The two cases against digital news portal NewsClick and its founder Prabir Purkayastha quashed by the Delhi High Court dealt with allegations of money laundering.

The cases, both from 2020, were filed by the Delhi Police’s Economic Offences Wing (EOW) and the Enforcement Directorate.

The EOW FIR had alleged foreign direct investment (FDI) was received by PPK NewsClick Studio Private Limited, which owns NewsClick, from Worldwide Media Holdings LLC, US, (WWMH) during 2018-19, in violation of FDI norms and other laws of the country. Through the FDI, WWMH — a Delaware-incorporated for-profit company — came to hold 7.69% shares of PPK NewsClick Studio.

While the EOW FIR was lodged on August 26, 2020, Purkayastha received a copy only in June 2021.

The ED’s ECIR (equivalent to FIR) was lodged within a week of the EOW FIR on September 2, 2020.

The broad allegation by the investigating agencies was that the FDI received by NewsClick was “intended to make payments for ulterior motives clandestinely” and that “the news portal violated the FDI law and other laws of the country and caused loss to the exchequer”.

According to the probe agencies, NewsClick allegedly overvalued its shares to avoid the 26% cap on FDI for digital media platforms. Notably, this cap was only introduced in September 2019, well after the investment was made — a fact that the court took into consideration.

FDI violations were alleged under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (FEMA), although the Reserve Bank of India (RBI) had given its clearance that the FDI was in compliance with regulations. While the EOW mentioned the RBI’s stance in a status report, it subsequently withdrew it.

On this, the court of Justice Neena Bansal Krishna observed, “This (RBI) correspondence, though mentioned in the unserved Status Report, was subsequently withdrawn (by EOW), but is sufficient to explain that there were no violations by petitioner…”

FEMA guidelines mandate that the transfer of shares and securities by an Indian entity to a foreign investor must be at a price not lower than the fair value, as determined by an internationally accepted pricing methodology.

Taking this into account, along with the fact that there was no FDI cap at the time of the investment, Justice Krishna recorded in the order, made public on Wednesday, “There is no illegality or manipulation pointed out in respect of working out the fair value of shares of (PPK NewsClick). The fair valuation assessment of shares had been done (by PPK NewsClick) in accordance with FEMA regulations…”

“… Therefore, to say that it (PPK Newsclick) could not have issued shares to M/s Worldwide Media Holdings LLC at Rs 10, would be in violation of extant FEMA guidelines… It is an economic decision which does not spell out any criminal offence… All relevant factors were duly examined in assessing the fair price value of the shares,” the judge added.

The news portal was accused of “siphoning” of “more than 45%” of the FDI and citing that it had incurred “huge losses” due to “excessive payment of consultancy, salary and rent”, and other expenses of promoters, journalists, and employees associated with the company.

The court threw out this allegation. Justice Krishna recorded, “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, it does not disclose any criminal offence. The allegation of siphoning is, therefore, not tenable.

Another allegation made that WWMH, from which NewsClick received the FDI, was voided in June 2017 and the transaction received was fraudulent.

NewsClick had pointed out that as per Delaware incorporation laws, once a company is voided, a new company can seek incorporation under the same name, which is the case here. It was pointed out that WWMH was incorporated in November 2017, making the transaction legal and valid.

Justice Krishna observed, “There is nothing which has come out in the investigation of the State that M/s Worldwide Media Holdings LLC, with which the petitioner had dealings, was a non-existing company. In fact, the status report is completely silent on this aspect.”

Justice Krishna observed the absence of ingredients of the offence for these charges to stick.

“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…”

“… Pertinently, the complaint had been made by one Shoban Singh, who was merely an informant and was not the aggrieved person. 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,” the court held.

Similarly, the court also dismissed the charge under IPC section 406 for criminal breach of trust, noting, “… No person has claimed to have entrusted a property or that it has been misappropriated by the petitioner… by no stretch of interpretation can it (the investment) be said to be an entrustment by M/s Worldwide Media Holdings LLC or misappropriation by the petitioner.”

The ED alleged money laundering relying on criminal conspiracy, one of the scheduled offences, which was alleged in the predicate offence — the EOW FIR.

The central probe agency alleged that criminal conspiracy is clearly made out as the amount of Rs 9.59 crore (USD 1.5 million) was brought into India “in the garb of investment in digital media”, carried out by Purkayastha in connivance with Jason Pfetcher (manager of WWMH) and Neville Roy Singham (American businessman and investor).

The court dismissed this argument. Justice Krishna noted, “From the ED’s response, it is evident that they are trying to claim that the offence under Section 120B IPC is still made out. However, on what basis the criminal conspiracy is being alleged is not explained, except that Prabir Purkayastha and Jason Pfetcher had entered into an agreement.”

“Merely because the parties entered into an agreement is not sufficient to constitute criminal conspiracy, unless the ED is able to show what is the illegal objective or the means which have been adopted by the petitioners and the other persons which can be termed as criminal conspiracy.”

Quashing the ED’s money laundering proceedings, the court said extensive investigations were carried out by the ED for a year and a half, and the petitioners, as well as its employees, were summoned and examined many times.

“… But nothing incriminating till date has been found or placed on record. Aside from bald assertions of there being a criminal conspiracy, there is not a whisper of any incriminating allegation, which would even remotely suggest the commission of the offence punishable under Section 4 PMLA,” the court held.