Kerala CM moves High Court against ED notice in Masala Bonds case

Kerala Chief Minister Pinarayi Vijayan and others, including former State finance minister Thomas Isaac, on Wednesday moved the Kerala High Court against the ED show cause notices to them regarding the usage of funds generated through the KIIFB Masala Bonds. Vijayan’s chief principal secretary and KIIFB CEO KM Abraham also moved the HC.

The Enforcement Directorate (ED) had, in November, issued the show cause notices in connection with the use of the Masala Bond funds by the Kerala Infrastructure Investment Fund Board (KIIFB) for the acquisition of land for infrastructure projects.

Besides seeking for quashing the notices, Vijayan, who is the KIIFB chairman, Abraham and Isaac, in their joint plea, sought an interim stay of the same. The same reliefs were earlier sought by KIIFB when it moved the High Court last week.

The High Court on Tuesday stayed any proceedings pursuant to the show cause notice for three months. The ED on Wednesday filed an appeal, through advocate Jaishankar V Nair, challenging the interim stay order by a single judge. In its appeal, the agency has contended that KIIFB’s petition was “premature and not maintainable”, as the Foreign Exchange Management Act (FEMA) provides a complete adjudicatory and appellate framework, and “objections regarding jurisdiction, factual disputes, or interpretation of RBI directions must be raised before the Adjudicating Authority”.

“However, on a total wrong appreciation of law and facts, an interim order was passed by the single judge,” the ED claimed in its plea. The single judge, while issuing the interim order, had observed that according to the RBI’s External Commercial Borrowings (ECB) framework, which came into effect from January 16, 2019, and governed the Masala Bonds issued by KIIFB, the definition of real estate activity does not include activities related to the infrastructure sector.

However, according to the central probe agency, the acquisition of land for infrastructure projects was a real estate activity and cannot be carried out using Masala Bond funds.

The ED had in November, issued a Rs 467-crore FEMA contravention show cause notice to Vijayan, Isaac, and Abraham in the KIIFB Masala Bond case. The notice pertains to the alleged contravention of FEMA provisions and the RBI master direction by KIIFB and its authorities, amounting to Rs 466.91 crore.

KIIFB is the primary agency of the state Government for financing large and critical infrastructure projects. It had raised Rs 2,150 crore in 2019 through its debut masala bond issue as part of its plan to mobilise Rs 50,000 crore to fund large and critical infrastructure projects in the State.