Crowdfunding in Limbo: Gujarat High Court Raises Concerns About Regulation

Ahmedabad : The Gujarat High Court has highlighted the potential pitfalls of crowdfunding in India, raising concerns about the lack of proper regulations for this increasingly popular fundraising method. The observation came during a hearing on a plea filed by Trinamool Congress (TMC) leader Saket Gokhale, challenging a criminal case registered against him in 2022 for alleged misuse of funds raised via crowdfunding.

According to Bar and Bench, Justice Hasmukh Suthar, presiding over the case (Saket Suhas Gokhale vs State of Gujarat), noted the novelty of crowdfunding in India and questioned the existence of any specific regulations or legal recognition for it. He observed that while some countries have implemented restrictions, India seems to be lagging behind.

The Court acknowledged the Securities and Exchange Board of India’s (SEBI) existing regulations for investment in startups and crowdfunding, but pointed out limitations. “SEBI’s regulations appear to be restricted to Non-Governmental Organizations (NGOs) and not individuals,” Justice Suthar remarked. “This lack of clarity could lead to chaos in the future,” he warned.

The case stems from a First Information Report (FIR) lodged against Gokhale by the Ahmedabad Police Cyber Cell in 2022. The FIR alleged misuse of around ₹ 1.07 crores raised through crowdfunding and cash transfers. Gokhale, who secured bail from the Supreme Court in April 2023, maintains he did not commit any fraud.

Gokhale’s lawyer, Somnath Vatsa, argued that his client ran three online campaigns seeking donations for his work, all of which concluded five months before the criminal case was filed.  “Donations are voluntary,” Vatsa emphasized, refuting claims of fraud.

However, the Special Public Prosecutor, Mitesh Amin, presented a contrasting viewpoint. He pointed out a discrepancy between the stated purpose of filing Right to Information (RTI) queries and the actual spending. “Only a meager ₹282 was spent on RTI queries from the collected ₹76 lakhs,” Amin argued.  He further highlighted Gokhale’s investment in shares, purchase of air tickets, and subsequent political affiliation, raising questions about the true purpose of the funds. Amin also mentioned a separate Prevention of Money Laundering Act (PMLA) case against Gokhale related to the same alleged misuse.

The defense countered that quashing the FIR would effectively render the PMLA case redundant. The prosecution disagreed, stating that Gokhale’s petition does not challenge the lower court’s refusal to discharge him.

The High Court will hear the case next on May 1st. This case highlights the urgent need for clear regulations governing crowdfunding in India. Without proper oversight, this innovative funding method risks becoming a breeding ground for misuse and financial irregularities. The outcome of this case may set a precedent for future crowdfunding practices in the country.