entity that invested the money newsclickHad never filed any criminal complaint. The court further said that the prosecution has failed to identify any person who can be said to have been defrauded, defrauded or otherwise suffered any grievance as a result of the transaction.
The court also highlighted that Mr Singh, on whose complaint the FIR was registered, had no direct involvement in the transaction. It was held that a commercial investment made in exchange for shares could not, in itself, amount to a handing over of property so as to give rise to the offense of criminal breach of trust.
What did the court say on the allegation of money laundering?
The ED’s money laundering case was primarily based on allegations that Mr. Purkayastha and others had conspired to bring foreign money into India through investments. newsclick. It is alleged that ₹9.59 crore (approximately $1.5 million) was remitted into the country under the guise of investments in digital media, constituting the offense of criminal conspiracy under section 120B of the IPC. According to the agency, Mr Purkayastha had colluded with Jason Pfetcher of Worldwide Media Holdings LLC and American businessman Neville Roy Singham to facilitate the flow of money.
However, the court rejected this argument and pointed out that the charge of conspiracy requires material indicating an agreement to do an unlawful act or to achieve a legitimate objective by unlawful means. Apart from what it described as “frivolous claims”, the court found no material to suggest the existence of any such agreement or unlawful design. It further said that despite an extensive investigation by the ED for about one and a half years, during which the petitioners and several employees were repeatedly summoned, no incriminating material was placed on record.
“Other than the claim of criminal conspiracy, there is not even a whiff of any allegation which even remotely suggests the commission of an offense punishable under Section 4 (punishment for money laundering) of the PMLA,” the court said.
Finding the charge of criminal conspiracy untenable, the court said the ED’s money laundering case cannot stand after the underlying FIR is quashed. Trust in Supreme Court’s decision Vijay Madanlal Chaudhary vs Union of India (2022)It was observed that where the predicate offense has been set aside, money laundering proceedings instituted on the same set of charges cannot be continued against the accused. As a result, the ECIR was also quashed.
