The Kerala high court on Monday stayed further issuance of summons to Kerala Infrastructure Investment Fund Board (KIIFB) and former finance minister Thomas Isaac for two months in connection with the Enforcement Directorate (ED) probe into alleged violations of the Foreign Exchange Maintenance Act (FEMA) while applying for masala bonds in 2019. However, the court observed that ED can go ahead with its ongoing probe.
The court also made the Reserve Bank of India (RBI) a party in the case and directed ED to issue a notice to it also.
A single bench of justice V G Arun observed that though the ongoing investigation can go head there is no justification for petitioners being summoned repeatedly. “The investigation is not liable to be interdicted, there is no justification for the petitioners being repeatedly summoned the by ED. So issuance of further summons to the petitioners shall be kept on hold for two months,” the court said.
The petition was posted for further hearing on November 15. The court also suo motu impleaded the Reserve Bank of India. Senior counsel Siddarth Dave appearing for Isaac contended that the central agency kept the petitioner in the dark about real nature of allegations and offences and sent summons after summons to discredit him. The counsel appearing for KIIFB said that ED’s protracted investigation into masala bonds affected infrastructure development plans in the state.
ED registered a case in 2021 alleging that funds for infrastructure development was diverted and it violated FEMA norms. It later served many notices to Isaac and KIIFB and both later approached the high court.
{{/usCountry}}ED registered a case in 2021 alleging that funds for infrastructure development was diverted and it violated FEMA norms. It later served many notices to Isaac and KIIFB and both later approached the high court.
{{/usCountry}}KIIFB raised ₹2,150 crore masala bonds in London Stock Exchange in 2019. Masala bonds are bonds issued outside India denominated in Indian rupees instead of the normally preferred US dollar. In 2021, the comptroller and auditor general of India (CAG) questioned the move, saying masala bonds caused a liability worth several crores of rupees to the exchequer.
But KIIFB said masala bonds were raised with the permission of RBI and ED has no jurisdiction to register a case against it. Both KIIFB and Isaac said frequent summons were issued with mala fide intensions and obstructed the ongoing infrastructural projects carried out by the state.
KIIFB is a special-purpose vehicle floated on the lines of a corporate body for infrastructural development of the state. All development works in major sectors like education, health care, roads and bridges, power and water supply are being carried out through KIIFB. It was floated basically to cut red tape, fix responsibility and ensure better quality in works.
After the 2018 floods ravaged the state, a fund-starved government decided to tap ‘masala bonds’, which are specialised debt instruments issued outside the country in Indian denomination. In 2019, KIIFB listed ‘masala bonds’ worth ₹2,150 crore with 9 per cent interest for five-year tenure in London Stock Exchange. KIIFB became the first sub-sovereign entity to tap this bond and the chief minister and a number of officials attended the bell ringing ceremony in the UK with much fanfare. Many economists also questioned the move saying when low interest rate was available KIIFB went for a higher rate of interest.