The Delhi High Court has quashed the FIR registered by the Economic Offences Wing (EOW) of Delhi Police and the Enforcement Case Information Report (ECIR) registered by the Enforcement Directorate (ED) against news portal NewsClick and its Editor-in-Chief, Prabir Purkayastha, in connection with allegations of illegal foreign funding and money laundering.
The single-judge Bench of Justice Neena Bansal Krishna held that even if all allegations contained in the FIR were accepted in their entirety, the essential ingredients required to constitute offences of cheating under Section 420 and criminal breach of trust under Section 406 of the Indian Penal Code (IPC) were not disclosed. The Court observed that continuation of the criminal proceedings amounted to a gross abuse of the process of law.
The single-judge Bench quashed the FIR registered by the EOW as well as the ECIR initiated by the Enforcement Directorate under the Prevention of Money Laundering Act (PMLA). Justice Krishna further held that once the predicate offence itself stood quashed, the money laundering proceedings could not survive independently. As a result, the challenge seeking the supply of a copy of the ECIR became infructuous.
The case originated from an FIR registered in August 2020 on the basis of a complaint forwarded by the Ministry of Information and Broadcasting. The allegations centred on foreign direct investment allegedly received by PPK Newsclick Studio Private Limited, which operates NewsClick.
Investigators alleged that the company received approximately Rs 9.59 crore from United States-based Worldwide Media Holdings LLC through an allegedly overvalued share transaction designed to bypass foreign direct investment restrictions applicable to news media entities. It was further alleged that a substantial portion of the funds was siphoned off through salaries, consultancy payments and other expenditures.
Following registration of the FIR, the EOW conducted an investigation and forwarded the case material to the Enforcement Directorate, which subsequently registered an ECIR and initiated money laundering proceedings. The ED also conducted search and seizure operations at the premises of NewsClick and the residences of its editors in February 2021. Purkayastha was granted interim protection from arrest by the High Court in June 2021, and the protection continued during the pendency of proceedings.
While examining the record, the High Court noted that Worldwide Media Holdings LLC had agreed to invest a total of USD 4.5 million in three tranches of USD 1.5 million each in exchange for a cumulative 23.07 per cent shareholding in the company. The first tranche of USD 1.5 million was received on April 11, 2018.
The Court also examined the regulatory framework governing foreign investment in digital news platforms at the relevant time. It noted that NewsClick had sought clarification from the Ministry of Information and Broadcasting in 2017 regarding the applicability of foreign investment restrictions to online news publications. Referring to the Ministry’s clarification issued in January 2018, the Court observed that there was no cap on foreign direct investment in online publication of news when the investment was received in April 2018.
In view of the regulatory position prevailing at the time, the Court held that the investment agreement executed between NewsClick and Worldwide Media Holdings LLC could not be regarded as violative of any law or indicative of criminal conduct. The receipt of USD 1.5 million in exchange for 7.69 per cent shares of the company was therefore not unlawful.
The Court further rejected allegations that the foreign investor had been cheated through inflated valuation of shares. It noted that the valuation exercise had been conducted in accordance with the Foreign Exchange Management Act (FEMA) framework and was based on the internationally accepted Discounted Cash Flow method. The valuation had been arrived at after negotiations and mutual commercial decisions between the parties. The Court observed that such commercial and economic decisions could not be converted into criminal offences merely because investigators questioned the valuation.
The judgment also addressed allegations of siphoning of funds. The Court held that even if it were assumed that excessive expenditure or overpayments had been made, such allegations by themselves did not disclose any criminal offence. The allegation of siphoning lacked legal foundation and could not sustain criminal prosecution.
The Court took note of an earlier status report filed by the EOW which recorded that the Reserve Bank of India had informed investigators that the foreign remittance had been received through the automatic route and that there had been no delay in issuance of shares or FEMA-related reporting requirements.
Examining the offence of cheating, the Court observed that there was no identifiable complainant claiming to have been deceived. The foreign investor itself had never alleged that it had been induced to invest through fraud or misrepresentation. The investigation also failed to reveal any person who had suffered deception or wrongful loss as a consequence of the transaction. In the absence of these essential ingredients, the offence under Section 420 IPC was held to be unsustainable.
Similarly, the Court held that the offence of criminal breach of trust under Section 406 IPC was not made out because there was no entrustment of property and no allegation of dishonest misappropriation.
The allegation of criminal conspiracy under Section 120B IPC was also rejected. The Court held that merely entering into an investment agreement could not amount to conspiracy unless there was evidence of an illegal objective or unlawful means. It found no material indicating that the parties had entered into any agreement to commit a criminal offence.
While dealing with the ED proceedings, the Court observed that apart from general allegations of conspiracy, there was no incriminating material suggesting commission of an offence under Section 4 of the PMLA. Since the predicate FIR itself had been quashed, the ECIR and the consequential money laundering investigation could not continue.
Accordingly, the High Court quashed both the EOW FIR and the Enforcement Directorate’s ECIR, bringing an end to the criminal and money laundering proceedings initiated against NewsClick and Prabir Purkayastha in relation to the foreign funding allegations.
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