The notice is understood to be based on findings that indicate violations of FEMA during the fundraising and subsequent transactions linked to the bonds.
Published Dec 01, 2025 | 9:55 AM ⚊ Updated Dec 01, 2025 | 2:24 PM
Pinarayi Vijayan. (X)
Synopsis: The Enforcement Directorate issued a show-cause notice to Chief Minister Pinarayi Vijayan, former finance minister Thomas Isaac and several others in connection with the KIIFB masala bond issue.
The Enforcement Directorate (ED) issued a show-cause notice to Chief Minister Pinarayi Vijayan, former finance minister Thomas Isaac and several others in connection with the Kerala Infrastructure Investment Fund Board (KIIFB) masala bond issue.
The notice is understood to be based on findings that indicate violations of the Foreign Exchange Management Act (FEMA) during the fundraising and subsequent transactions linked to the bonds.
The Adjudicating Authority in Delhi issued the notice based on a report submitted to the Adjudicating Authority in Chennai three months ago. The chief minister and others, as part of further proceedings, can respond directly, through a representative or through a lawyer.
If a violation of FEMA law is found, a fine, up to a maximum of 300 percent of the amount collected, can be imposed on KIIFB. However, KIIFB can legally question it.
The KIIFB, the state government’s key agency for financing long-term development projects, entered the international bond market in 2019 by raising ₹2,150 crore through masala bonds.
These rupee-denominated bonds were listed on the London Stock Exchange’s International Securities Market on 1 April 2019, making KIIFB the first sub-sovereign entity in India to access this route.
Controversy followed soon after, with Opposition parties questioning whether KIIFB had the authority to borrow from foreign markets without explicit clearance from the Central government.
Although the state consistently maintained that the process was lawful, the ED began examining whether the issuance complied with FEMA guidelines.
The show-cause notice is the latest step in the agency’s inquiry. According to sources, the ED believes procedural lapses occurred during the issuance and handling of the bonds, prompting it to seek explanations from the CM and others who were involved in the decisions surrounding KIIFB’s overseas borrowing.
KIIFB had been setting aside funds in an escrow account for several months to ensure smooth repayment when the masala bonds mature at the end of March 2023.
The agency’s repayment capacity is supported by two revenue streams: All petroleum cess receipts collected by the state and half of the motor vehicle tax. Both are channelled into a ring-fenced account meant solely for KIIFB’s debt servicing obligations.
According to Fitch Ratings, these allocations amounted to ₹2,470 crore in the financial year ending March 2024. Despite this stable inflow, concerns about the possibility of repayment delays or default had been raised earlier by the opposition, though KIIFB dismissed these apprehensions.
While major entities such as IRFC, Power Finance, REC and HDFC have used masala bonds to raise capital, KIIFB’s participation was notable because it represented a state-level body tapping the international bond market, a move that was widely seen as ambitious and unprecedented.
By 31 December 2023, KIIFB had disbursed ₹27,177 crore across a range of infrastructure projects in Kerala. Key disbursements include ₹13,988 crore for acquiring land for industrial parks across three major projects, ₹1,198 crore for works related to the Kochi–Bengaluru Industrial Corridor and Gift City, and ₹200.6 crore for taking over land from HNL.
Overall, KIIFB has approved 1,073 projects with a combined value of ₹82,426 crore, spanning industrial, transport, urban and social infrastructure.
Although KIIFB maintains that all necessary funds are secured for bond repayment, the ED’s notice has opened a new chapter in the controversy.
The state government is expected to respond to the alleged FEMA breaches, and the issue is likely to trigger further political debate in the coming days.
Meanwhile, Isaac criticised the ED for issuing show-cause notices to him, Vijayan, and KIIFB CEO KM Abraham. Isaac termed the move a BJP gimmick ahead of local body elections.
Speaking to the media, he said the ₹2,150 crore raised via masala bonds was used legally, noting that while RBI rules restricted land purchases with such funds, the restriction was not in force when the bonds were issued.
He added that only land acquisition for KIIFB projects was done, not illegal spending.
Isaac also revealed he challenged the ED probe in the high court after being asked in 2024 to submit KIIFB and personal bank documents, including those of family members. The court had barred the ED from summoning him during the Lok Sabha polls.
He accused the BJP of using the ED to create a political spectacle and claimed even UDF leaders had fallen for the tactic. Isaac predicted the party would face electoral setbacks as voters saw through these strategies.
Kerala Pradesh Congress Committee (KPCC) President Sunny Joseph dismissed the ED notice to Chief Minister Vijayan in the masala bond probe, calling it “a joke.”
Speaking to reporters in Kozhikode, Joseph alleged that the notice would meet the “same fate as previous attempts” by central agencies to corner the chief minister and his family.
He claimed that earlier cases, including those related to the gold smuggling incident and the SNC-Lavlin matter, had either been diluted or indefinitely delayed.
According to him, the ED’s actions were driven not by legal merit but by a “tacit understanding” between the BJP and the CPI(M) to help Vijayan ahead of the elections.
Echoing the KPCC chief’s stance, Congress Working Committee member Ramesh Chennithala said the Opposition would only welcome the probe if it were carried out with sincerity. He suggested that the notice was part of a political arrangement rather than a genuine attempt at investigation.
Leader of the Opposition in Kerala Assembly VD Satheesan alleged that the ED show-cause notice was a political move and the anti-money laundering agency had no intention of taking the investigation forward, just as it abandoned previous probes involving the LDF government, including the Karuvannur Cooperative Bank scam.
“Just watch — the BJP and CPI(M) will strike a deal on this case as well. During the Lok Sabha polls, the ED targeted Thomas Isaac. Now, with the local elections approaching, they have issued notices to the Chief Minister, Isaac, and the KIIFB CEO. This is merely a pressure tactic,” he remarked.
He reiterated that irregularities in the KIIFB masala bond issue were obvious and reminded the media that ED had earlier launched action against the Chief Minister’s son, Vivek Kiran, over money laundering allegations.
“A notice was served at the chief minister’s residence days ago. What has happened to that now? No one knows. This clearly shows that the ED has no real intention of taking the investigation forward,” Satheesan said.
(Edited by Muhammed Fazil with inputs from Sreelakshmi Soman.)
