Synopsis: Kerala Chief Minister Pinarayi Vijayan and KIIFB officials have moved the Kerala High Court seeking to quash ED proceedings over alleged FEMA violations in the use of Masala Bond funds. They claim lack of jurisdiction, political malice timed with elections, and full RBI compliance, warning the action harms KIIFB’s credibility and welfare funding capacity.
Kerala Chief Minister Pinarayi Vijayan has moved the Kerala High Court seeking the quashing of a complaint and show cause notices issued by the ED concerning the utilisation of funds mobilised through Masala Bonds.
The petition has been jointly filed by the KIIFB Chairman, former Vice-Chairman and ex-Finance Minister Dr TM Thomas Isaac, and Chief Executive Officer KM Abraham, reported LiveLaw.
The petitioners have challenged the ED’s complaint and the accompanying show cause notices, which allege violations of the Foreign Exchange Management Act, 1999 (FEMA), as well as contraventions of the RBI’s Master Directions governing the use of Masala Bond proceeds.
They contest that the notices are marked by a “total lack of jurisdiction, gross non-application of mind, vitiated by malice in law and on facts, warranting interference” by the HC.
According to the plea, all projects financed through the Masala Bond proceeds fully comply with RBI circulars, and transactions relating to these projects are reported to the RBI on a monthly basis.
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‘Roving and fishing enquiry’
It further alleges that the ED, “apparently as part of a roving and fishing enquiry to find out if there were any statutory violations in the issuance of Masala Bonds by KIIFB, repeatedly issued summons to its officials on the even of the elections of the 15th Kerala Legislative Assembly,” as stated in the plea.
The petition recounts that following the issuance of repeated summons in 2021, KIIFB was compelled to move the High Court through writ petitions, resulting in an order restraining the ED from issuing further summons to KIIFB officials.
In 2023, this order was modified to clarify that the pendency of the writ petition would not preclude the issuance of fresh summons by the ED. That modification was challenged in a writ appeal and was subsequently set aside by a Division Bench. Thereafter, the writ petitions were disposed of after recording the ED’s submission that the summons had been withdrawn.
It is also stated that summons were once again issued to the KIIFB CEO on the eve of the parliamentary elections, prompting fresh challenges before the High Court, which remain pending.
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‘Summons issued in 2021’
The plea highlights that summons were issued in 2021 just ahead of the Legislative Assembly elections, again in 2024 in the run-up to the parliamentary elections, and now, show cause notices and the complaint have been issued on the eve of the general elections to local self-government institutions. On this basis, the petitioners argue that the ED’s actions are tainted by malafides.
The plea also asserts that the ED relied on incorrect Master Directions and circulars, and that KIIFB’s activities were entirely lawful.
It warns that “The probable adjudication proceedings have severe detrimental effects on ability of KIIFB to fund various welfare projects in the State of Kerala. The rate of interest that investors are willing to lend funds to KIIFB depends on its ratings. Currently, KIIFB’s bonds are rated at AA by Rating Agencies for the domestic market. The probable adjudication proceedings practically destroy the possibility of a rating upgrade for KIIFB. But more detrimental is the fact that it sullies the image of KIIFB and mars the due diligence done dy prospective investors. The probable adjudication proceedings will jeopardize the very objective of State Government to create an efficient and effective vehicle to invest the much-needed funds in the infrastructure sector in the State,” the plea further states.
Accordingly, the petitioners have sought a direction from the High Court to quash the ED’s complaint and show cause notices, along with a declaration that adjudication proceedings under FEMA are not maintainable in the present case. As interim relief, they have also sought a stay on all proceedings.
The matter is scheduled to be considered today by Justice VG Arun. Earlier this week, the High Court had granted an interim stay of the notice for a period of three months in a separate plea filed by KIIFB.
