No evidence of cheating or criminal breach of trust in NewsClick case: Delhi HC

The Delhi High Court has quashed a First Information Report (FIR) registered against digital news platform NewsClick and its founder Prabir Purkayastha, holding that allegations relating to foreign direct investment (FDI), share valuation and expenditure of funds did not disclose any cognisable offence of cheating or criminal breach of trust.

In a judgment delivered on 29 May, Justice Neena Bansal Krishna set aside the FIR registered by the Economic Offences Wing (EOW) on 26 August 2020, observing that even if all allegations contained in the complaint were accepted as true, the essential ingredients required to establish criminal offences were absent.

The court also quashed the Enforcement Directorate's Enforcement Case Information Report (ECIR), registered on 2 September 2020 under the Prevention of Money Laundering Act (PMLA), noting that the money laundering investigation was entirely dependent on the allegations contained in the EOW FIR.

Allegations centred on foreign investment

According to the FIR, PPK Newsclick Studio Private Limited had received FDI worth Rs 9.59 crore from US-based Worldwide Media Holdings LLC during the 2018-19 financial year in exchange for a 7.69 per cent stake in the company.

Investigators alleged that the investment involved an inflated valuation of the company's shares and was structured to circumvent an alleged 26 per cent cap on foreign investment in digital news media.

The FIR further claimed that more than 45 per cent of the investment was diverted towards salaries, consultancy fees, rent and other expenditures for alleged ulterior purposes.

The Enforcement Directorate initiated its probe on the basis of these allegations.

However, the High Court noted that no cap on FDI in digital news media existed at the time the investment was made.

Referring to a clarification issued by the Ministry of Information and Broadcasting in January 2018, the court said online news publications were not then covered under regulations governing print media.

The court also observed that FEMA (Foreign Exchange Management Act) regulations required shares issued to foreign investors to be priced at not less than fair value and that an independent valuer had assessed the fair value of the shares at Rs 9,188 each.

The shares were ultimately issued to Worldwide Media Holdings at Rs 11,510 apiece following commercial negotiations between the investor and the company.

“The valuation of shares and investment decisions are essentially economic and commercial decisions and do not by themselves constitute a criminal offence,” the court observed.

No offence made out, court says

On allegations that a substantial portion of the investment had been spent on salaries, consultancy fees, rent and operational expenses, the court said such expenditure was a normal part of running a digital media company.

The judge observed that even if excessive expenditure or overpayments were assumed, they would not automatically amount to criminal conduct.

Addressing the charge of cheating under Section 420 of the Indian Penal Code (IPC), the court noted that no complaint had been made by Worldwide Media Holdings, the investor allegedly affected by the transaction.

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

The court also found that the offence of criminal breach of trust under Section 406 IPC was not established as there was no entrustment of property capable of being misappropriated. It held that the transaction in question was a straightforward investment and share purchase arrangement.

The Enforcement Directorate had additionally argued that a criminal conspiracy under Section 120B IPC existed and alleged that Purkayastha, along with Jason Pfetcher and Neville Roy Singham, had brought the funds into India under the guise of investment.

Rejecting the contention, the court said the agency had failed to explain the alleged illegal objective behind the agreement between the parties.

“Merely because the parties entered into an agreement is not sufficient to constitute criminal conspiracy,” the court said, adding that no unlawful objective or illegal means had been demonstrated by the investigating agency.

With the FIR quashed and no predicate offence surviving, the court also set aside the connected money laundering proceedings initiated by the Enforcement Directorate.