Delhi High Court quashes NewsClick FIR and ED case over FDI allegations: ‘Gross abuse of law’

The Delhi High Court has quashed an FIR registered by the Economic Offences Wing (EOW) against NewsClick and its founder-editor, Prabir Purkayastha, over allegations relating to foreign direct investment (FDI).

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

The Court further observed that the continuation of such FIR was nothing but a gross abuse of the process of law, thereby quashing the EOW FIR as well as the ECIR lodged by ED, legal news website LiveLaw reported from the verdict on 10 June.

“It has been held that if the FIR under predicate offence is quashed, the ECIR automatically, is liable to be quashed. Consequently, the complete ECIR is also quashed. Once the ECIR itself is quashed, the prayer for supply of the copy of the ECIR has become infructuous,” Justice Neena Bansal Krishna ruled.

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

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

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

The company also pointed out that it had sought clarification from the Ministry of Information and Broadcasting in December 2017 regarding FDI in online news platforms and was informed in January 2018 that online news publications did not fall within the ambit of "print media."

Prabir Purkayastha was granted interim protection from arrest (no coercive action) in the matter in June 2021. The interim orders were extended from time to time. ED had raided the premises of NewsClick and residences of its editors in February 2021 in connection with money laundering case and had conducted search and seizure.

The High Court noted that the investment of USD 1.5 million was received in April 2018, when there was no cap on foreign investment in digital news media. The Court observed that the restriction of 26 per cent foreign investment in digital news media was introduced only through Press Note 4 of 2019 and therefore could not be retrospectively applied to an investment made in 2018.

"The said price 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 spell out any criminal offence," the court said, according to news agency ANI

The Court also rejected the allegation that the FDI was siphoned off through payments towards salaries, consultancy charges and other expenses. It observed that such expenditures are normal and necessary for the functioning of a digital media organisation and that even if excessive expenditure had been incurred, it would not automatically disclose a criminal offence.

The Court additionally took note of an earlier status report submitted during the investigation, which recorded that the Reserve Bank of India had informed investigators that the foreign inward remittance was received under the automatic route and that there was no delay or violation in the issuance of shares or reporting requirements under FEMA regulations.

Examining the ingredients of Sections 420 and 406 IPC, the Court found that neither offence was disclosed from the allegations in the FIR.

The Court held that the essential requirement of an aggrieved person having been induced to part with property was absent. Likewise, the offence of criminal breach of trust under Section 406 IPC was not made out because there was no entrustment of property by any person to the petitioners and no allegation of misappropriation of entrusted property.

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

"The continuation of such FIR is nothing but a gross abuse of the process of law and is hereby quashed," it said.

Since the ED's ECIR under the Prevention of Money Laundering Act (PMLA) had been registered on the basis of the same FIR, the Court also examined the money laundering proceedings. NewsClick had argued that the ECIR could not survive once the predicate offences failed and that FEMA violations themselves are not scheduled offences under the PMLA.

The judgment held that the foundational FIR itself could not stand and therefore, the money laundering proceedings initiated on the basis of that FIR were also liable to be set aside. The Court accordingly granted relief to the petitioners in the connected petitions as well.

(With inputs from ANI and LiveLaw)