Kerala High Court Flags Transparency Concerns Over KIIFB, Criticises Govt's Earlier Refusal Of CAG Audit

A Division Bench comprising Chief Justice Soumen Sen and Justice Syam Kumar V.M. made the observations while disposing of a public interest litigation.

“The earlier decision of the State Government not to entrust the audit to the C&AG is something which is more than a matter of concern, particularly having regard to the enormous discrepancies noticed in the preliminary report.” Court observed.

The PIL raised concerns that borrowings undertaken by KIIFB, backed by State Government guarantees, effectively amounted to off-budget borrowings and could circumvent the borrowing limits contemplated under Article 293(3) of the Constitution. It was also alleged that the exclusion of KIIFB and its subsidiary, KIFCON Private Limited, from comprehensive CAG oversight was contrary to the statutory framework governing public financial accountability.

The petitioner had sought a direction to the CAG to conduct a full statutory audit and certification of KIIFB's accounts, including its balance sheet, receipts, expenditure, borrowings, guarantees and off-budget liabilities.

In its affidavit before the Court, the CAG explained that KIIFB was already being audited by the Accountant General (Audit-II), Kerala, under Section 14 of the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971.

The CAG stated that audits had been conducted for the periods from January 1, 2016, to March 31, 2020, and from April 1, 2020, to March 31, 2024, with corresponding Inspection Reports issued.

However, the CAG clarified that an audit under Section 14 is confined to examining receipts and expenditure and does not necessarily provide for comprehensive auditing and certification of accounts. An entrustment under Sections 19(3), 20(1) or 20(2) of the Act would enable a more comprehensive audit, including certification of KIIFB's accounts.

The CAG had requested the Kerala Government to entrust such an audit under Section 20(2) through a communication dated March 15, 2018. The State Government, however, declined the request, referring to the Fund Trustee and Advisory Commission (FTAC), constituted under Section 6C of the Kerala Infrastructure Investment Fund (Amendment) Act, 2016, as an independent audit and monitoring mechanism accountable to the State Legislature.

The CAG subsequently reiterated its position through communications dated February 11, 2019, and October 24, 2019. Nevertheless, the comprehensive audit had not been entrusted to it under the relevant provisions.

The KIIFB in its additional counter affidavit had questioned the jurisdiction of CAG to conduct such an audit and relied upon a copy of a letter dated 18 NOvember, 2019. It was submitted that the letter makes it clear that the State Government has conveyed the decision not to entrust the audit to CAG under Section 20(2) of the CAG Act.

The Court took note that according to the CAG's affidavit, the outstanding loan balance of KIIFB as of March 31, 2024, stood at Rs. 20,041.52 crore.

The State Government had undertaken responsibility for the payment of principal and interest on loans raised by KIIFB under Section 9(1) of the Kerala Infrastructure Investment Fund (Amendment) Act, 2016.

In this backdrop, the Court observed:

"In view of the fact that KIIFB is funded by the Government and that the Government furnishes guarantees in respect of the borrowings made by KIIFB, it is imperative that transparency be maintained in its accounts and functioning."

The Court expressed dissatisfaction with KIIFB's response to the audit undertaken by the CAG. It observed that the State Government's earlier decision not to entrust the comprehensive audit to the CAG was a matter of serious concern, particularly in light of the enormous discrepancies noticed in the preliminary report.

The Court also considered the State Government's subsequent decision to undertake a comprehensive review of KIIFB's institutional, financial, governance and operational framework.

A Government Order dated July 13, 2026, had recommended a comprehensive restructuring plan aimed at strengthening KIIFB's long-term sustainability, improving governance standards and enhancing its capacity to support infrastructure development in the State. Experts had been appointed to formulate the restructuring plan.

“This subsequent decision of the State Government completely nullifies its earlier decision of denying C&AG audit.” Court noted.

The Advocate General informed the Court, on instructions, that the Government had accepted the Expert Committee's recommendation to have KIIFB's accounts audited by the CAG.

Taking note of this submission, the Court concluded that the petitioner's grievance had been substantially addressed.

Accordingly, the PIL was disposed of.

Counsel for Petitioner: Sherly Mol Thomas, Anitha Menon, Sreevalsan K.M, Anjaly Reji, P.K. Ramkumar

Counsel for Respondents: K. Jaju Babu (AG), R. Rema (Spl. GP to AG), S. Chandrasekharan Nair (SC- KIIFB), T.K. Sreekala SC - Indian Audit and Accounts Department), C.E. Unnikrishnan (Spl. GP), S. Jayant, Abhiremya Rah R B, Govind V.P, Abhilan B,