Kerala High Court Stays ED Notices in KIIFB Masala Bond Case

Ernakulam: In a setback to the Enforcement Directorate (ED), the Kerala High Court on Tuesday stayed the notices issued to Chief Minister Pinarayi Vijayan, former finance minister Thomas Isaac and Kerala Infrastructure Investment Fund Board (KIIFB) CEO K.M. Abraham in connection with the issuance of Masala Bonds.

The ED had issued notices alleging that 466.92 crore from the funds raised through Masala Bonds in 2019 was used for land purchase, claiming this amounted to a violation of the Foreign Exchange Management Act (FEMA). The notices sought explanations from the recipients within a month. Challenging the action as illegal and arbitrary, KIIFB moved the High Court, alleging that the ED had relied on distorted and incorrect documents. The court admitted the petition and granted a stay on further proceedings.

KIIFB told the court that the Masala Bond proceeds were not used for real estate transactions but for development-related activities, including land acquisition for infrastructure projects. It said the bonds were issued with the approval of the Reserve Bank of India (RBI) and that any alleged violation, if at all, would fall under the RBI’s jurisdiction. KIIFB also stated that it submits regular reports to the RBI and that land acquisition for development purposes is permitted under existing regulations.

Refuting the ED’s claim that 466.92 crore was spent on land purchase, KIIFB said the figure was misleading and incorrect, adding that only 66 crore was actually spent on land acquisition. It further clarified that land acquisition for public infrastructure projects cannot be equated with commercial land purchase, as the two are governed by different legal frameworks. Acquired land, it pointed out, cannot be diverted for other purposes, and there was no land trading involved.

KIIFB argued that there was therefore no violation of FEMA and maintained that if any issue arose, it was for the RBI to examine. Despite this, the ED proceeded with the notices, which KIIFB said were legally untenable.

The High Court directed that the matter be taken up again in January and ordered that the ED should not initiate any further action until then.

The stay is being viewed as a blow to what KIIFB described as a targeted and systematic move by the ED against the institution. The Masala Bond-related notices were termed the latest attempt to undermine development projects being implemented in Kerala through KIIFB. In earlier instances as well, the High Court had quashed notices issued by the ED to former minister Thomas Isaac and others in related cases.