The basic charge, on the basis of which the CBI has registered an FIR or police complaint, is that her organisation Sabrang Communication had received Rs 1.5 crore from the Ford Foundation without legal clearance.
But the CBI's FIR, accessed by NDTV, accuses Ms Setalvad's organisation of not just violating foreign exchange laws, but also threatening national security.
It says Sabrang's activities constitute an 'interference towards the internal security of India'' and "prejudicially affect(ing).. harmony between communities"
At the same time, the FIR appears to contradict itself, saying the organisation's activities were to: "Organise public meetings for peace", "Educate lawyers on misuse of criminal law", "create strong civil society voices... to engender peace" and "media advocacy on sensitive reporting on communities".
It is unclear how such activities could be construed as a threat to national security or as an attempt to spark communal tension.
In reply to queries from NDTV, the CBI said that these are allegations which have to be proved. It said the content of the FIR was based on the complaint it received from the Home Ministry.
The CBI spokesperson said the "The MHA had conducted a detailed enquiry, which formed the basis of the complaint. CBI is legally bound to investigate all aspects of the case. The submissions of the accused persons will be looked into during the investigation, as per due process of law."
The CBI, in its application arguing against the grant of bail to Ms Setalvad, expands on the same theme, saying that her organisation is involved in a "deep seated conspiracy" for which the agency needs to carry out "sustained custodial interrogation" in 'isolation".
The activist's lawyers have pointed out that such demands are normally made in cases where the charges are of terrorism, not financial impropriety.
Several human rights groups, political parties and lawyers have criticised the government for its heavy-handed action against Ms Setalvad, which they say suggests the setting of political scores. The activist has been involved for years in fighting the cases of the victims of the 2002 riots in Gujarat.
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