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Masala bonds case: ED notice to Vijayan, ex-min
ED issues show-cause notices to Kerala CM Pinarayi Vijayan, ex-finance minister TM Thomas Isaac, and KIIFB CEO over alleged FEMA violations in masala bonds.
The Directorate of Enforcement (ED) has issued show-cause notices to Kerala chief minister Pinarayi Vijayan and former state finance minister TM Thomas Isaac in connection with the case of alleged irregularities under the Foreign Exchange Management Act (FEMA) in the issuance of masala bonds by the State in 2019, an official familiar with the matter said.
Apart from the two leaders, KM Abraham, chief executive officer of Kerala Infrastructure Investment Fund Board (KIIFB), has also been issued a notice, added the official quoted above. The trio has been asked to explain, via a lawyer or chartered accountant, why adjudication proceedings should not start in the case against them.
The central agency has alleged that KIIFB, a government arm formed to raise funds for large infrastructure projects in the state, used ₹466.91 crore, part of the over ₹2000 crore it raised through the issue of rupee-denominated bonds or masala bonds, to purchase land — an action prohibited under FEMA and the RBI master direction dated June 1, 2018.
In 2019, under the LDF government, KIIFB raised ₹2150 crore to fund infrastructure projects in the state through the issue of masala bonds which were listed on the London and Singapore stock exchanges. In 2021, the ED told the Kerala high court that it is conducting an inquiry.
in order to find out whether proceeds from the masala bonds have been invested in real estate or other prohibited activities included in the negative list drawn up as part of the External Commercial Borrowing (ECB) framework of the RBI.
ED pointed to the Comptroller and Auditor General (C&AG) report that stated that raising of funds through issue of Masala Bonds is a ‘classic case of off-budget borrowings’ which bypasses limits set on borrowings under article 293 of constitution and violates the provision of entry 37 of list 1.
In response, Thomas Isaac, CPI(M) leader and former finance minister, rejected the allegations as baseless and termed the ED’s issue of notice as a ‘political stunt’ ahead of the local body elections scheduled next week.
“The charge against KIIFB is that it used a part of its funds to purchase land and that it is in contravention of the rules of masala bonds. However, KIIFB has only used a part of its funds to acquire land, not purchase land. Purchasing land and acquiring land are two different things. Moreover, the Reserve Bank of India has waived this condition of the masala bonds by the time the KIIFB funds were utilised. We will consult legal advice and submit a clear response,” the former minister wrote on Facebook.
“I have only one thing to say to ED — don’t threaten us. We don’t fear you. By playing politics, don’t devalue the name of the agency,” he added.
Leader of the opposition VD Satheesan said that corruption and serious irregularities have been committed by the LDF government through the issuance of masala bonds.
However, he added that the ED notice on the cusp of the local body polls was a ‘ploy to frighten the CPI(M) and it’s chief minister.’
“ED is not going to take any action against the CM. (the notice) is just meant to frighten him. Unlike other states, where the ED has gone behind opposition leaders and harassed them, here in Kerala, it’s only aim is to frighten the CM. Nothing more. In the past too, all such central agency probes have been settled,” said Satheesan.
