Indian activists shout slogans during a protest outside the U.S. consulate in Mumbai on Jan. 7. (Rajanish Kakade/AP)

The case of an Indian consular official accused of visa fraud appeared headed toward a new crisis Tuesday as her attorney and the Manhattan prosecutor handling the case filed dueling federal court petitions, each charging the other side with negotiating in bad faith to resolve the issue.

The arrest last month of Devyani Khobragade, 39, India’s deputy consul general in New York, on charges of submitting fraudulent U.S. visa documents for her Indian maid, has become a major crisis in U.S.-India relations and a source of contention within the Obama administration. India has demanded that the charges be dropped, while the State Department and federal prosecutors are at odds over the wisdom of the arrest and how it was conducted.

An easing of tensions appeared possible Monday night, when Khobragade agreed to waive for 30 days the government’s Jan. 13 deadline to indict her. Her attorney, Daniel N. Arshack, told the court that “significant communications . . . between the prosecution and the defense and amongst other government officials” could be undermined if the indictment threshold was crossed.

In a response filed later Monday, U.S. Attorney Preet Bharara appeared to reject that offer, saying that plea discussions “are simply not at a stage that merits” any delay in the schedule. “We have participated in hours of discussion in the hope of negotiating a plea that could be entered in Court before January 13,” he wrote. “Indeed, as recently as Saturday, January 5, the Government outlined reasonable parameters for a plea that could resolve the case, to which the defendant has not responded.”

“The timing under which the Government seeks an indictment is in the discretion of the Government,” Bharara wrote, “and the defendant cannot alter that.”

Read the complaint


The complaint against Devyani Khobragade, deputy consul at India's consulate in New York, describes the charges, which include visa fraud. Read it.

Read Khobrogade's note to colleagues

Read the U.S. attorney's statement on the case

Devyani Khobragade gives an interview to Eye on South Asia in which she talks about her career and Indian diplomacy.

In a Tuesday response, Arshack told the court he was “surprised and distressed” at Bharara’s public characterization of their discussions, which he said violated agreed secrecy ground rules. “We can only think that the violation of that agreement is a distressingly calculated one,” he wrote.

“As the court is well aware,” Arshack wrote, “the issuance of an indictment is a polarizing event and one which cannot easily be undone.”

State Department and Indian government efforts to resolve the case diplomatically would be made significantly more difficult once Khobragade is indicted, and she has clearly pinned her hopes on avoiding that step. A conviction could also hamper any future plans that Khobragade, whose husband is a U.S. citizen, may have to visit or reside in the United States.

The new controversy came as Indian authorities said they had unearthed cases of tax and other legal violations by U.S. Embassy staff members in New Delhi. The authorities warned that they are prepared to make public and act upon the information if Khobragade’s case is not resolved to India’s satisfaction.

Indian officials declined to characterize their plans as a threat. But “it could all come out in the open like a can of worms,” said one senior official who was not authorized to speak openly to the news media on the matter.

“What we have is a wide array of issues that are under the scanner. Each aspect will be proceeded on with due care, if we have to,” the official said. Among the alleged irregularities, the senior official mentioned the sale by U.S. diplomats of duty-free alcohol and other goods to those who are not legally entitled to them and the employment of diplomatic spouses without the necessary papers or tax filings.

On Friday, India asked the U.S. Embassy in New Delhi to stop screening movies at the American Center there unless the proper licenses and certificates from Indian censors are obtained.

India claims that Khobragade had diplomatic immunity. Reports of her strip search and brief incarceration inflamed Indian public opinion and led to demonstrations in which President Obama has been burned in effigy.

The State Department has tried to keep U.S.-India relations, already drifting apart following the heady days after a landmark 2008 civil nuclear agreement, from collapsing.

“The U.S. government endeavors to always be in compliance with local laws and regulations,” State Department spokeswoman Emily Horne said Monday in response to the Indian allegations. Indian diplomatic notes to the State Department “raise highly technical and complicated issues. . . . It’s also clear that there are differences of opinion about the privileges and immunities of our respective diplomatic and consular personnel.”

Although India believes it is within the Obama administration’s power to resolve the case, administration officials have repeatedly stressed that their hands are tied when it comes to legal matters.

“We’re the diplomatic part that focuses on the relationship and all the issues we work together on,” spokeswoman Marie Harf told reporters at a State Department briefing. “There is a separate judicial and legal process that is working its way through right now.”

But the Indian government has said that the relationship itself is at stake.

Ties between the two countries have “been severely undermined,” Indian Foreign Ministry spokesman Syed Akbaruddin said. “This matter has a huge divisive potential in our relations with the United States.”

Many State Department officials say the strip search and the lack of warning to the Indian government was beyond the bounds of normal diplomatic courtesy. U.S. diplomats do not say, however, that Khobragade’s consular status afforded immunity outside her consular duties or that the U.S. attorney did not have the right to detain and charge her with falsifying a visa document. She is accused of submitting a contract, required by U.S. law, falsely promising to pay the housekeeper, Sangeeta Richard, the minimum or prevailing hourly wage of $9.75.

According to the charges against her, Khobragade signed a separate, secret contract with Richard agreeing to pay her only a fraction of that amount and illegally forced her to work long hours without required benefits.

Richard ran away from Khobragade’s Manhattan home in June, sought refuge with the New York Indian community and eventually ended up with a victim assistance organization that brought her case to the attention of the U.S. attorney.

After Richard fled her home, Khobragade subsequently accused her of stealing items from the house and trying to extort support for a permanent U.S. visa. Indian government officials have provided copies of e-mail exchanges with the State Department indicating that the initial U.S. response to those charges — before Richard alleged abusive working conditions — was to cancel Richard’s visa and note that she had 30 days to leave the country.

Beyond the specifics of the case, India has presented the State Department with a document, dated Aug. 26, 2013, temporarily accrediting Khobragade to the Indian U.N. mission as an adviser through the end of December — a date that India argues would have afforded her full immunity at the time of her arrest.

Lakshmi reported from New Delhi.