Lokayukta Justice Manmohan Sarin, in an order, held Panwar, who was mayor between 2002 and 2003 and a four-time councillor, guilty of allegedly allowing to help raising unauthorised construction in her Shahpur Jat ward in the erstwhile MCD and recommended to Khanna to censure her.
However, Khanna rejected the recommendation on the ground that there has not been any recording of demand for illegal gratification by Panwar for allowing unauthorised constructions.
The Lokayukta, insisting that there was sufficient evidence against Panwar, requested Khanna to reconsider his decision.
The Lokayukta had decided to initiate the probe in December last year after a news channel telecast a sting operation purportedly showing that money was demanded for allowing illegal construction.
Sarin had recommended to Khanna that a "censure be issued to the councillor for her misconduct."
Giving the modus-operandi of the councillor, Lokayukta in the order said, "The willing participation of the respondent (Panwar) also becomes evident from the fact that she was advising caution so that construction is raised at an opportune time."
In her defence, Panwar had said that it was a case of "entrapment and that the broadcast was defamatory". She said no money was accepted by her for any illegal activity and that she had an unblemished record as Mayor of Delhi between 2002 and 2003.