'Economic Decision, Not A Criminal Offence': Delhi HC Quashes FIR, ED Case Against NewsClick, Founder Over Foreign Funding

The Delhi High Court has recently quashed an FIR registered against digital media platform NewsClick and its founder, Prabir Purkayastha, along with the Enforcement Directorate's money laundering case, holding that the allegations failed to disclose offences of cheating or criminal breach of trust.

Justice Neena Bansal Krishna observed that the basic ingredients of the offences were absent. The court held: "Even if all the allegations are accepted, no offence under 406 or 420 IPC is disclosed in the FIR and in the subsequent investigations that have been undertaken."

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

The case arose from a complaint alleging that NewsClick received foreign direct investment of about ₹9.59 crore from Delaware-based Worldwide Media Holdings LLC in April 2018 by issuing shares at ₹11,510 per share.

The authorities alleged that the shares were overvalued to avoid restrictions on foreign investment in digital news media. They also alleged that more than 45% of the funds had been used towards salaries, consultancy fees, rent, and related expenses.

Based on the FIR registered by the Economic Offences Wing, the Enforcement Directorate initiated a money laundering investigation.

NewsClick and Purkayastha argued that no cap on foreign investment in digital news media existed when the investment was received in 2018. They relied on a clarification issued by the Ministry of Information and Broadcasting stating that online publications did not fall within the ambit of print media.

They also contended that the investment was received through authorised banking channels, complied with FEMA requirements, and that an RBI communication referred to in an earlier status report recorded that the remittance was under the automatic route and that there was no delay in issuance of shares or regulatory reporting. The petitioners further argued that the investor had never complained of being cheated and that ordinary business expenditure could not be treated as siphoning of funds.

Examining the allegations, the Court held that the claim that the shares were overvalued to evade foreign investment restrictions was unsustainable. It noted that no cap on foreign investment in digital news media existed when the investment was made. The Court also noted that the shares had been valued by an independent chartered accountant in accordance with FEMA regulations.

"The said price was worked out between M/s Worldwide Media Holdings LLC and the Petitioner after due negotiations and their mutual decisions. On the assessment of day to day market and the prospects of growth of the Company, that the price was mutually agreed by the Petitioner and M/s Worldwide Media Holdings LLC. It is an economic decision that does not spell out any criminal offence," the court observed.

Rejecting the allegation that expenditure on salaries, consultancy fees, and rent amounted to siphoning of funds, the Court held: "However, when a Company is functioning especially in the business of digital print media, such expenses are bound to occur. Even if it is accepted that there were over payments and excessive expenditure incurred by the Petitioner, then too it does not disclose any criminal offence. The allegation of siphoning is, therefore, not tenable."

The Court also found that the offence of cheating was not made out because there was no identifiable victim.

"For the offence of cheating, it is necessary that there must be an aggrieved person who has been cheated out of his valuable property. In this case, M/s Worldwide Media Holdings LLC is the entity which had forwarded 1.5 Million USD to the Petitioner. However, there is no Complaint whatsoever, by the Company about having been cheated by the Petitioner," it observed.

The Court further noted, "There is nothing which has emerged even during the investigations as reflected in the Status Report, that there was any person who was aggrieved or who was cheated by the Petitioner. The offence of cheating even if all the allegations made are admitted, is not established."

Likewise, the Court held that the offence of criminal breach of trust could not stand because there was no entrustment of property and no allegation of misappropriation.

The court also took note of an RBI communication referred to in an earlier status report, which recorded that the foreign remittance was under the automatic route and that there was no delay in issuance of shares or regulatory reporting. According to the Court, this was "sufficient to explain that there were no violations by Petitioner, established."

Having found that the offences alleged in the FIR were not made out, the court held that the Enforcement Directorate's case could not survive. It consequently quashed the ECIR as well and allowed all three petitions.