The Delhi High Court has dismissed two cases against the digital news platform NewsClick and its founder, Prabir Purkayastha, which involved accusations of money laundering. These cases, originating in 2020, were initiated by the Economic Offences Wing (EOW) of the Delhi Police and the Enforcement Directorate (ED).
The EOW’s first information report (FIR) claimed that PPK NewsClick Studio Private Limited, the entity behind NewsClick, unlawfully received foreign direct investment (FDI) from Worldwide Media Holdings LLC (WWMH), a U.S.-based company, between 2018 and 2019, in breach of FDI regulations and other laws. As a result of this investment, WWMH acquired a 7.69% stake in PPK NewsClick.
While the EOW filed its FIR on August 26, 2020, Purkayastha did not receive a copy until June 2021. The ED followed suit with its own enforcement case information report (ECIR) on September 2, 2020, shortly after the EOW’s report.
The core accusation from the investigating authorities was that the FDI received by NewsClick was intended for hidden agendas, thereby violating FDI regulations and causing financial harm to the state. The agencies alleged that NewsClick inflated its share prices to circumvent the 26% FDI limit for digital media, a restriction that was only implemented in September 2019, after the investment was made, a point the court acknowledged.
Although the EOW cited potential violations of the Foreign Exchange Management Act (FEMA), the Reserve Bank of India (RBI) had previously confirmed that the FDI complied with existing regulations. The EOW later retracted this acknowledgment in its reports. Justice Neena Bansal Krishna noted that the RBI’s initial correspondence, although mentioned in an unserved status report, was adequate to demonstrate that no violations occurred.
According to FEMA regulations, share transfers from Indian entities to foreign investors must occur at or above fair market value, determined by internationally recognized pricing methods. Justice Krishna emphasized that, given the absence of an FDI cap at the time of investment, there was no evidence of any illegality or manipulation regarding the share valuation of PPK NewsClick.
The allegations against NewsClick included claims of misappropriating over 45% of the FDI and incurring significant losses due to excessive consultancy fees, salaries, rent, and other operational costs. The court rejected these claims, stating that such expenses are typical in the operational context of a digital media company. Even if overpayments occurred, they did not constitute a criminal act, rendering the siphoning allegation untenable.
Another accusation suggested that WWMH was voided in June 2017, rendering the transaction fraudulent. NewsClick clarified that under Delaware law, a new entity could be incorporated under the same name after a company is voided, which was the case here as WWMH was established in November 2017, validating the transaction.
Justice Krishna pointed out that there was no evidence to support claims that WWMH was a nonexistent entity. The investigation did not yield any findings to suggest that WWMH had raised concerns about being defrauded.
The court highlighted that for a cheating offense to be established, there must be an aggrieved party who has suffered loss. In this instance, WWMH, which invested USD 1.5 million, did not lodge any complaints against Purkayastha. The only complaint came from an informant, Shoban Singh, who was not directly affected, leading the court to conclude that the cheating allegations were unfounded.
Furthermore, the court dismissed the charge of criminal breach of trust under IPC section 406, noting that no individual claimed to have entrusted property that was subsequently misappropriated by Purkayastha. The investment could not be classified as an entrustment or misappropriation.
The ED’s claims of money laundering rested on allegations of criminal conspiracy, which were linked to the EOW FIR. The agency asserted that a conspiracy was evident in the manner the amount of Rs 9.59 crore (USD 1.5 million) was introduced into India under the guise of digital media investment, allegedly orchestrated by Purkayastha along with Jason Pfetch.
