The Delhi High Court has quashed the first information report (FIR) registered by the Economic Offences Wing (EOW) of Delhi Police and the consequential money laundering proceedings initiated by the Enforcement Directorate (ED) against news portal NewsClick and its editor-in-chief Prabir Purkayastha in connection with allegations of foreign funding, terming the same a mala fide and arbitrary exercise of power that amounted to an abuse of the legal process and an attack on free and independent journalism.Foreign funding case: HC quashes FIR, ED case against NewsClick, founderA bench of justice Neena Bansal Krishna, in a May 29 verdict released on Wednesday, held that even if EOW’s allegations are accepted, no offence for cheating and criminal breach of trust is disclosed in the FIR, and the continuation of such an FIR is nothing but a “gross abuse of the process of law”.The court added that following the registration of the ED case, Purkayastha and several NewsClick employees cooperated with the investigation on multiple occasions in 2021. No summonses were issued to them between September 2021 and June 2022. Thus, the manner in which the probe was conducted appeared to be a “fishing and roving inquiry” into the news portal’s financial affairs in the absence of any disclosed offence.“Even if all the allegations are accepted, no offence under 406 or 420 IPC is disclosed in the FIR and in the subsequent investigations... The continuation of such FIR is nothing but a gross abuse of the process of law and is hereby quashed,” the court said.While quashing the ED case it said, “The petitioners have a constitutional right to a free and fair investigation and mala fide registration of impugned ECIR and mala fide investigation being conducted by ED hampers the investigations. Not only are the present proceedings only mala fide, but also an arbitrary attack and abuse of powers on the free and impartial journalism of the petitioners.”In August 2020, EOW had registered an FIR against the news portal for allegedly violating FDI norms under sections 406 (criminal breach of trust), 420 (cheating), and 120B (criminal conspiracy) of the IPC. It alleged that the company had received foreign direct investment of ₹9.59 crore from M/s Worldwide Media Holdings LLC USA during 2018-19 by overvaluing its shares, and had diverted 45% of this investment for payment of salary, consultancy, rent, and other expenses for ulterior motives.A month later, ED registered a money laundering case based on the EOW’s FIR, alleging overvaluation of shares, diversion and misuse of funds, siphoning of funds received from foreign companies, and violation of RBI rules.The agency and its editor in chief then approached the Delhi high court in 2021 to quash the EOW and the ED case.NewsClick’s lawyers had asserted that the FIR was replete with allegations without any justification and the statements had been made merely to sensationalise the issue, which caused prejudice. It was further contended that the allegations concerning the FDI were untenable as they neither disclosed a cognisable offence and no FIR could have been registered.EOW, represented by additional standing counsel Rahul Tyagi, argued that the FIR was based on specific allegations of illegal diversion and misappropriation of funds by the news portal, resulting in a loss to the government exchequer. He contended that FDI received by the company was allegedly routed for ulterior and clandestine purposes, the news portal violated FDI norms and other applicable laws, overvalued its shares to circumvent FDI regulations, and diverted foreign investment funds towards the payment of salaries and consultancy fees, thereby justifying the registration of the FIR.ED, represented by additional solicitor general SV Raju, also opposed the petition, contending that the facts of the case disclosed the offence of criminal conspiracy. The agency alleged that ₹9.59 crore was brought into India under the guise of investment in digital media through the automatic route, while the underlying objective was unlawful.In its judgment, the court rejected EOW’s allegations that the company had overvalued its shares to circumvent FDI restrictions. It noted that, according to the Centre’s response dated January 5, 2018, there was no cap or restriction on FDI in the digital media sector at the relevant time and FEMA regulations require shares transferred by an Indian entity to a foreign investor to be issued at a price not lower than their fair value, determined according to internationally accepted valuation methodologies. Noting this, the court found no evidence of illegality, manipulation, or irregularity in the valuation of the shares of the news portal. “The valuation was done through the established method … which was the accepted international standard including by the ministry of finance. All the relevant factors were duly examined,” it said.The court also shot down the EOW’s allegations that the news portal was siphoning FDI for payment of salary and consultation fees. “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 … then too it does not disclose any criminal offence,” it held.