Delhi High Court quashes NewsClick FIR and ED case over FDI allegations: ‘Gross abuse of right’ | Today’s news

The Delhi High Court has quashed an FIR registered by the Economic Offenses Wing (EOW) against NewsClick and its founder and editor Prabir Purkayasth on charges related to foreign direct investment (FDI).

The court held that even if the allegations in the FIR were accepted in full, the essential ingredient of cheating, criminal breach of trust or criminal conspiracy was not made out.

Read also | SC orders release of NewsClick founder Prabir Purkayasth in UAPA case

The court further observed that the continuation of such an FIR was nothing but a gross abuse of legal process and thereby quashed both the EOW FIR and the ECIR filed by the ED, LiveLaw website reported on a legal report from the verdict on June 10.

“It has been held that if an FIR is quashed under a predicate offence, the ECIR can automatically be quashed. Consequently, the entire ECIR is also quashed. Once the ECIR itself is quashed, the prayer for supply of a copy of the ECIR has become futile,” Justice Neena Bansal Krishna ruled.

The ECIR (Enforcement Case Information Report) is an internal document used by India’s Enforcement Directorate (ED) to officially record the initiation of a money laundering investigation under the Prevention of Money Laundering Act (PMLA). It acts as the ED equivalent of a police FIR.

FIR registered in August 2020

The FIR, registered in August 2020 based on a complaint forwarded by the Ministry of Information and Broadcasting, alleged that NewsClick received Rs. 9.59 million FDI from US-based Worldwide Media Holdings LLC through an allegedly overvalued stock transaction to circumvent FDI restrictions.

The complaint alleged that NewsClick received around Rs. 9.59 crore as FDI in April 2018 and issued shares at an allegedly inflated premium of Rs. 11,510 per share. Investigators alleged that the award was structured to circumvent restrictions on foreign investment in digital news media and that a substantial portion of the funds were diverted to salaries, consulting fees and rent.

Read also | CBSE result row: NSUI moves Delhi HC seeking independent probe to OSM process

NewsClick challenged the FIR, claiming that the investment was a legitimate foreign direct investment made through authorized banking channels after receiving a valuation report from an independent chartered accountant.

The company also pointed out that in December 2017, it had asked the Ministry of Information and Broadcasting for clarification on FDI in online news platforms, and was informed in January 2018 that online news publications did not fall under the purview of “print media”.

Prabir Purkayasth was granted an interim protection from arrest (no coercive measures) in this matter in June 2021. The interim orders have been extended from time to time. The ED raided the premises of NewsClick and the residences of its editors in February 2021 in connection with a money laundering case and conducted search and seizure.

The Supreme Court noted that the $1.5 million investment was accepted in April 2018 when there was no cap on foreign investment in digital news media. The court noted that the 26 percent limit on foreign investment in digital news media was only introduced through Press Release 4 of 2019 and therefore could not be applied retrospectively to an investment made in 2018.

“It could not in itself constitute an offence”

Justice Krishna further held that the valuation of the shares was done by professional valuers in accordance with FEMA regulations and internationally accepted valuation methodologies. The court observed that the fair value of the shares was valued at Rs. 9,188 per share, while the final issue price of Rs. 11,510 per share was reached through negotiations between the investor and the company. According to the court, such a business decision cannot in itself constitute a criminal act.

“The said award was worked out between M/s Worldwide Media Holdings LLC and the petitioner after due negotiations and their mutual decisions… It is an economic decision which does not explain any offence,” the court said, according to news agency ANI.

The court also rejected claims that FDI was siphoned off through payments for salaries, consultancy fees and other expenses. He found that such expenses were normal and necessary for the operation of a digital media organization and that even if excessive expenses were incurred, this would not automatically reveal a criminal offence.

Additionally, the court took note of an earlier status report submitted during the investigation, which noted that the Reserve Bank of India informed the investigators that the foreign transfers were received automatically and that there was no delay or violation in the issuance of shares or reporting requirements under FEMA regulations.

Examining sections 420 and 406 of the implementing regulation, the court found that no criminal offense was established from the allegations in the FIR.

No foreign investor complaint

Regarding cheating under Section 420 IPC, the Court observed that there was no complaint from the foreign investor, Worldwide Media Holdings LLC, alleging that it had been cheated or defrauded. The complaint was instead filed by a whistleblower who was not the alleged victim of any fraud.

The court ruled that the basic requirement that the injured person be induced to part with the property is missing. Likewise, the criminal offense of breach of trust pursuant to Section 406 of the Criminal Code was not committed, as no person entrusted the property to the petitioners, nor was there any accusation of misappropriation of the entrusted property.

Read also | NewsClick UAPA case: 8,000-page copy of record sheet brought in suitcase

After analyzing the allegations and the material collected during the investigation, the High Court concluded that even if all the allegations in the FIR were accepted at face value, they did not disclose the commission of offenses under Section 406 or 420 of the IPC.

“Continuation of such FIR is nothing but gross abuse of process and is hereby quashed,” it said.

Since the ECIR of the ED under the Prevention of Money Laundering Act (PMLA) was registered on the basis of the same FIR, the Court also looked into the money laundering proceedings. NewsClick argued that the ECIR could not survive once the predicate offenses had failed and that the FEMA violations themselves were not scheduled offenses under the PMLA.

Continuation of such FIR is nothing but gross abuse of process and is hereby quashed.

The judgment held that the underlying FIR alone cannot stand and therefore the anti-money laundering proceedings initiated on the basis of that FIR may also be quashed. The court therefore granted relief to the appellants in the related motions as well.

(With inputs from ANI and LiveLaw)